Corporate Cover for the Environmental Left in the 1990s (“Enron Ascending”)

By Robert Bradley Jr. -- September 6, 2018

“Under [Ken] Lay’s direction, Enron would restart the solar industry [in 1995], rescue the US wind industry [in 1997], and help legitimize the climate issue.”

“Enron saw green in green energy. Wind and solar as primary energies had new public policy rationales and powerful political constituencies. Specifically, global warming from fossil-fuel usage (via the enhanced greenhouse effect) was the new neo-Malthusian scare, and post–Gulf War concerns over energy security put petroleum on the defensive. Even more than this, renewables had public cachet for an energy company, particularly one that prized publicity and promoted a momentum stock.”

– Bradley, Enron Ascending: The Forgotten Years, pp. 530, 528, respectively.

Rent-seeking … strategic uses of government intervention…. corporativism. Many terms have described business lobbying within political capitalism where the political means replaces the economic means to financial success The result is bad profit, defined by classical-liberal entrepreneur Charles Koch as corporate income not created but politically obtained and thereby lost to the creators in the economic system.

The crony corporation, seeking and living by special government favor at the expense of consumers and/or taxpayers, is a common sight in today’s American Capitalism. Tesla is a preeminent example. So is the largest member of the American Wind Energy Association, GE, which bought Enron Wind Company in 2002.

And in terms of individuals, think of BP’s John Browne, Duke Energy’s James E. Rogers, Chesapeake’s Aubrey McClendon, and GE’s Jeff Immelt. Ditto for Elon Musk and just about every wind-power and solar executive (one exception being David Bergeron).

Enron and Government Opportunity

The most active rent-seeking corporation in depth and scope in US history is (was) Enron Corporation, which was created in 1985/86, declared bankruptcy in late 2001, and was liquidated in the next years.

Part of Enron’s unique political activism reflected the highly regulated energy industries of which it was part. Enron’s businesses were directly or indirectly involved with public-utility regulation of 1) interstate natural-gas pipelines, 2) interstate power transmission, and 3) the final distribution of gas and electricity. Ditto for independent power generation, enabled by a special law requiring franchised utilities to buy the power at lucrative rates, as well as solar and wind power generation receiving generous state and federal subsidies.

How about subsidies from the US Export-Import Bank (Ex-Im) and Overseas Private Investment Bank (OPIC)? Enron’s developing country projects made the company the largest recipient of such loans and loan guarantees.

A BTU tax? Lay supported the Clinton initiative until its provisions worked against Enron. Oil tariffs–Lay wanted that too. Cap-and-trade for CO2 emissions? A carbon tax? International regulation of CO2? All these were on the lobby list, as documented in Enron Ascending …

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The rest of this post will focus on three areas that put Enron in the middle of the Left environmental camp beginning in the late 1980s. Ken Lay’s natural gas strategy split the fossil-fuel industry in two (natural gas vs. coal)–and then three (natural gas vs. oil and coal). In so doing, Lay also split the environmental activists into two: those that supported natural gas as a transition fuel and those that did not (e.g., Greenpeace). 

Overall, unlike today, natural gas got the nod from such environmental groups as the Sierra Club and the Worldwatch Institute.

Environmentalists—habitually hostile toward oil and coal as depleting, polluting energies—looked to wind and solar first and natural gas as a “temporary buffer,” a “bridge” fuel, to that sustainable future. Nuclear power, once hailed as cost-effective and environmentally benign, was seen as neither after Three Mile Island in 1979 (and, later, Chernobyl). (Enron Ascending: p. 528)

Climate Change

Ken Lay did much to make the global warming issue legitimate in corporate America (and years ahead of BP’s Browne), from getting George H.W. Bush to the Earth Summit in 1992 to pushing proposals to price carbon dioxide emissions (cap-and-trade was preferred, but an emissions tax was welcomed). As explained in Enron Ascending (p. 333–34):

The environmental movement had its business-friend-in-a-high-place with the Bush administration. And Lay did not disappoint when he went all out to persuade a conflicted George H. W. Bush to attend—to legitimize—the Earth Summit in Rio de Janeiro in June 1992, which kicked off a global effort to address a global-commons issue of manmade greenhouse gas emissions….

Enron’s involvement with the global-warming and climate-change issues would only grow in the years ahead. Existing profit centers were aligned to benefit from mandatory carbon-dioxide reductions, and new profit areas would be added. Superpolitical Enron would work behind the scenes for national and international government policies to ration (price) emissions of this otherwise unregulated nonpollutant. The Lay-led effort would lead one expert to declare Enron “the company most responsible for sparking off the greenhouse civil war in the hydrocarbon business.”

Resuscitating the US Solar Industry

Here is the story of Enron and the dying US solar industry by the mid-1990s.

Despite federal grants, more than 90 percent of which “ended up in the coffers of the largest corporations in the United States,” a graveyard of private efforts resulted from President Carter’s [solar] vision. In the 1970s and 1980s, failed solar investments were made by Texas Instruments, General Electric, IBM, Polaroid, RCA, and Westinghouse; Sanyo, Kyocera, and Sharp of Japan; and the energy majors Arco, Exxon, Mobil, and British Petroleum.

Exxon exited the business in 1984 after 15 years and $30 million in losses. Arco Solar would be sold to Siemens in 1989 after 12 years and $200 million in deficits. Mobil Solar Energy Corporation was purchased by Applied Solar Energy (ASE) in 1994.

That left one major domestic player, Amoco’s Solarex, the largest US owned manufacturer and distributor of PV modules and systems. In 1987, Solarex was placed within Amoco Technology Company with a mission to reduce costs in order to increase sales, as well as improve production economies. Its largest facility was increased to 5 MW (annual capacity of produced solar panels). But profits were inadequate for further expansion to utilize new generation technology. Solarex needed fresh capital, better marketing, and a new business plan…. (Enron Ascending: p. 532–33)

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“Amoco Corporation and Enron Corp. have agreed to form a new general partnership to manufacture photovoltaic (solar electric) modules and develop solar power electric generation facilities,” an Amoco press release announced December 19, 1994. The 50-50 partnership, representing a $20 million Enron purchase, obligated each partner to contribute $15 million to complete construction of a thin-film manufacturing plant capable of annual production “in excess of 10 MW of large area, multijunction amorphous silicon modules.” This new technology, the press release noted, was developed in conjunction with the Department of Energy.

“Amoco gained a partner that was a fast-growing leader in power generation and sales and had a hard-driving, entrepreneurial culture well-suited to the rapid expansion of Solarex,” explained a scholarly corporate history of Amoco offered by Joseph Pratt. “For its part, Enron gained a share of one of the largest solar cell manufacturers in the United States.”  (Enron Ascending: p. 533–34)

Rescuing the US Wind Industry

Enron rescued the domestic wind power industry at a time one bankruptcy was about to turn into two.

As noted by Daniel Yergin, “the company that actually put wind back in business in the United States was Enron.” Small wonder, then, that this new energy major became the political establishment’s favorite in the 1990s, with fawning business features in major publications, a special relationship with the Clinton administration, and praise and awards from Left environmental groups. (Enron Ascending: p. 524)

“Enron Forms Enron Renewable Energy Corp.; Acquires Zond Corporation, Leading Developer of Wind Energy Power.” The January 6, 1997, news release announced that Robert Kelly would head the new Enron Renewable Energy Corp. (Enron Ascending: p. 544)

“Renewable energy will capture a significant share of the world energy market over the next 20 years, and Enron intends to be a world leader in this very important market,” Ken Lay stated. The big news was Enron’s purchase of Zond Corporation of Tehachapi, California. “We believe wind energy is one of the most competitive renewable energy resources, and we believe this acquisition clearly positions Enron as a leader in this business,” Lay added. (Ibid.)

“We brought Zond back from the brink,” recalled Robert Kelly. Zond was running low on cash and unable to monetize its huge tax credits. “We were hanging by a thread,” Zond’s James Dehlsen remembered. “It was a really grim story.” (Enron Ascending: p. 546)

The domestic wind industry was in even worse shape. Kenetech Windpower, experiencing technical difficulties with its turbines, among other problems, had entered bankruptcy in June 1996, six months prior to Enron’s January 1997 purchase of Zond. A lack of competitiveness versus conventional sources was the reason, although wind advocates emphasized another culprit. “Managing a growing company in the renewable energy business [is] far more difficult than it should be,” complained AWEA, which blamed “our government’s inconsistent policies and its overwhelming emphasis on short-term fixes to problems at the expense of long-term policies.” (Enron Ascending: pp. 546–47)

The company to be renamed Enron Wind Corporation would struggle to help Enron’s bottom line in its first years. Lessons were learned about new technology on the fly. Kenetech’s blade failures were avoided. Zond had done the proper testing and worked with a world-leading turbine manufacturer, Vestas, to address life-cycle blade integrity. The extra work paid off. Enron Wind, which the parent put up for sale in 1998, would fetch top dollar when it was sold to GE in 2002, the year after Enron’s bankruptcy. (Enron Ascending: p. 547)