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THE ENRON INQUIRY

Enron Refuels Energy Debate

Politics: The power industry moves to fight growing skepticism of deregulation after the collapse of its most vocal proponent and the crisis in California last year.

January 22, 2002|EDMUND SANDERS and RICHARD SIMON | TIMES STAFF WRITERS

WASHINGTON — The nation's energy industry is mobilizing in the aftermath of Enron Corp.'s collapse against attempts to slow down or reverse deregulation of power markets, setting the stage for the biggest debate over the issue since the California energy crisis last year.

Electricity suppliers and other energy players are talking with James J. Hoecker, former chairman of the Federal Energy Regulatory Commission and now a Washington lobbyist, about creating a coalition of deregulation proponents that will lobby Congress, testify at forthcoming hearings, file comments on proposed rules and, if necessary, take legal action to block efforts to re-regulate the industry.

"Our concern is that some people are now saying that Enron could not have amassed such an inflated stock value and done the things that it did if not for the fact that energy markets have become much freer in the last three years," said Hoecker, insisting that Enron's bankruptcy filing Dec. 2 instead appears to have been caused by accounting practices unrelated to energy deregulation.

The national debate over energy deregulation was largely overshadowed by the Sept. 11 terrorist strikes. But Enron's collapse has reignited the issue, with critics of deregulation saying energy is too vital to the public good to be left to volatile markets. Some lawmakers are advocating a go-slow approach on further deregulation of energy markets.

"There is a lot more skepticism about deregulation now," said Howard A. Learner, executive director at the Environmental Law & Policy Center, a Chicago-based advocacy organization that favors a hybrid model of competition and government oversight.

Hoecker, who has been criticized by California leaders for not doing more to help the state during last year's energy crisis, said he expected a decision about the new coalition to be made shortly, but declined to identify specific participants.

Some companies, such as Dynegy Inc., already have deployed their lobbying forces.

One factor propelling the lobbying push was FERC's Jan. 15 announcement that it was moving quickly to hire a director for the newly created Office of Market Oversight and Investigations, which will be responsible for overseeing and auditing the nation's energy markets.

FERC Chairman Patrick H. Wood III floated the new office last fall, but industry leaders fear that FERC may try to give the office sweeping new powers in light of the Enron debacle.

Wood, a former Texas utility regulator appointed by President Bush, declined to be interviewed.

FERC Commissioner Nora M. Brownell, another Bush appointee who favors deregulation and competitive markets, said the industry need not worry about punitive responses from FERC's new oversight division. She said the California energy crisis, in which some suppliers were accused of creating electricity shortages to inflate prices, highlighted the need for a greater federal role.

"To make the markets work, you have to have a market oversight function that people believe in," Brownell said. "Before, there wasn't a place people could go. When the industry understands that this is going to be fair, they'll calm down."

Enron Leaves Lobbying Void

Houston-based Enron had been the most vocal supporter of deregulation, but its tumble into Bankruptcy Court has forced other industry players to step up to the plate to fill the lobbying void.

"Enron was the 800-pound gorilla for deregulation," Learner said. "With Enron out of the picture, now everyone else in the industry can't piggyback on its political and financial juices."

Enron grew from a small natural-gas pipeline operator into the world's largest energy-trading operation. At its peak, it handled one in four wholesale deals for electricity, gas and other energy products.

Because Enron helped keep energy trading exempt from oversight by FERC and the Commodity Futures Trading Commission, deregulation supporters are bracing for an effort to bring the energy markets--and particularly online trading--under more government supervision.

Energy companies also fear that an Enron-related backlash might cause some states to rethink their deregulation plans or prompt new federal regulations that would limit how much they can charge and what their access to different markets might be.

California, for one, has taken a big step back from deregulation.

To stabilize prices, the state purchased more than $10 billion of power for utility customers in the last year and won't be out of the power-buying business until at least 2003.

What's more, the Legislature created a public power agency that is authorized to build more power plants if private industry fails to come through with adequate supplies.

With these and other factors causing uncertainty, California politicians are debating whether the solution lies in more or less government regulation.

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