"Edison to Enron: Energy Markets and Political Strategies" (Book 2 of trilogy on political capitalism published)

By Robert Bradley Jr. -- September 30, 2011

“This scholarly work fills in much missing history about two of America’s most important industries, electricity and natural gas.”

   – Joseph A. Pratt, NEH-Cullen Professor of History and Business, University of Houston

“An engaging look back at the market and political development of the U.S. energy industry. Industry and policymakers will benefit from reading this book.”

   – Dr. Robert Peltier, PE, Editor-in-Chief, POWER magazine

Edison to Enron is the second book in my trilogy on political capitalism inspired by the rise and fall of Enron (order information: Amazon, Scrivener Publishing, John Wiley & Sons).

Book 1, Capitalism at Work: Business, Government, and Energy, provided a worldview of market-based versus political business, as well as an interpretation of energy sustainability. The present volume (Book 2) examines the individuals and companies that are related to Enron’s prehistory.

Book 3, Enron and Ken Lay: An American Tragedy, will chronologically describe the rise and fall of Enron and the post-Enron world.

The trilogy and other writings on the intersection of business and government are featured at my website, Political Capitalism.

A video on Book 2 in the context of my book output is here.

Dust Jacket Description

Energy is the resource of resources—the master resource. The fossil fuels in particular—and the electricity generated from them—have made human life longer and better. For many, they have made life possible. Without energy, there would not be the modern world of production and consumption.

During the last 150 years, the United States has been at the forefront of energy development. Edison to Enron chronicles important swaths of that history, focusing on the great entrepreneurs in electricity and in natural gas, who turned potential into plenty and privation into prosperity.

Author Robert L. Bradley Jr. traces individuals and companies that made America an energy nation, from Thomas Edison and Samuel Insull in electricity, to John Henry Kirby in oil, to Clint Murchison, Ray Fish, Robert Herring, and Jack Bowen in natural gas. Companies such as General Electric, Houston Oil, Southern Union, Fish Engineering, Houston Natural Gas, TransCanada, Florida Gas, and Transco Energy are integral to Bradley’s energy history, which links the country’s nineteenth-century past to its twenty-first-century present.

Much of this book describes market entrepreneurship, especially resourceship in regard to energy minerals. But there are instances and episodes of political entrepreneurship, or rent-seeking, where special government favor was extracted by business interest themselves. The perils and waste of the latter provides stark contrast to the consumer gains from principled market enterprise.

Along the way, Edison to Enron tracks the early career of Kenneth L. Lay, from a minor government bureaucrat to the wunderkind CEO of Houston Natural Gas Corporation. A shooting star of the energy business, Lay would transform Houston Natural Gas into Enron, via acquisition and merger, before meeting his unhappy fate less than two decades later—a story told in this book’s sequel.

Because there are few broad-based histories of the U.S. energy industry, Edison to Enron fills a critical gap in American historiography and takes its place as a classic account of the energy nation par excellence during its most dynamic century.

Preface: Edison to Enron (excerpts)

Ken Lay attached a note to a book he returned to me between the time of Enron’s collapse and his fateful trial. Insullby Forrest McDonald (University of Chicago Press, 1962) was a masterful account about the towering rise and stunning fall of a business titan in the first third of the twentieth century. “I apologize I’ve not been able to read the book on Insll [sic],” Lay said. “There have just been too many demands on my time.”

And no doubt Ken Lay wasworking furiously, preparing for trial and running what he excitedly described as his three new businesses. He probably wrote the note well past a normal person’s endurance point. He was always like that—almost superhuman in his work, doing the little extra to cover some base in his vast universe of possibility and ambition.

People had given Ken many books that he never opened, much less read. I know. I was his repository for such material during my sixteen years at Enron. But I told him that McDonald’s biography was very relevant to his present predicament. Like himself, Samuel Insull had been a Great Man of the energy industry, an icon of his city (Chicago), a Horatio Alger story. Insull, too, had gone from near-universal reverence to vilification, suddenly and completely. And, most important, Insull’s defense strategy seemed to be one that Lay could employ effectively.

In the twilight of his life, Insull had put his five-decade career building America’s electricity industry on trial, not just his last years with his bankrupt holding company. He spoke matter-of-factly on the stand about his intentions and failures, knowing that honesty was his rock in thick or thin. The point, partly, was to ask the jury: Why would I suddenly take up crime? And to tell the jury: You would have done about the same if you had been me. The other part of Insull’s strategy was to confess to overoptimism and an inability to heed caution. And he took full responsibility for the debacle, even apologizing to his subordinates.

In short, Insull humanized himself on the stand. The jury acquitted on the facts and in the face of such humility.

Ken Lay took a far different approach after his company’s collapse. He did not flee to another country as had Insull, who feared for his personal safety and harbored pessimism about receiving a fair trial. Instead, Lay fled to another reality. With his legal advisors and Jeff Skilling, Lay constructed an alternative universe, a strategy that was not discouraged by his inner circle, a story told in Enron and Ken Lay: An American Tragedy(Book 3 of this trilogy).

Thus came the other worldly arguments: Enron was a great company. Jeff Skilling and I were a great team. Enron would be thriving today if it were not for the criminal actions of a few employees, some short sellers, and a hostile press. And then there was Lay’s contempt at the whole proceedings, and even toward his own counsel on the stand.

The book that Lay did not find the time to read is an inspiration for this present work. The Insull saga, like the rise and fall of Lay himself, shows how unforgiving the market can be toward even the most powerful, particularly when they believe themselves to be insulated from the vicissitudes of capitalist commerce. Forsaken prudence applies to other individuals and their companies in our book, beginning with Thomas Edison, the great inventor who founded the U.S. electricity industry, and continuing with John Henry Kirby, the founder of the company that over eighty years would metamorphose into Enron.

Edison came perilously close to financial ruin amid his feats of electrical invention, saved only by the best efforts of a whiz-kid named Samuel Insull. Kirby, offering many parallels to another seemingly invincible business leader and Mr. Houston, Ken Lay, suffered bankruptcy not once but twice and died under a financial cloud.

Edison summoned Insull to America in 1881 from England where the two built the company that in 1892 became General Electric. Insull left Edison to father the modern integrated electricity industry in the next decades, achieving results as successful, orderly, and enduring as that done for petroleum by John D. Rockefeller.

Electricity, traditionally produced from either coal or white coal (hydropower), found a new primary energy source near the end of Insull’s career when long-distance pipelines linked southwest natural gas fields to major population centers around the country. Costlier, dirtier manufactured (coal) gas was displaced, and natural gas went on to become the second leading option to generate electricity next to coal.

Long-distance transmission unleashed America’s third great energy industry, natural gas. The history of gas pipelining is the prehistory of Enron, a company that began as a conglomeration of four Texas-sourced gas transmission systems. Ken Lay, Mr. Natural Gas, forged a career as a gas pipeliner before leaving Transco Energy in 1984 to head the company soon to become, through merger and acquisition, Enron. Thus the present book spans just over a century, the time from when Thomas Edison first focused on electricity (1878) to when Ken Lay became head of his own company (1984).

Countless books have been written on electricity and natural gas, but few attempt to cover the long, rich history upon which a number of today’s notable companies and company divisions emerged. This book attempts to fill that gap for industry practitioners, energy historians, Enron aficionados, and other interested readers.

———-

Previous Books by the Author:

· The Mirage of Oil Protection (Cato Institute: 1989)

· Oil, Gas, and Government: The U.S. Experience (Cato Institute: 1996)

· Julian Simon and the Triumph of Energy Sustainability (American Legislative Exchange Council: 2000)

· Climate Alarmism Reconsidered (Institute for Economic Affairs: 2004)

· Energy: The Master Resource, coauthored with Richard Fulmer (Kendall Hunt: 2004)

· Capitalism at Work: Business, Government, and Energy (Scrivener Publishing: 2009)