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Enron Essay

1076 words - 5 pages

What is Enron?

Until its decline into bankruptcy in 2001, Enron was the United States’ seventh-largest corporation. Enron grew from a natural gas pipeline company into a trading and marketing giant, moving first into the business of acting as a broker between energy suppliers and buyers, then expanding its role as a broker of non-energy transactions, and later adding a variety of diverse investments to its portfolio. Enron was a leading advocate of restructuring energy markets in the United States and the largest player in the energy trading business.

What led to Enron’s collapse?

The company’s most recent troubles can be traced to revelations in October 2001 of massive amounts ...view middle of the document...

Financial analysts, economists and regulators agree that Enron’s fall was the result of investors and financiers pulling back after they lost confidence in the company’s financial disclosures and debt levels –- not because of problems in competitive energy markets.

U.S. Secretary of Energy Spencer Abraham is among those making this point. “In the face of Enron’s collapse, the largest bankruptcy in U.S. history, there were no price spikes, no trading panics, no electricity outages and no gas shortages,” Abraham said. “… there is no indication that the energy side of Enron’s business was the cause of its collapse.”

Were electricity consumers harmed by Enron’s collapse?

No. In the days and weeks following Enron’s fall, there were no price spikes in electricity markets and the power continued to flow. Although Enron had been a dominant player in the energy trading business, competition has evolved to support a large number of vibrant companies. These companies quickly and effectively picked up the slack created by Enron’s sudden departure. In the days and weeks following Enron’s bankruptcy, power supplies remained constant, trading and marketing continued without disruption and prices remained stable.

How did energy markets respond to Enron’s bankruptcy?

Energy marketing and trading continued without interruption in Enron’s wake. Ironically, the competition that Enron helped establish ensured that the company’s departure did not become a crisis in terms of energy supply – as trades were picked up by other companies, energy supplies were undisturbed, power flowed from generators to utilities to consumers, and prices remained stable.

Did Enron’s bankruptcy harm the electricity industry?

On Wall Street, the Enron collapse was cited by some analysts as being responsible for a substantial decline in stock prices for a number of electricity marketers, traders and suppliers.

Some credit agencies – criticized by some as slow to act as the Enron saga unfolded – adopted a tougher stance with regard to energy firms’ balance sheets. Responding to new expectations and temporary downgrades from credit agencies, a number of energy companies adjusted their holdings to enhance their cash positions and lower their debt/equity ratios. This, along with adequate reserve capacity currently in many regions of the country, has resulted in the suspension of some announced generation projects under development and projected to come on line in the middle of the decade.

Does Enron’s fall mean the end of energy...

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