Category — Enron/Ken Lay

“Business that is everything to everyone is not anything at all in itself.”

 - Elaine Sternberg,  Just Business: Business Ethics in Action. Oxford University Press, 2000, p. 33.

No doubt his handlers have given Al Gore the word: go easy on climate warming (aka climate change). The issue has little traction. You are the wrong voice for the cause. Solyndra. Climategate 2.0. Winter snows…. Not now, Al.

Take it up a notch! they must be telling him. Think bigger. Subsume the issue…. And so Gore’s new piece in the Wall Street Journal barely mentions his pet issue of (man-made) climate change but something much larger and amorphous.

“A Manifesto for Sustainable Capitalism,” coauthored with David Blood, calls for “abandoning short-term economic thinking for ‘sustainable capitalism’.” Such is code for that subjective, holistic, anything goes doctrine of corporate social responsibility, which I elsewhere questioned as follows:

The discipline of business ethics should be reoriented around a more sophisticated understanding of capitalism proper. Business ethicists should also respect methodological individualism given that in both the primary and final analyses, businesses do not act, individual businessmen and businesswomen do. Because corporate social responsibility (CSR) speaks to the elusive whole more than to the parts, much business-ethics thinking has become prone to a central- and social-planning mentality.

Think Enron! As I wrote in this rebuttal letter published yesterday in the Journal:

Al Gore and David Blood’s “A Manifesto for Sustainable Capitalism” (12/14/11) reminded me of nothing so much as Enron Corporation, whose demise ten years ago is still the topic of debate and learning.

“We believe that incorporating environmental and social considerations into the way we manage risk, govern our projects, and develop products and services will help us maintain our competitive advantage,” Ken Lay stated Gore-like. “As we move forward, we will leverage our intellectual capital and innovative capabilities to promote sustainable business practices around the world.” [Read more →]

[Ed. note: This week marks the 10th anniversary of Enron's bankruptcy filing (December 2, 2001). Enron's view of energy sustainability drives the Obama Administration today. Yesterday, this series looked at Enron's Kyoto moment.]

 In the fall of 2001, Ken Lay set the tone for what would be Enron’s last Environmental, Health, and Safety Management Conference:

We believe that incorporating environmental and social considerations into the way we manage risk, govern our projects, and develop products and services will help us maintain our competitive advantage. As we move forward, we will leverage our intellectual capital and innovative capabilities to promote sustainable business practices around the world.

At this meeting, Enron’s Corporate Social Responsibility (CSR) task force listed its “Accomplishments to Date,” which were:

• Secured board oversight of social/environmental performance
• Expressed support for Universal Declaration of Human Rights
• Completed corporate responsibility task force
• Developed and pilot-tested human rights audit
• Developed security and human rights guidelines
• Established formal partnerships with WBCSD [World Business Council on Sustainable Development], IBLF [International Business Leaders Forum], and CI [Conservation International]
• Identified language to strengthen code of ethics
• Providing project support—Calypso, Transredes, Dabhol and Cuiabá
• Responding to stakeholder concerns on an ongoing basis

The goals for 2002 included:

• Formally adopt CERES Principles
• Complete indigenous peoples’ policy
• Specify social/environmental expectations in formal relationships with vendors and contractors
• Review results of stakeholder survey and develop strategy to address outcome
• Create awareness of social/environmental trends among [Enron’s] origination and investment groups
• Add corporate responsibility performance attribute to PRC [Performance Review Committee] process
• Present task force recommendations to Dr. Lay and senior management

Make no mistake—Enron was trying to practice CSR, so that it could monetize its “green” energy model. This had been Lay’s strategy for a decade with natural gas, as well as internationally, as with Enron Global Affairs’s 1999 launch of the Social and Environmental Responsibility Program. [Read more →]

[Ed. note: This week marks the 10th anniversary of Enron's bankruptcy filing (December 2, 2001). Enron's view of energy sustainability drives the Obama Administration's "green 'dream' team" today, so such a look back at Enron's crony capitalism is merited.]

Beginning in the late 1980s, global warming became a bread-and-butter issue for Ken Lay, Enron’s leader and up-and-coming industry visionary. Enron in the 1990s became a full-fledged “green” company, practicing “energy sustainability” with its investments in solar power, wind power, energy-efficiency services, and environmental services.

No U.S.-based company sounded the tocsin over climate change more than Enron. What John Browne did as head of the international energy major BP, Ken Lay did in the United States, working with interest groups and political leaders to push the energy industry and public toward carbon dioxide (CO₂) regulation.

Lay had his reasons—seven in terms of company profit centers, all of which stood to gain from government restrictions on carbon emissions. They involved:

· Natural gas production (relative to oil and coal),

· Natural gas transmission (relative to oil and coal),

· Natural gas-fired electric generation (relative to oil and coal),

· Energy outsourcing (a/k/a energy efficiency) services,

· Renewable energy generation (wind and solar),

· CO₂ emissions trading (joining company trading in sulfur dioxide and nitrogen oxide), and

· Environmental outsourcing (a/k/a environmental services).

Of these, Enron’s natural gas activities were core, profitable activities (and “win, win” economically and environmentally, in their important applications). But the last four areas were problematic from the start and never profitable, even with special government favor. In retrospect, almost no amount of government subsidy would have been enough for these nascent businesses. [Read more →]

“They about had an orgasm in Biden’s office when we mentioned Solyndra,” read a Feb. 27, 2010, email from [Ken] Levit to [Steve] Mitchell. A follow-up email from Mitchell to Levit later that day responded, “That’s awesome! Get us a [Department of Energy] loan.”

- Quoted in “Emails Reveal Biden Team’s Enthusiasm Over Solyndra Loans,” Fox News, November 9, 2011.

Kids in the taxpayer candy store. That describes the heady days when Solyndra executives and lobbyists gleefully found out that the politicians loved their speculative, defective product. It turns out that Solyndra was a photo-op for President Obama and his “dream ‘green’ team”–one that may well end up being their undoing. (Does Obama use the term ‘green jobs’ anymore?.)

Enron was the canary in the renewable-energy coal mine. Ken Lay had a vision for Enron to become the world’s leading renewable energy company, part of the company’s green and Corporate Social Responsibility imaging. [1]

Enron’s investments in solar and wind produced financial losses in each year of operation, but many photo ops were generated, including a solar project that duped the New York Times.

Solyndra’s orgasmic glee in Vice President Biden’s office reminds me of the dreamy memo by John Palmisano, Enron’s lobbyist in Kyoto, Japan, written the day after the Kyoto Protocol was ratified in late 1997.

With the tenth anniversary of Enron’s bankruptcy filing just weeks away, this is an opportune time to remind one and all of just what the whole global warming crusade meant for the most rent-seeking of all rent-seeking companies, Enron. Excepts follow…. [Read more →]

Yesterday, an op-ed by the late Ken Lay urged for climate action as a easy winner in benefits versus costs–something that was hardly true when he said it and known to be untrue now. Drastic action barely registers on the temperature/sea level/precipitation scale.

Here is Ken Lay (with Roger Sant) a year later with more advice for California in its current debate over whether to pass California’s Prop. 23, a measure to suspend the Global Warming Solutions Act of 2006 (AB 32).

Enron had seven profit centers tied to regulating carbon dioxide (CO2). What ‘Enrons’ are involved in the climate scare today?

The op-ed from September 1998 follows: [Read more →]

“It’s time to stop debating the issues surrounding climate change initiatives and focus instead on simple, realistic, cost-effective solutions. This is one area where an ounce of near-term prevention will be worth considerably more than a pound of cure later on.”

- Ken Lay, “Let’s Have an Ounce of Global-Warming Prevention,” December 1997.

“An ounce of global warming prevention is worth a ton of CO2 cure.  There are no emergency rooms for a sick planet.”

- Edward J. Markey (D–MA), “Second Life Remarks to the Virtual Bali UN Climate Conference,” December 2008.

The New York Times and other media outlets have identified the principled free-market advocates Charles and David Koch as supporters of California’s Prop. 23, a measure to suspend the Global Warming Solutions Act of 2006 (AB 32).

Given this publicity, it is only fair to resurrect the argument used by the late Ken Lay for doing just what AB 32 supporters want. After all, Lay and his political capitalism model for Enron and America is just the opposite of the Koch’s  ideal of free-market economy and Principled Entrepreneurship™ for America and business.

Lay Op-Ed: December 1997

An op-ed published by Ken Lay in the Houston Chronicle on  December 5, 1997 (p. 47A–no longer available*) provides a case study of misdirection by a corporate CEO to benefit his profit centers. “Let’s Have an Ounce of Global-Warming Prevention” portrays Enron and like companies as having the climate solution at their fingertips when, in fact, a pound of government was not worth an ounce of prevention or cure. Indeed, in the most widely read post in the history of MasterResource, Chip Knappenberger calculated that an 83% reduction in U.S. CO2 emissions by 2050 (the aspirational goal of the Waxman–Markey bill) was worth less than one-tenth of one degree of avoided warming from the alarmists’s own climate models.

And the temperature effect is even more de minimis California, which produces 6.2 per cent of U.S. CO2 emissions and 1.4 percent of global CO2 at present.

Here is the Lay op-ed from the pre-Kyoto days. [Read more →]

“We’re trying to minimize the package,” [Sen. John] Kerry said yesterday of the 987-page bill. “We’re trying to keep it simple. We’re trying to keep it transparent and open and understandable for why something took place.”

- Darren Samuelsohn, “Kerry-Lieberman Bill Uses ‘Fewer Buckets’ in Giving Out Highly Prized Allowances,” E&E News, May 14, 2010.

“One often speaks without seeing, without knowing, without meaning what one says.”

- Jacques Derrida, quoted in Mitchell Stephens, “Deconstructing Jacques Derrida; The Most Reviled Professor in the World Defends His Diabolically Difficult Theory,” Los Angeles Times Magazine, July 21, 1991.

The late postmodern philosopher,  Jacques Derrida (1930–2004) would find intellectual kinship in the political debates about climate and energy coming from the party in power. If alive today, Derrida would nod approvingly at Senator John Kerry’s above I-say-it, it-is-true inversion of reality. It ranks right up there with Ken Lay and Jeff Skilling telling the world after the Enron collapse that Enron was a great company.

Donway Unmasks Enron’s Inner Philosophy

Roger Donway was the first person to identify Enron as a postmodern company. In “The Collapse of a Postmodern Corporation,” he wrote:

But if Enron’s executives were neither incompetent nor crooked, what brought Enron down? I believe it was a culture of corporate values rooted in postmodernism. These were not your grandfather’s businessmen.

He explained: [Read more →]

[Editor note: The following post, "Cap-and-Trade: The Temple of Enron," appeared one year ago in MasterResource.  It is being reprinted in conjunction with the release of the outlines of the Senate energy/climate proposal. Robert Bradley, formerly with Enron, further documents Enron's cap-and-trade shenanigans in other MasterResource articles listed at the end of this post. Two press releases from the Competitive Enterprise Institute and the Institute for Energy Research on the Senate outline are reproduced as well.]

“Since 1976, Enron [and predecessor company] employees have been at the forefront of developing air credit trading policies for governments and businesses…. Enron today is the largest and most sophisticated air emissions credit and allowance trading organization in the United States. Since 1990, Enron has participated in over 80 SOx allowance transactions and has also been active in establishing policies for trading NOx in the United States and carbon [dioxide] world-wide.”

- “Enron Corp.’s Participation in Air Trading,” Enron Capital & Trade Resources, November 4, 1996 (copy in files).

“If implemented, [the Kyoto Protocol] will do more to promote Enron’s business than will almost any other regulatory initiative…. The endorsement of [CO₂] emissions trading was another victory for us…. This agreement will be good for Enron stock!”

- John Palmisano (December 12, 1997) from Kyoto, Japan. Quoted in Bradley, Capitalism at Work, p. 307.

“If anyone has environmental credit needs, that’s what we do. We want to be to be the clearing house to monetize available credits or to manage risk.”

- Kevin McGowan, director of coal and emissions trading, Enron Corp., Enron Biz, November 29, 2000 (copy in files)

“We are a green company, but the green stands for money.”

- Jeff Skilling, CEO, Enron Corp., quoted in Capitalism at Work, p. 310.

Enron is Exhibit A against Waxman/Markey’s [Kerry-Graham-Lieberman's] cap-and-trade proposal. Enron was poised to make money coming and going by being the nation’s and the world’s largest market-maker in CO₂ permits, and the “smartest guys in the room” were ready to game and game for incremental dollars (remember California?).

Enron’s business model, in retrospect, had to do with regulatory complexity, as I note in the introduction to my book Capitalism at Work. Enron gamed the highly prescriptive accounting rules (GAAP), tax system (the corporate tax division was actually a profit center as told in an exposé in the Washington Post), and energy regulatory rules. [Read more →]

Editor Note: This commentary is reproduced, with slight revision, from the December 2009 issue of POWER magazine.

As director of public policy analysis in my last seven years at Enron, I participated in many legislative and regulatory debates involving electricity, although the public policy thrust of the company was the opposite of what I personally believed was good social policy.

While I favored free markets, the business model of Ken Lay (a PhD economist with years of Washington regulatory experience) centered on special government favor. Enron, for example, had seven profit centers geared to government pricing/rationing of carbon dioxide (CO ₂) emissions. And in the 1990s, the company was squarely behind a Btu tax. Today, Enron would be pushing cap and trade and a federal renewables mandate–and a lot of mandated energy efficiency with its profit centers in mind.

Backing Gas

Ken Lay’s political niche began innocently enough with a unique, highly focused natural gas strategy, one that would culminate in Enron’s 1995 self-description as “the world’s first natural gas major.” In pursuit of that goal, Lay promoted gas-fired power generation relative to coal. He countered the coal lobby’s contention that the 1970s shortages were the inevitable result of a tiring North American gas resource base. “We had a surplus of regulation, not a shortage of gas,” Lay would say, and Enron backed up its claim by offering utilities long-term fixed-priced gas contracts.

Enron also challenged the tendency of electric utilities to opt for coal plants over gas plants because, under public-utility regulation, the former’s higher capital cost created more rate base and thus more profits. Citing new combined-cycle technology, Enron made the case that gas was economically and environmentally superior to coal for new capacity. For example, in March 1992, Enron unveiled “the natural gas standard” in letters, press releases, and speeches. The standard, set forth under Lay’s signature, declared: [Read more →]

[This excerpt from Capitalism at Work: Business, Government, and Energy prefaces a five-chapter review of energy Malthusianism from the time of Thomas Robert Malthus in the late 18th century through the Julian Simon/Paul Ehrlich debate of the late 20th century.]

“Here is a planet, whirling in sunlit space,” reads the opening of Rose Wilder Lane’s The Discovery of Freedom: Man’s Struggle against Authority, penned during the dark days of World War II. “The planet is energy,” she continues. “Every apparent substance composing it is energy. The envelope of gases surrounding it is energy. Energy pours forth from the sun upon this air and earth.”

Energy is pervasive and liberating. It moves people, makes things, and provides incalculable services. It vanquishes darkness, literally and figuratively. “Since early men ignited the first fires in caves,” it has been noted, “the unleashing of energy for light, heat, cooking, and every human need has been the essence and symbol of what it is to be human.” 

In economic terms, energy is the resource of resources, the master resource. Energy transforms mineral and natural resources from their raw form into consumable goods. Energy must be expended to create more energy and to refine energy into more usable forms. Thus, energy can be considered the fourth factor of production, in addition to the textbook triad of land, labor, and capital.

In business terms, energy has been and will likely always be the world’s biggest enterprise. The energy sector has spawned some of history’s great entrepreneurs. John D. Rockefeller shaped the American and world oil industry more than a century ago. Mr. Petroleum was one of the greatest business doers in U.S. and world history, if not the greatest.

Second to Rockefeller in the history of the U.S. energy industry is Mr. Electricity: Samuel Insull. An émigré who teamed with Thomas Edison to build the company that emerged as General Electric, Insull ventured on his own and built America’s largest gas and electricity entity. But his fortunes spectacularly reversed in the early 1930s. The dramatic rise and fall of the father of the modern electricity industry, “the Babe Ruth, the Jack Dempsey, the Red Grange of the business world,” is still the subject of contemporary books and articles.

In the 1980s and 1990s, another figure cut a unique path in the energy sector: Mr. Natural Gas, Kenneth L. Lay. He made a case for methane as the economic and environmental answer to America’s energy challenges and positioned Enron as the world’s first natural gas major. Lay’s star power put him in a league with the biggest names of the industry at the time, such as Lee Raymond of ExxonMobil and John Browne of BP. In early 2001, Paul Portney, president of Resources for the Future, declared, “In his role as chairman of Enron Corp., Ken Lay has almost singlehandedly made the world rethink what it means to be a modern energy company.” [Read more →]