LAST AUGUST, just as it was all starting to go bad, Forbes magazine ran an intriguing little item that, in retrospect, told the entire Enron story in miniature.
"Power Player Enron has grown into the world’s largest electricity marketer since we last wrote about it," read the item. "Now a new surge in revenues might be in the offing. Two deregulation-friendly candidates Enron had supported were appointed to the five-member Federal Energy Regulatory Commission. The payback came in July when FERC announced it wants to form four regional grid organizations that will loosen restraints on the flow of electricity and bring more competition to power markets. For Enron that means likely access to 90 percent of the power grid, a leap from its present 25 percent."
As we now know, Enron at that time was already well down the road on its transformation from the country’s seventh-largest company to the largest bankruptcy in US history. But Kenny Boy Lay (the nickname was bestowed on him by his fellow Texan, George W. Bush) still had plenty of clout in Washington. Indeed, it was subsequently reported that Curtis HŽbert, who was removed as FERC chair last August, claimed to have had a conversation with Lay about a year ago in which he was told that if he would change his views on electricity deregulation, Enron would support his continuing as chair. "I was offended," HŽbert reportedly said. Lay denied having the clout to name FERC members.
Regardless of the details of their exchange, the fact that Lay would even have such a conversation with an official who was supposed to be watching over him shows how Enron did business.
The most complete story of Enron’s tangled relationship with the federal government is contained in a 29-page report issued last month by Public Citizen, a consumer organization founded by Ralph Nader. Titled Blind Faith: How Deregulation and Enron’s Influence over Government Looted Billions from Americans, the report provides a stomach-turning look at the nexus of business, government, and politics. (The report is available for free on the Web at www.citizen.org.)
"Enron’s business model was built entirely on the premise that it could make more money speculating on electricity contracts than it could by actually producing electricity at a power plant," the report says. "Central to Enron’s strategy of turning electricity into a speculative commodity was removing government oversight of its trading practices and exploiting market deficiencies to allow it to manipulate prices and supply."
Among the key findings:
• In 1992, Wendy Gramm, then chair of the Commodity Futures Trading Commission, approved Enron’s request to exempt its trading of futures contracts from the oversight of her agency. She then quit the commission and, within weeks, was named to Enron’s board of directors, where her special task was to oversee Enron’s accounting procedures.
• From 1993 to 2001, Enron paid Wendy Gramm somewhere between $915,000 and $1.85 million for her service as a director. Her husband, Senator Gramm, ranks second among congressional beneficiaries of Enron’s largesse, having received $97,350 in campaign contributions since 1989.
• Enron spent $3.45 million on lobbying in 1999 and 2000 to deregulate the trading of energy futures, among other things. Senator Gramm himself helped muscle through a bill that allowed Enron to operate an "unregulated power auction," which in turn enabled Enron to grab a large chunk of California’s energy market — a move that may have led to Enron’s manipulating electricity prices in California, creating artificial shortages, blackouts, and skyrocketing prices.
• President Bush dumped a Clinton-administration plan to crack down on offshore tax havens — a loophole that had benefited Enron greatly — even though the Clinton proposal was aimed in part at denying a financial haven to Osama bin Laden.
Nor should it be forgotten that Vice-President Dick Cheney’s industry-friendly energy plan was drafted after six meetings with Lay and other Enron officials — and that Cheney refuses to turn over documents related to those secret meetings. Or that Enron benefits from Washington’s refusal to get serious about global warming, which may help explain Clinton’s attempts to water down the Kyoto Protocol, and Bush’s refusal to sign it altogether.
Tyson Slocum, the author of Blind Faith and the research director for Public Citizen’s Critical Mass Energy and Environment Program, says a good comparison for what happened with Enron is the savings-and-loan scandal of the 1980s. That’s when S&Ls, tightly regulated since the stock-market collapse of 1929, began lobbying Congress and the Reagan White House to loosen restrictions so they could go into businesses from which they had been blocked. Led by such entrepreneurial bandits as Charles Keating (remember him?), a huge sector of the industry collapsed under the weight of bad loans.
The S&L scandal contributed to the recession of the early 1990s, which cost the first president Bush his job. Which is just one more reason why the current president Bush ought to put the good of the country above his free-market ideology and his devotion to his campaign contributors.
Slocum thinks the Enron scandal and its fallout will, in the end, cost us a lot more than the S&L meltdown. At the root of it, he says, is the whole notion of electricity deregulation, which — as the California experience suggests — just doesn’t work. He predicts more corporate collapses in the months to come. And reregulating the market, he says, is "just going to be an incredibly expensive undertaking."
