the CAMP ENRON Report

... gateway to the next Progressive Era?

Some say it's nothing but a train wreck ... roll in the big cranes, clear the track, see what the crew's been smoking. If I thought so, I'd not be writing this ... and if they thought so, they'd not be drumming so hard.

For a brief orientation, see this
Welcome to Camp Enron

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Camp Enron Archives
01/01/2002 - 02/01/2002 02/01/2002 - 03/01/2002 03/01/2002 - 04/01/2002 04/01/2002 - 05/01/2002 05/01/2002 - 06/01/2002 06/01/2002 - 07/01/2002 07/01/2002 - 08/01/2002 08/01/2002 - 09/01/2002 06/01/2003 - 07/01/2003

(2) All "major" articles of older material have now been imported, some with updates worth perusing. We'll keep it all on the main page for a while, will add a few loose pieces of history, will trim the main page and index the archives for convenience later.


free agent, loose cannon, pointy stick ... taking an imposing analytic toolkit out of the box, over the wall and into the street ... with callous disregard for accepted wisdom and standard English

reading the tea leaves from original angles, we've led with uncannily prescient takes on the federal surplus, the dotcom crash, the "Energy Crisis", the Afghan campaign, the federal deficit.

More where those came from ... stay tuned.

For brief orientation, see this
Welcome to CP

... gateway to the next Progressive Era?

For a brief orientation, see this
Welcome to Camp Enron

Many thanks to Tony Adragna and Will Vehrs, still shouting 'cross the Potomac at QuasiPundit. Early Camp Enron material can be found in QP's Dispatches department.
Sunday, February 17, 2002

--- PUHCA Sightings: "Not an EWG, Joey, but a FUCO" ---

Almost undetected under the target-rich radar buzz of campaign finance debate and hearings on corporate governance, Congress strives mightily to centrifuge the bouncing baby of market-oriented electric reregulation out of Camp Enron's murky, septic bathwater. Per this pre-game report:
"Whether we like it or not, the old regulatory compact has been broken" and it is too late to turn back, a utility official said. Enron's disappearance, however, "has left a hole," the executive acknowledged. "There is no drumbeat right now on a lot of the issues that Enron was involved with."
What is (or was) the old regulatory compact? Read on.

"Not an EWG, Joey, but a FUCO" As Andersen CEO Joseph Berardino bones up for another congressional grilling, selected senior partners ("how you doin" "how you doin" "how you doin") tutor him in the arcane mysteries of the PUHCA.

What's a "PUHCA"? If you answered "an invisible white rabbit who stands at least six feet tall, can stop time, knows absolutely *everything* and spends his evenings going from bar to bar", your mojo's on par with Andersen's auditory hallucinations. You must be thinking of Elwood P Dowd's friend "Harvey" Or maybe you're thinking of Harvey Pitt, SEC Chairman and faithful invisible friend to the AICPA? Wrong again.

PUHCA is the Public Utility Holding Company Act of 1935, as amended, a.k.a. the Act -- one of those anachronistic Depression Era regulatory schemes, enacted back when "... financial pyramid schemes ... sometimes 10 layers thick ... made industry regulation ... impossible. After the collapse of several large holding companies ... [SEC alleged] stock watering and capital inflation, manipulation of subsidiaries, and improper accounting practices. ... Strict limitations on intrasystem transactions and political activities were also imposed."
(From this DOE profile)

What an awful time that must have been ... and what lucky dogs we are, living here in the Future and all.

Pursuant to the Act, SEC classifies utility holding companies as exempt or non-exempt. For a non-exempt PUHC, routine business transactions -- issuance of debt or equity, asset acquisition, dealings with affiliated companies -- require SEC approval in advance. For Enron and other presumably less-dangerous exempt little PUHC's, life is much easier.

OK, now what's a "FUCO"? That's "Foreign Utility COmpany", per the Act. [The array of Enron-invented FUCO's in exotic locales might lead one to suggest a more insolent interpretation.] FYI, BTW, EWG's are "Exempt Wholesale Generators".

And a "PUHCA Pretzel"? Long before GWB's impromptu self-Heimlich, "... we called certain cases ... 'PUHCA pretzels,' because they required us to twist and turn the Act to conform to the needs of the industry. ... [today] the appellation 'pretzel' could be used to cover most matters we handle."
(Barbash, SEC, 1997)

The affected subgenus of capitalism has raised pretzel-twisting to the status of high art, and PUHCA is under fire by regulatees and regulators alike. It certainly is out of step with the "dance of supply and demand" as the kids dance it these days.

So what's PUHCA got to do with the price of bananas in Camp Enron? Maybe nothing, maybe everything. (Speaking of bananas ... a moment of silence, please, for recently-bankrupt Chiquita Brands, formerly United Fruit ... once Master of Nations, the power behind many a throne and/or junta under its own "old regulatory compact".)

Independent study questions:
(1) Did Enron avoid classification as a non-exempt holding company by misrepresenting its relationships with FUCO's and other "separate" entities ?
(2) Did Andersen improperly twist, and did the SEC inadvisably swallow, a batch of poisoned PUHCA Pretzels?
(3) Would proactive transparency under PUHCA have kept Enron on the straight and narrow?
(4) Or conversely, did shell games motivated by outdated regulation help create the habitat for later games of financial hide-and-seek?

By one popular analysis, Enron morphed itself into an unregulated investment bank, and calamity ensued. Believe it or not, there's a move afoot to widen the event horizon of this regulatory black hole.

From WSJ on MSNBC:
A bill before the House to deregulate the electrical-power industry would ... repeal a utility holding-company law administered by the Securities and Exchange Commission. ... investment companies wouldn’t be subject to regulations governing capital structure, self-dealing among affiliates and board independence - all hot-button issues raised by Enron’s collapse. Enron received SEC exemptions from the Investment Company Act and PUHCA during the 1990s.

Reuters Europe details Enron's preference for illiquid trading positions:
... pressure to value outstanding trades at the most optimistic level possible was particularly strong in the run-up to Enron's reporting periods. ... some traders opted to pursue more illiquid trades simply because they were especially difficult to value ... because there is no central, independent pricing mechanism ... companies can be subjective ... Enron's trading was in markets with low levels of transparency, where they were the biggest trader. "They were trading quite unusual commodities and for quite unusual periods ... in terms of determining the market price, in a lot of instances the company was the market"

Speaking of transparency, Senators Feinstein (D-CA), Cantwell (D-WA) and Wyden (D-OR) have introduced legislationto place energy derivatives trading under the open-book aegis of the CFTC.

Look forward to high-voltage creative tension, as one side tries to strip regulation down to the bare walls, and the other side tries to push ten pounds of slithery things back into the original five-pound regulatory box.

In related developments, Texas Attorney General (and GOP Senate candidate) John Cornyn is taking heat for a (Sept. 2001) decision, enabling Enron to provide services under Texas electric deregulation without disclosing the same financial information provided by other applicants.

And Cornyn is throwing heat, taking a shot at potential opponent Kent Bentsen (D), charging that Bentsen's July 2000 vote (against an amendment that would have restored CFTC authority over energy derivatives) was an outright quid pro quo. Bentsen says he preferred to address the issue in context of deliberations on comprehensive electricity dereg/rereg (see Feinstein Bill above). As suggested here from Day One, Enron connections may take some wind out of Bentsen's sails ... but is Cornyn out of his mind? Cornyn's Enron pot dwarfs Bentsen's Enron kettle ... and if Bentsen is vulnerable, why not save the attack for the general election?

With Shays-Meehan-McCain-Feingold on front burner, watch this space for more Enron-linked notes on political operations, things that make no sense, and campaign finance reform.
[orig. 2002-01-25, posted on Fray 2002-02-17]