Enron's woes ripple from Fed to wellheads

Even by Texas standards, Enron had a full tank of hubris.

It was one of the world's largest energy traders. The Astros played in Enron Stadium. Construction workers were putting the finishing touches on a glass and steel skyscraper - its second - and its CEO routinely ate dinner at the White House to talk about the nation's energy policy.

Now, it seems like a Greek tragedy.

The company is on the verge of bankruptcy - the biggest in the nation's history if it happens - and the company's collapse could have wide ripple effects:

• It will likely spur Congress to look more closely at the complex and fast-evolving world of energy trading - a business Enron pioneered. This lightly regulated market has an impact on everything from the price of electricity in California to how much natural gas will cost this winter.

• It could, tangentially, impact the market for electricity and natural gas in countries ranging from Britain to Brazil, because of Enron's web of international arrangements. Since many of these deals involve long term contracts, it will take a lot of deft maneuvering to unravel them without upsetting world prices.

• Banks and other financial firms - already facing a weak economy - will have to write off portions of some $13 billion in debt owed by Enron. This could even incline the Federal Reserve to lower interest rates once more when it meets early next month.

But Enron's collapse won't have any immediate impact on consumers. The price of natural gas has remained stable throughout Enron's financial fall.

Moreover, energy analysts don't expect to see any problems with electricity prices, even though Enron represented about 14 percent of power trading.

"With the economy slowed down so much, there is no shortage of electricity," says Adam Sieminski, an analyst with Deutsche Banc Alex. Brown in Baltimore.

In fact, there are other factors that will help keep prices of energy low, says Tom Robinson of Cambridge Energy Research Associates. "The thing to remember is that a lot of other things are going on that will help the consumer: a mild winter, surging storage inventories, and the recession, which has reduced demand. Consumers are going to be better off than last year."

Shareholders, workers lose

The main losers in Enron's implosion are likely to be its own shareholders, who have watched the stock price free-fall from $80 in January to 61 cents a share on Wednesday. The company is likely to be involved in shareholder lawsuits for years.

Things unraveled so quickly that most Enron employees could only sit and watch the stock prices fall on their computer screens. Many packed up their belongings during the day and left the building, preferring to brave a stinging rain instead of the stinging market.

Any lawsuits will likely center around investment partnerships the company entered into. The partnerships surprised financial analysts who followed the company, and the stock prices dropped quickly.

Rival Houston energy company Dynegy had agreed to a buyout of Enron, but even that died Wednesday as the company's credit rating was cut to junk status by Standard & Poor's. This rating cut could trigger provisions in its debt agreement requiring the company to immediately pay back its loans, something analysts say it may be unable to do.

California's crisis

Until fairly recently, Enron was mainly known as a provider of natural gas through its pipeline system.

But under aggressive management, it started to trade energy futures - and make a lot of money. Last year, when the state of California was suffering blackouts, the company came under fire for allegedly profiting from the state's problems. As an out-of-state provider of electricity, it could raise prices as much as the market could bear.

The company has also made waves overseas.

It is building a $3 billion power plant in India. But the plant was controversial, and it remains unclear what will happen to this project.

In some ways, the collapse of Enron says something about business hubris.

Last December, Enron's former CEO, Jeff Skilling, said in a speech that the Enron model was the next wave of the future. Companies such as Exxon-Mobil would have to spin off their assets - oil wells, refineries, gas stations - to compete against smaller, more-nimble energy traders such as Enron.

"Ford once owned its own workforce, rubber plantations, and made its own steel," he said. "Then Toyota came along. We consider ourselves the Toyota of the industry."

Maybe he had his car companies wrong.

"Looks like it was more like the Yugo," says Mr. Sieminski.

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