Enron's meltdown.

Byline: The Register-Guard

Economists will puzzle for years over how Enron Corp. fell so far so fast, resulting in the biggest bankruptcy in U.S. history. But a bigger mystery is how Enron got to be so big in the first place.

Enron's main business is to act as a middleman in energy transactions. It doesn't find, produce, transport, distribute or use natural gas and electricity - other companies do those things. Enron's business is buying low and selling high. At one point just months ago, that business made it the seventh biggest company in the United States, and it openly aspired to become the biggest energy company in the world.

Indeed, Enron has tried to get away from the low-margin wires-and-pipelines side of the energy business. Since 1999, it has been seeking a buyer for Portland General Electric, a utility that actually generates electricity and delivers it to customers, and has finally reached a $3 billion acquisition agreement with Portland-based Northwest Natural. The sale appears likely to go through despite Enron's bankruptcy proceedings - though not soon enough to save PGE employees from losing their savings in a retirement plan whose funds were locked into Enron stock.

Enron actually began as a natural gas pipeline company, buying gas at one end and selling it at the other for a little bit more. But then Enron's chairman, Kenneth Lay, had a vision: By trading energy like a commodity, Enron could buy and sell gas without owning pipelines, and electricity without owning wires. Lay's vision meshed neatly with the trend toward deregulation in the energy industry, with suppliers and consumers alike finding themselves needing protection against volatile prices. A futures market provides that protection, and Enron led the way toward its creation - not just in energy, but in other new commodities such as telecommunications bandwidth.

But now, the idea that a trading company could rule the world seems as frothy as the notion that Internet companies could succeed without profits. It is the nature of competitive markets to squeeze transaction costs - and transaction costs are Enron's bread and butter.

On a more practical level, the benefits of Enron's vision came into question during the electricity shortage last spring. California's biggest utility, Pacific Gas and Electric, was forced into bankruptcy because it was forbidden to charge customers the sky-high prices charged by Enron and other companies. The Eugene Water & Electric Board is in a similar bind, having agreed last spring to pay Enron and other suppliers as much as $395 per megawatt-hour for electricity delivered this fall. The crisis left Enron's customers determined not to repeat the experience, and led the Federal Energy Regulatory Commission to turn its back on free-market ideology in favor of price caps.

Enron's rise depended on its being able to anticipate pricing trends better than anyone else, and on its having a large enough market to profitably connect buyers and sellers. But Enron had no monopoly on information, and competitors quickly appeared - including former customers who learned to conduct their own trades. Still to be discovered is whether Enron's auditors and analysts concealed the company's financial problems, effectively defrauding stockholders and creditors.

As Enron's stock value skidded to pennies a share from a high of $84, U.S. energy production and consumption remained the same. Maybe Enron's value disappeared because the country realized that it could get along just fine without a company whose only product was profits.