The Federal Energy Regulatory Commission’s investigation into the possible manipulation of energy prices is a critical first step toward wiping away some of the taint that blankets the entire energy industry in the wake of the Enron Corp. financial scandal and the energy deregulation flop in California, said Commissioner Nora Mead Brownell last week.

“The reality is the environment has been poisoned by California and sadly poisoned again by [the] catastrophic failure of Enron. And everyone who is in the energy business is tainted by that,” she said in a speech to the Natural Gas Roundtable in Washington, DC last Thursday. “Innocent companies are being punished” as a result, she noted, adding that it was important for companies and regulators to work in unison to clear up the misconceptions.

“So it’s our [FERC’s] goal to get the facts on the table once and for all. While it does create a burden…I think we are all well served” by the probe, Brownell noted. “…We need one comprehensive, complete investigation where we can come to conclusions and bring this chapter of…history to closure.”

Responding to increasing pressure from Capitol Hill, the Commission earlier this month launched its investigation into charges that Enron and other energy marketers manipulated natural gas and electricity prices on the West Coast. The inquiry, which Brownell called “very broad” and “very conclusive,” will look at energy prices dating back to Jan. 1, 2000. Chairman Pat Wood indicated that he hopes to submit the results of the probe to Congress by summer.

In the meantime, Wood is taking some heat from lawmakers for his ties to former Enron Chairman Kenneth Lay. His Commission colleagues offered a “spontaneous” show of support for their chairman at the last regular FERC meeting, which Brownell said was meant to correct some of the “misperceptions and statements made that are unsubstantiated by fact” about Wood’s professional integrity. Wood, as well as Brownell, repeatedly have denied that Lay wielded significant influence over their appointments to the Commission last year.

Brownell also defended FERC’s new practice of holding closed meetings, saying they are intended to give the agency a “better understanding of market dynamics, of trends, of issues” following the Enron debacle. The Commission initiated them after “some conversations with the CFTC [Commodity Futures Trading Commission] and other agencies.”

“Closed meetings aren’t only to deal with potential bad guys. They’re really to have some discussions with experts who are following trend analyses in all our markets. And that I think will have a very positive outcome along with our new restructured market monitoring,” she noted.

“Market monitoring isn’t just about finding bad guys and taking them to the square and hanging them publicly so that everybody gets the message,” Brownell told energy executives and policymakers. “…We [FERC] need to understand what might be around the corner, so never again do we have another California, never again do we have an ongoing series of accusations that no one can…disprove because we did not have the tools in [place],” she said. Although “it is more burdensome than we would like,” FERC is “going to be asking for possibly more information” from companies in the industry.

Even in the post-Enron environment, Brownell said she thinks the market transactions of the majority of energy companies are above board, if only because it makes good business sense. “I actually believe that companies understand the importance of their brand, and [that] the damage to their brand is far greater than the returns that they would get for manipulating” the market.

In a related development, “we’re also working on the affiliate NOPR. We heard you. We heard that you were not happy,” said Brownell, adding that the Commission currently is “working through” the industry comments and will probably have a conference in the “very near future.”

Brownell believes one of the more difficult issues facing the natural gas industry and the Commission will be price volatility. “We would argue…that volatility is a good thing. That it sends the right price signals to the market to build infrastructure to bring new products to market, to be more responsive,” she said. However, “the reality is that the end-use customer and their local legislators and local commissioners cannot tolerate it.” She recalled that she “was booed off the stage in central Pennsylvania a couple of years ago” when she attempted to explain the “economics of gas” to the crowd.

“I don’t want to interfere in the realities of the marketplace, but I think we need to educate the public” and policymakers on the “use of appropriate financial instruments in order to cut out that volatility for the end-use customer,” Brownell noted, adding this will be no small feat after Enron. “It’s an ongoing challenge particularly after the confusion…engendered about what did or [did] not go on in the Enron situation, to make sure that we’re allowing companies to use all the tools they can to deal with that volatility.”

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