Investors in the late, great Enron Corporation may have applauded the company’s skillful manipulation of successive U.S. presidents, but they unceremoniously pushed its high-flying stock into a nose dive in November when they discovered that Enron was playing them for chumps.
A brief history is in order. To become a master electrical power broker, Houston-based Enron had to first master political power-trading. Since its 1985 inception, Enron had pursued a vision in which natural gas supplanted other electric-generating fuels and consumers bought kilowatts from competing suppliers rather than from monopolies. This vision demanded staggering expenditures, yet the greatest obstacles were political, since Enron targeted a monopoly system that fed vast fortunes and bureaucracies.
With virtually all of its activities subject to government regulation, Enron understood better than its competitors the value of political influence. To manipulate politicians in Houston, Austin, Washington, and foreign capitals, Enron made huge political contributions (including $2.5 million in federal contributions since 1999) and ushered a steady stream of government officials through its revolving door.
By 1999, according to the Center for Public Integrity, Enron had become the single largest patron of George W. Bush’s political career (Bush has received $674,100 from Enron). Although Bush denies that he ever lobbied for Enron (an Argentine cabinet member said Bush lobbied him to give Enron a $300 million pipeline contract in 1988), Bush has championed Enron causes from Austin to Washington. Last May, then-Federal Energy Regulatory Commission Chair Curt Hebert said Enron Chair Ken Lay had warned him that he would lose Enron’s support at the White House if Hebert opposed open access to privately owned power lines. Lay said Hebert misconstrued their conversation, Hebert resigned, and Bush replaced him with Enron-backed Texas Public Utility Commissioner Pat Wood. Two months earlier, Governor Rick Perry (who has received $237,000 from Enron since 1997) appointed ex-Enron de Mexico President Mario Max Yzaguirre to an open Public Utility Commission seat.
Other measures of Enron’s clout include:
The Texas Supreme Court reversed a lower court in 1996 to slash $15 million off the inventory taxes that Enron–the justices’ No. 1 campaign donor–owed to the Spring, Texas school district;Clinton cabinet members threatened to cut off aid to the world’s poorest country in 1995 if Mozambique failed to give Enron a pipeline contract;When ex-President Bush took a Gulf War victory tour in 1993, Enron paid members of his entourage to lobby Kuwait for power plant contracts; andEnron has paid Texas Senator Phil Gramm’s wife, Wendy, $50,000 a year to sit on its board since 1992, when she began deregulating energy futures markets as chair of the Commodities Futures Trading Commission.
Electric deregulation probably would not be much more than an idea in the United States had it not been for Enron’s aggressive manipulation of politicians. In leading the charge to demolish the old monopoly electricity system, Enron ironically came to control a quarter of all U.S. natural gas and electricity trades, profiting off the spread between the buyer’s bid price and the seller’s asking price. Banking on the success of this business, Enron entered the new century hawking a slew of new commodities (including water, coal, paper, steel and computer bandwidth).
Although Enron had reaped huge profits from the West Coast electricity crisis in 2000, its investors did not realize that its new ventures were losing billions. Enron confessed in November that its financial reports going back to 1997 had falsely inflated its profits by 20 percent. Investors also learned that Enron Chief Financial Officer Andrew Fastow had established private partnerships that made millions of dollars hedging the fluctuating values of Enron assets. By improperly accounting for such partnership deals, Enron hid billions of dollars in debt.
The Securities and Exchange Commission is currently investigating the company, as shareholders file lawsuits. In a year that started with Enron stock selling for $82 a share, Dynegy agreed in November to take over a hemorrhaging Enron for a then premium price of $10.41 a share. Dynegy backed out of the deal in late November, as credit agencies lowered Enron’s rating to junk status.
When investors sent Enron’s ship crashing back to earth, its storied political and mental prowess failed, leaving its arrogant executives to bang their fists on their suddenly unresponsive controls. Chair Ken Lay chided investors for overreacting to a bit of bad news. In a conference call, CEO Jeff Skilling called an analyst an “asshole” for daring to challenge Enron’s financial numbers. And when credit agencies prepared to downgrade Enron’s rating, CFO Fastow futilely lobbied them to raise Enron’s rating, which he said would improve its performance and thereby justify the inflated rating. But everyone else knew it was time to pull the plug on Enron–which no one but the politicians will miss.
Andrew Wheat is research director of Austin-based Texans for Public Justice (www.tpj.org).