Enron and Energy Policy Act - Research Paper Example

 The Energy Policy Act gave the Federal Regulatory commission powers to enforce its provisions and set out guidelines on energy sector regulation. The FERC required all energy merchants which operated under competitive market regimes to adhere to specific rules of operation. The rules prohibited conspiracy, manipulation, and the presentation of misleading or fake information (Public Citizen). Market manipulation as defined by the FERC included; giving false information to transmission suppliers, wash trades, manufacture of false congestion, and conspiracy between merchants which are planned to artificially influence prices, circumstances, or supply.

SEC and CEOs

            The SEC requires CEOs of public utilities to give a certification of the truthfulness of financial reports they give. The Sec prescribes penalties for falsification of information of 10 years and 20 years for knowing and willful violations respectively. The provision may however prove to be difficult to impose since it is hard to determine if the information was certified reckless or negligently as opposed to knowingly (Bumgardner). In addition, a CEO making a required financial restatement could be required to forfeit bonuses or profits attained from the sale of company stock. The provision is however watered down by the lack of a proper definition of required and misconduct. The new law makes it possible to ban SEC violators from running public utilities even though the provision existed in earlier legislation.

Stock Options

            The notion of stock options involves the granting of options that are dated earlier than the company granting date. The backdating of stock options makes the stock value to the holder. Before Enron and the passage of the Sarbanes Oxley Act, companies were required to report the issue of these options to the Securities and Regulatory Commission in a maximum period of two months. This led to companies granting their options at their highs while dating them at their lows thus giving false information to investors (Kaldec). The enforcement of the Sarbanes Oxley Act now makes it harder to falsification of information since the companies are required to submit their option grants to the SEC in a maximum period of two days.

Response to SOX

            The SOX regulations apply to all companies whose stocks trade in the US. Many executives of foreign companies have come out strongly to voice their dissatisfaction over the SOX Act while lobbying for exemption. Critics of the SOX have lambasted the SEC for punishing foreign corporations in countries that did not experience Enron-type scandals (Byrnes 3-4). It also has to be observed that corporations in Asia and Europe are less likely to experience such scandals as management does not hinge so much on stock price as in the US. The Act has been criticized roundly for its potential ambiguities which would make its implementation in various jurisdictions around the world to be cumbersome and expensive. Critics have also argued that the Act presents some uncertainties in its implementation since it may conflict with domestic legislation in foreign jurisdictions leading to increases in litigation costs (Lucci 8).

RIAC

            While foreign corporations have criticized the SOX Act, the RIAC has been rather accommodating. The RIAC has acknowledged that the SOX has certain inherent ambiguities and potential difficulties in enforcement in the international arena. The RIAC has however asserted that SOX presents a very good standard on which governments the world over may come to entrench in their business regulatory framework (Public Citizen). The RIAC proposes that the SOX Act should factor in the risk factors in all the countries which have listed stocks in the US before applying the SOX.

Conclusion

            Executives at Enron were more interested in making money for themselves by whatever means necessary. These reckless acts led the company to a declaration of bankruptcy and loss of investors' money. Changes in regulation have been positive and would in the long run foster accountability and responsibility in the running of public utilities. While the effectiveness and implementation of these regulations are still a subject of discussion, the important thing is that steps are being taken in the right direction. Only a continual review of the changing business dynamics and the respective modification of regulation will ensure that the industry continues on a stable path of growth.