Enron Fallout Hits Energy Firms, Stocks

The taint of scandal surrounding Enron's collapse has made the public's trust in the economy even worse.

Among those caught up in the ever-widening ripples of the Enron effect — other power companies, which are desperately trying to convince investors that they don't do business the way Enron did.

"We were outraged by the linkage with us with Enron. You couldn't have more dramatic differences," said Jim Macias, the senior vice president of Calpine, which is among those companies whose bond rating has been lowered to junk bond status, in part because of a drop in energy profits, but also because of financial jitters related to the Enron scandal.

To reduce their debt and improve their rating, many companies are now halting construction of energy plants.

"We had a bunch of construction workers, and now they're leaving," said Mark Sigfrinious, the mayor of Goldendale, Wash. "It's going to hurt."

Just a year ago, Western states were calling for more plants to help end their energy crisis. Now, Calpine alone has deferred construction of 34 new plants.

"What we can look for in a few years, again, is electricity shortages," said Peter Navarro, a business professor at the University of California. "This is a critical matter, not just for California and the West, but for parts of New England and other parts of this country which depend on electricity and aren't getting it."

Investors Not Certain What to Trust

Accounting firms are also feeling the Enron effect. They are trying to convince customers that they don't do business like Arthur Andersen, the firm that failed to blow the whistle on Enron's troubles.

But the credibility damage may already be done. Many investors are shying away from the stock market because they don't know what to believe.

"The investor is scared," explained Carol Coates of Prudential Securities. "They're not trusting the accounting information they're getting in the audited statements. They're not sure to trust what management is telling them. This has cast a huge doubt on management credibility."

Those people who did invest in Enron are also feeling the impact, including teachers and public employees from New York to Alaska, whose pension and retirement funds lost tens of millions of dollars.

"The company told a very good story," said Coates. "They were excellent spin doctors."

The Enron effect, in other words, has as much to do with perception as reality. But when it comes to public confidence in the economy, the two are often the same.

Join the Discussion
You are using an outdated version of Internet Explorer. Please click here to upgrade your browser in order to comment.
blog comments powered by Disqus
 
You Might Also Like...