Enron’s deregulation fight

Introduction

Efforts to deregulate the nation’s electricity market began with the 1978 Public Utility Regulatory Policies Act, which allowed private investments in the power generation sector. But the enactment of PURPA, as it was known, was only a small beginning, as the Public Utilities Holding Company Act of 1935 (PUHCA), which broke up the trusts that had owned utilities in the 1920s and gave companies local monopolies and a guaranteed, if small, profit in exchange for serving the entire community, continued to govern the electricity market.

After the deregulation of the air travel industry in the 1970s, independent power producers and consumer groups began calling for the repeal of PUHCA and overhaul of the nation’s power markets.

Enron joined that bandwagon at the beginning of the ’90s, and the company was in the forefront of the restructuring debate. The Houston-based energy powerhouse, which started as a gas marketing company, did not have any significant generation or transmission capacity when it began lobbying for deregulation. But it saw in deregulation an opportunity to expand its business and gain new markets by selling power—using the transmission grids owned by giant utilities—to industrial, residential and other customers.

In its push for deregulation, Enron was joined by other independent energy producers, consumer groups and some conservative free market advocacy organizations. But few lobbied as aggressively and vocally as Enron, which began campaigning on the issue in Washington in 1990, according to the company’s lobbying disclosure reports.

Enron sought a total repeal of PUHCA and modifications to PURPA. At a meeting of the Coalition of Northeastern Governors in Vermont in December 1996, Jeffrey Skilling, then-CEO of Enron Capital and Trade Resources, sounded almost impatient. “Every day we delay [deregulation], we’re costing consumers a lot of money,” he said. “It can be done quickly. The key is to get legislation done fast.”

However, the battle on Capitol Hill was not won definitively by Enron and its allies. Since passage of the Energy Policy Act of 1992, a number of bills have been introduced in the House and the Senate. But none of these measures became law, despite support from successive administrations. Both the Clinton and Bush White House backed restructuring and released their own versions of deregulation legislation.

The groups that lobbied against deregulation, mainly utilities, had been waging an even more brutal and successful lobbying campaign to block Enron’s preferred plans. Players on both sides of the issue have so far spent more than $50 million in lobbying, according to the Center for Responsive Politics.

Backers of deregulation were, however, more successful in states. Virtually every state considered deregulation at some point, and, so far, nearly half the states have restructured their power markets to varying degrees.

According the Department of Energy, 18 states and the District of Columbia have restructured their power market.

Enron won contracts worth several million dollars in many of these states.

Deregulation would have been more successful in states and even at the federal level had it not been for the California power crisis of 2000 and 2001. When electricity prices and public outrage shot up in California as a result of an artificial shortage, several states began revisiting the issue, and some either stalled or slowed down their deregulation plans.

Similar strategy

In the states, Enron tried to shape the debate on restructuring by following a strategy similar to the one it adopted at the federal level—that is, working with other large companies and trade groups, and hiring well-connected lobbyists.

Across the country, Enron coordinated its lobbying efforts and public campaigns with other groups. It worked with New York Energy Providers Association in New York, Alliance for Lower Electric Rates Today in Louisiana, Direct Access Alliance in California, the North Carolina Coalition for Customer Choice in Electricity, South Carolinians for Competitive Electricity and the Competitive Power Coalition in Massachusetts.

As in Washington, it hired a number of former legislators, regulators and other state officials to lobby state capitols. For instance, in Texas, it hired former state House Speaker Gib Lewis as a lobbyist. Sue Nord, a former Massachusetts Department of Public Utilities, lobbied for Enron in that state, and so did Tom Rutherford, a former New Mexican state senator. Max Yzaguirre, head of Texas Public Utility Commission, once worked for Enron.

At the height of the deregulation debate, Enron had lobbying presence in nearly all the states. The Center database on lobbying interests in states, released early last year, revealed that in early 2000 Enron had registered to hire lobbyists in at least 37 states.

The company tried to gain access to legislators and other decision-makers in a variety of ways to ensure that the restructuring package was favorable to it. In August 1997, when the New Mexico legislature was debating deregulation, Enron took a dozen state legislators who were attending the Council of State Governments-West conference for a cruise around San Francisco Bay, the Albuquerque Journal reported.

The same year, Enron Chairman and CEO Kenneth Lay wrote a letter to North Carolina House Speaker Harold Brubaker requesting a seat on a study panel for an Enron employee, who is connected to the Republican Party. “As you may know, I have been very active in Republican politics and served as Chairman of the Host Committee for the 1992 Republican National Convention held here in Houston,” Lay wrote. Despite the letter, Enron’s employee did not get a seat.

As states passed legislation to restructure their power markets, Enron capitalized by striking a series of power deals. For instance, in California, it won a five-year deal, worth $300 million, to supply electricity to the 31 campuses of the University of California.

The company also had stakes in cities that were privatizing electricity and also fought for privatization of power in military bases.

A 1988 law had banned the military from buying power from anyone other than local utilities. After a sustained lobbying campaign by Enron and other groups, the legislation was overturned. Subsequently, Enron won a contract worth $25 million to supply electricity to Fort Hamilton in Brooklyn, New York. The man who spearheaded the Enron’s lobbying campaign was Thomas L. White, who later became the Army secretary.

The cities and regions Enron targeted include Peterborough, in New Hampshire, Anaheim, Fresno and San Francisco.

In 1997, the company won a pilot program in Peterborough after waging an aggressive lobbying campaign that included holding picnics, lobbying town selectmen, and donating $25,000 for town improvements, according to the trade publication Electric Perspectives.

But Enron did not get everything it wanted from the states. Restructuring legislation passed by some states did not contain many of the provisions it had lobbied for, and some adopted plans that Enron’s opponents advocated.