Date: Mon, 10 Dec 2001 10:43:26 +1000
Subject: Zapped by its own Greed



COMMENTARY
Enron Gets Zapped by Its Own Greed

By DOUG HELLER, Doug Heller is a consumer advocate with the Santa
Monica-based Foundation for Taxpayer and Consumer Rights. Web site:
www.consumerwatchdog.org


When the stock of energy giant Enron fell to 36 cents per share this week
from a high of $84 this year, the market finally accepted the reality that
the company--a middleman whose main business was not producing or delivering
power but trading it--was never really needed. Investors, who unlike Enron
executives, didn't sell until too late lost their retirement savings and
children's college tuition to the illusion.

Enron workers sacrificed their retirement plans, which were locked up in
Enron stock that was frozen by Enron executives after they sold off their
own shares.

California ratepayers will pay billions too much for power over the next
decades to foot the bill for price gouging by Enron and its proteges. The
task for both society and the market now is to prevent such mirages in the
future.

The illusion that Enron had value was created through both politics and
philosophy.

The company's chairman, Kenneth Lay, was one of President Bush's biggest
donors and was an energy advisor to Vice President Dick Cheney. Lay was even
rumored to be on the president's short list for Treasury secretary.

Lay's power over the Bush administration was so great that he has been
credited with forcing the nation's chief energy regulator out of his job
because the regulator disagreed with him.

Enron created itself through a growing corporate vision: If you want market
share, create a market, even if there is no need for it. Lay turned a stodgy
gas pipeline company into a tech-savvy energy trader.

The "make a market" mantra, in conjunction with his long-standing ties to
political leaders, shifted the nation's energy system from regulated
monopolies to a deregulated, wholesale market-based system with few rules
and even fewer entities with the technical capacity to make sense of it.

For Enron and Lay, a market was a tool for profitability, not productivity.
Rather than add efficiency to the energy delivery system, Enron simply added
layers of expense.

The new energy market, with Enron at its vanguard, became a free-for-all of
energy companies selling electricity back and forth like pork bellies while
siphoning off the excess with each trade.

Its apparent success made Enron a shining star on Wall Street. Chairman Lay
took in $141.6 million in salary, bonuses and stock in 2000. He cashed out
another $20 million earlier this year. Former chief executive Jeffrey
Skilling took home $70 million in 2000.

Meanwhile, what did Enron accomplish?

If a competitive market was supposed to drive prices lower, why were
Californians paying so much more for their power?

Why were there blackouts?

Indeed, Enron's stock was so high due to investors' belief that the company
would continue to price gouge in California and, as their deregulation model
took hold, throughout the country.

Greed, cloaked in the promise of a competitive market, created and drove the
deregulated energy system. So it should come as no surprise that Enron would
try turning the free money skimmed from ratepayers into more free money by
creating new markets.

But through foolish investments and poor management decisions, their money
began to evaporate.

Without oversight, Enron managed to conceal massive mistakes. It played
accounting games to hide problems and shifted money from book to book to
maintain the illusion of success.

Why would Enron come clean about partnerships that were unprofitable, if no
regulators were there to make it do so?

Like Icarus, the company flew too high and came crashing down. Only the
small investors and pension fund mangers who bet on the company were burned,
while insiders parachuted out into the sunset with all the proceeds.

The moral for society should not only be that markets need rules and limits,
but also that some things don't need markets at all.

Enron took over a system that reliably moved a public
good--electricity--from power plant to home. It used deregulation to make
money out of nothing, simply by adding cost to the product en route.

Federal regulators should ensure that if Lay or other Enron executives
deceived the public, they pay a price.

Courts should return to workers and shareholders as much of their losses as
possible.

The energy system must reinstate rules.

Most important, society must recognize that when such great value is pinned
on illusions, itwill also have a great cost.

For information about reprinting this article, go to http://www.lats.com


--