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US regulator to probe Enron; urges deregulation

Federal energy regulators launched a probe on Wednesday into whether Enron Corp and its subsidiaries inflated power prices during California's energy crisis last year, but said the energy trader's collapse was no reason to slow national electricity deregulation.

Federal Energy Regulatory Commission chairman Pat Wood, named by President George W Bush at the urging of former Enron chairman Kenneth Lay, ordered the investigation amid pressure from West Coast Democrats.

Enron, which collapsed in December in the nation's biggest-ever corporate bankruptcy, has denied any wrongdoing.

In what Wood called a "fact-finding" measure, FERC said it would probe whether Enron or others "manipulated short-term prices for electric energy or natural gas, or otherwise exercised undue influence over wholesale electric prices" that lead to "unjust and unreasonable" rates in America's most populous state.

FERC's general counsel would have subpoena power to compel testimony from Enron executives and employees, if necessary, Wood told reporters after a FERC meeting, adding the commission would prepare a report on its findings for Congress this summer.

Other federal investigators have launched numerous probes into Enron's complex off-balance-sheet transactions, its relationship with accounting firm Andersen and potential securities fraud.

Wood, a Texas Republican, told a congressional panel on Wednesday that Enron's failure should not kill legislation to deregulate the $220 billion US electricity market.

"Did energy markets and the growing trend toward competition cause or contribute to Enron's collapse? No," Wood told a hearing on Enron's impact on energy markets.

The head of the Commodity Futures Trading Commission also argued against more regulation, telling the panel Enron's bankruptcy had little impact on US energy futures markets and saying Congress should not rush to impose new trading rules.

Houston-based Enron, once America's seventh-biggest company, collapsed last year amid allegations it misled investors about its finances while top executives sold shares for huge profits and thousands of employees lost their jobs and retirement savings.

Meanwhile, the House of Representatives Financial Services Committee canceled a hearing set for Thursday at which former Enron chairman Kenneth Lay had been subpoenaed to appear. Lay was expected to refuse to answer questions, exercising his right not to incriminate himself.

Also on Wednesday, US accounting rulemakers proposed stricter rules on how companies can keep complex financing arrangements off their books as the accounting industry seeks to prevent future Enron-like debacles.

And a Democratic senator released a memo that said former Fed chairman Paul Volcker had called Lay last year to solicit a $500,000 contribution for an international accounting standards board. Andersen hired Volcker this month to review its policies and procedures after criticism of its auditing of Enron's books.

It was not clear whether Enron made the contribution. But Sen Carl Levin of Michigan said the memo showed Enron was trying "to buy influence over accounting standards." He noted he was not criticising Volcker for soliciting the funds, which was part of his job as chairman of the trustees of the International Accounting Standards Committee Foundation, a London-based independent body that sets global accounting standards.

FERC PROBE TO INVOLVE OTHER AGENCIES

Wood, announcing the FERC probe of possible price gouging in California, said the commission would work with the Securities and Exchange Commission, the CFTC and the Justice Department.

Democratic Sens. Barbara Boxer of California and Maria Cantwell of Washington demanded last month that the FERC examine Enron's role during California's power crisis last year. Enron was among a half-dozen companies supplying wholesale power to the state's utilities at a time when prices skyrocketed, triggering blackouts and the bankruptcy of the state's largest utility.

"We want to understand the whole story and it's going to take a bigger effort than we have already done," Wood added.

Wood has been criticized by some lawmakers for being too close to Enron. Democrats have also questioned Bush's ties to Enron, his top political contributor since his days as Texas governor.

DEREGULATION PUSH URGED

Urging no slowdown in energy deregulation, Wood urged the House of Representatives Energy and Commerce subcommittee to push ahead with a bill to repeal a Depression-era law designed to curb utility monopoly abuses.

Republicans on the subcommittee agreed.

Rep Joe Barton of Texas said the unraveling of Enron's complex financial transactions in recent weeks had no impact on US supplies of power and natural gas.

CFTC chairman James Newsome, advising the subcommittee not to impose new trading regulations, said Enron's positions in the US futures market were closed out smoothly after the company sought bankruptcy protection.

"There were no disruptions to the system of clearance and settlement. Enron met all its obligations," Newsome said in testimony prepared for the hearing. "No customer lost any funds entrusted to any futures commissions merchants."

He added, "I believe that regulators should make sure that the true problem has been identified before remedies are pursued."

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