Beyond Enron: Regulation in Energy Derivatives Trading

The bankruptcy of the Enron Corporation in December 2002 is the biggest corporate bankruptcy in U.S. history. The Houston-based company, formed in 1985, became the nation's seventh-largest company in revenue by buying electricity from generators and selling it to consumers. Because Enron made the market in energy trading, its collapse fundamentally altered the U.S. energy trading industry. Equally important, the disclosure of Enron's role in California's power market crisis shattered confidence in deregulated wholesale-electricity and natural gas markets, creating obstacles for new players seeking to restore confidence in energy trading markets.

New market entrants offer their clients a more complete contracting environment, self-regulate with more transparent risk management policies, and face more investigative and prosecution efforts by the Federal Energy Regulatory Commission ("FERC") and the Commodity Futures Trading Commission ("CFTC"). Nevertheless, the imprint of Enron's demise continues to haunt energy markets and energy-related derivatives.