The U may soon have deep impact on the investigation of the now defunct energy company Enron.
U finance professor Hendrik Bessembinder will aid federal investigators in determining if Enron and other energy giants followed fair competition rules.
Bessembinder, the Blaine Huntsman presidential chair in finance at the School of Business, is part of an investigating committee appointed by the Federal Energy Regulatory Commission assessing whether Enron and other power traders fairly sold electricity in California and other parts of the West.
“Congress had asked [the regulatory commission] to investigate Enron and others about the actions of other companies, and they wanted outside expertise,” Bessembinder said.
Bessembinder believes the regulatory commission recognized his expertise because he co-authored a paper with Mike Lemmon, also a U finance professor, about business models for energy companies, which will appear in the June issue of the Journal of Finance.
“We started the paper a few years ago, when energy markets weren’t so high-profile. Electricity markets are fairly complicated and relatively new, so we’re learning along with everyone else.” he said. “We needed a new model because the old business models assume you can store the product, which isn’t true with energy.”
Because both the business model and energy markets are so new, many of the situations Bessembinder will look at have no precedent.
“We’re looking at what sort of strategies were used in these markets because they aren’t perfectly or precisely defined,” he said. “We’re trying to find possible trading patterns that look suspicious, but many of those patterns could not serve the public interest, but still not be illegal.”
In a competitive market, the price of the product is linked to its marginal cost. A trading pattern is deemed suspicious if that link is broken, said Bessembinder, who just completed his first year at the U. He doesn’t believe serving on the committee will take away much time from his work at the U.
“We’ve met in Washington, D.C., a couple of times, and we plan on having periodic conference calls, but the majority of the work will be done during the summer, when I’m not teaching,” he said.
Bessembinder was appointed in late April along with two energy analyst consultants, members of the FERC staff and two other academics?hailing from the Massachusetts Institute of Technology and Carnegie Mellon University.
“I’m honored to serve on this committee,” he said. “The fact the two other professors on the committee are coming from such high-ranking universities says a lot for the U.”