Green Enron (Part IV Interview with Robert L. Bradley Jr.)

By Roger Donway -- January 28, 2011

[This interview of Robert L. Bradley Jr. by Stephen Hicks (website here) is part of a series: Part I (Libertarianism and Energy); Part II (Expanding Energy Horizons); and Part III (Enron as a Political Company).]

Kaizen: You mentioned that Enron was also involved in lots of alternative energy sources—wind power, solar power, “green” energy, and that it was one of the first at the political table. Did Enron think that with the right kind of farsighted investment the new energies could be profitable?

Or was this again part of a political strategy: Alternative energy was a political favorite, certainly during the Clinton Administration years, when Al Gore was vice president? So Enron is getting a seat at the table; and whether alternative energy actually succeeds or not, it’s a good business strategy at least in the short term.

Bradley: Enron certainly believed that they could make money at it, but it was a very large public relations, perception, government favor play. Believe me, the fact that the intellectual class is pushing these things and you have Al Gore as vice president and the “greens” in political ascendency in the U.S. and in the EU is huge to Ken Lay’s and Enron’s thinking. If global warming was not an issue, Enron would not have been on that bandwagon.

So NASA’s James Hansen and Al Gore were Enron enablers, in retrospect.

Kaizen: So Enron had a “green” category within its political business model?

Bradley: Absolutely. This is all part of the business model of rent-seeking, political capitalism—and offensive rent-seeking at that. Enron ended up with seven, count ’em seven, profit centers tied to the global warming issue, or more specifically, to government policy setting a price on carbon dioxide.

Kaizen: Was there a division for green energy?

Bradley: Enron Renewable Energy Corporation. At the 2000 Enron Management Conference, Lay announced that Enron was going to be “world’s leading renewable energy company.” It was wind and solar with a little hydro thrown in. I don’t think we ever got into biomass.

Kaizen: How did this begin? Was there a buildup?

Bradley: Enron’s ‘green’ play actually had a noble basis at the very beginning, in that rate base or public-utility regulation penalized natural gas in favor of coal-fired electricity generation, and natural gas was and is cleaner burning than coal. So there was a free-market, environmental angle to promote gas, which Enron exploited to its advantage because it was a natural gas company, not a coal company.

Here is the problem. Electric utilities like coal rather than natural gas because coal plants have a greater up-front capital investment than gas plants. That means a greater rate base from which the rate of return is set under traditional public utility regulation. So there’s this regulatory bias in favor of coal.

Enter Ken Lay and Enron with a very strong case for natural gas, including new company products to lock-in the future price of gas, to convince, and also shame, utilities and public utility commissions to go with gas for new capacity. So Enron goes national with a campaign to promote gas over coal for new generating capacity in the name of better economics and a better environment. Ken Lay in the early 1990s called this “the Natural Gas Standard.”

Kaizen: So far so good. But what comes next.

Bradley: Then they get into new areas beginning with solar—a 50%/50% deal with Amoco, later purchased by BP. Solarex, as it was called, was never profitable. The people who ran the company were perennially optimistic that solar would become more competitive. Maybe solar improved, but the other technologies for conventional fuels are improving too—and maybe no technology more than natural gas thanks in part to Enron!

And then Enron went into wind and actually rescued the U.S. wind industry. I’ve written a lot about this. Here’s another example of offensive rent-seeking where Enron gets into an industry that depends on special government favor: the production tax credit, accelerated depreciation, state and federal mandates for wind power. Enron was behind the Texas mandate for wind power, first passed in 1999, which really created a national boom for wind power construction.

Kaizen: We all have heard that solar and wind are the fuels of the future—that we are running out of fossil fuels and have unlimited energy from the sun and wind. So is Enron’s over-optimism defensible?

Bradley: There is a lot of fallacy in believing that we are about to run short of oil or gas or coal in our lifetimes or even our children’s lifetimes. At the same time, there are inherent reasons why wind and solar are so energy poor and energy-deficient for the needs of a modern society. Blogs at MasterResource on energy density and renewable integration explain why. In short, wind and solar are dependent on fossil fuels to be usable, and the hydrocarbon age is still young. What we see in future centuries will not be the technologies we now have with wind and solar.

People at Enron never understood, much less cared about, energy history. If you understand the history of energy technology, and the concept of energy density, you see that renewables are caveman energy—the dilute stuff we had to use pre-industrial. As William Stanley Jevons so brilliantly explained in 1865, coal—and by implication the other fossil fuels—were the energy future. And there was no going back to falling water or burning woody matter for the machine age.

[Editor note: Jevons’s 19th century views: the primacy of coal (carbon-based energy); the limits of windpower; the limits of hydropower, biomass, and geothermal; and the paradox of energy efficiency.]

Kaizen: And did Enron pay for its lack of understanding of energy history and technology?

Bradley: Enron’s green investments lost money year-by-year despite the taxpayer subsidies, so yes. The ‘green’ kick also got management off track—got the company off of a consumer-driven track onto a government-driven track. That is a bad trade even in our government-polluted mixed economy.

So Enron just keeps getting into these new areas where they’re overly optimistic about the technology. They need not only taxpayer subsidies but something stronger—mandates. And they need to make an intellectual case. And the grand, open-ended rationale for government largess is anthropogenic global warming.

So guess what: Enron signs on to climate alarmism in a big way, although I have this climatologist as a consultant, Gerald North of Texas A&M’s Department of Atmospheric Sciences, who is telling me a far more nuanced story than what the alarmist scientists are saying. North to this day has hidden some of his non-alarmist ‘private’ views, which tells me a lot about what is going on. I have posted about this at MasterResource.

So Enron gets on the same political track that the government is going on. And the intellectuals, the Left foundations, and Left politicians are saying “Ah, Enron is great. You’re doing the right thing.”

So the intellectual elite is teaming up and giving Enron cover to get into these political areas that are bad for consumers and taxpayers and certainly the free market. And post-Climategate, we see that climate alarmism for the last ten, twenty years was exaggerated and intellectually dishonest. I have publicly challenged my old mentor, North, on this—quoting from his own memos to me—and he has broken off communications.

A good part of the mainstream climate profession is an “Enron” at work—but without profit and loss, which would allow them to go financially bankrupt and get dismissed for cause. By this I mean that they shade the truth toward an pre-conceived agenda, they use the uncertainty the way they want to use it.

Enron did it with accounting where it was left to discretion; climate scientists can do it with a variety of fudge factors or just the assumption of pretense–let’s assume other things are equal, let’s say we know the climate well enough where we can just assume everything else cancels out.

Climate scientists are rent-seekers too. They want and need government money. That is why very few will say that the human influence on climate may not be a problem…. That anthropogenic global warming might be benign and have net positive effects…. That government failure swamps market failure…. That the incredible bread machine of market capitalism is the way to go in any case.

Kaizen: Your opposition to Enron’s ‘green’ energy strategy is now part of the record.

Bradley: Right. The top management of Enron Renewable Energy Corp. wanted me fired, and I entered a truce brokered by Ken Lay to be able to stay at the company but mute my protest. But I got my licks in, the memos of which are posted online at my PoliticalCapitalism website.