The most important fact about the fall of Enron hardly has been noted in the media: The disintegration of such a large company that so dominated its markets should bring bedlam to its suppliers and customers. Yet power and gas prices remain low and stable. They continue to be driven by supply and demand, both where Enron traded and where it did not.
Paradoxically, the competitive markets Enron played so large a role in building have minimized the impact of its demise on prices. So the media focused instead on the Enron debacle's "drama" and there is drama aplenty, starring a company that Fortune named the most innovative in America six years running, one constantly inventing ways to trade commodities and risk that changed every major U.S. industry. Around that stage are thousands of displaced employees with worthless retirement assets. And no playwright could have invented CEO Kenneth Lay, who transformed a workaday pipeline into a digital, distance-less company that might have dominated this century. Now Lay is in disgrace and his company is in history's largest bankruptcy.
Oh, there's drama. But the question is: So what? The real story is in the prop wash of Enron's legacy.
Markets give choice and flexibility to people who would otherwise have little of either. Competition allows buyers to declare their independence from any one seller, and allows sellers to vie for the business of buyers. As gas and power markets grew, the only barriers to new competitors were those of ingenuity. Could competitors figure out how to beat Enron (and one another) by buying higher, selling lower, absorbing risk better or designing more attractive transactions? Apparently, a number of them did. Where there is such competition, the grief over a vanquished supplier is localized, even if it's the size of an Enron.
As the company went into free fall, reporters filed stories about how its plight might disrupt the nation's energy supplies at a critical time. They were wrong: Buyers, sellers, utilities and local governments had no problems finding replacements at about the same prices as Enron's. Instead of spawning a national blackout, Enron's departure was more like a minor outage. The only mad scramble in Enron's wake is by competitors for its market share.
There will be lots of questions about Enron's accounting practices, its executives' behavior, the treatment of its employees, its political influence. Some answers will not reflect well on the firm, but some of the questioners will be no more than competitive losers who want the world the way it was prior to Enron's ascendancy.
The "good old days" are not coming back, and that's good news for consumers. Most of us are pretty far removed from the wholesale electricity markets, but thanks to those markets our power is cheaper and more reliable. In most states, ordinary businesses and households still cannot access these markets for themselves, but change is coming. Enron constantly pushed state legislators and regulators to give people more choices. Consumer electricity is the last of the great monopolies, and the pressure to reform it will not end with Enron's passing.
At the opposite end, look at California, which just gave itself a heavy dose of the "good old days." Its government responded to last year's power crisis by locking into 20-year contracts (none was with Enron). Some prices are as much as 300% above market levels, but as part of its "reform," California also repealed the right of customers to choose suppliers. This is not just a matter for big, industrial consumers; Californians who were willing to pay a premium for environmentally clean power no longer have that option.
Both Enron and California met their fates by their own hands, surrounded by still-thriving markets. In Enron's case, the tragedy is that it invented so much of what makes those markets function well in the wake of its own collapse.
|Robert J. Michaels is a research fellow at the Independent Institute in Oakland, California and professor of economics at California State University-Fullerton. He has provided expert testimony for independent power producers and power marketers.|