Energy Deregulation Worsened the Texas Crisis — And Enron is Partly to BlameRoundup
tags: Texas, deregulation, energy, Enron
Gavin Benke is a historian and senior lecturer at Boston University and is author of Risk and Ruin: Enron and the Culture of American Capitalism.
As the deep freeze begins to lift and the lights come back on in Texas, millions of Texans are now contending with both a water crisis and outrageously high power bills. For some, the fiasco has revealed the dangers of a deregulated energy system, like the one we saw collapse in Texas. Yet, the usual champions of free enterprise are already warning against regulation — especially when it comes to climate change and energy policy. Rep. Dan Crenshaw (R-Tex.), for instance, falsely blamed Texans’ misery on policies intended to promote cleaner sources of energy. However, the story of Enron’s push for energy deregulation in the 1990s — and its consequences — should caution us against continued enthusiasm for deregulated energy or being scared by such warnings.
Lawmakers have long been attuned to the potential for boondoggles when it came to the nation’s power supply. During the 1920s, concerns about vertically integrated energy monopolies that controlled all elements of the power generating process led to New Deal initiatives such as the Public Utilities Holding Company Act (PUHCA). That law split up energy combinations and introduced price controls and other measures to regulate local utility monopolies.
Eventually, though, energy (like other industries) moved toward deregulation beginning in the late 1970s. Believers in the free market, including Texas energy executives like Enron’s Ken Lay, drove this change, actively pushing for deregulation in the 1980s and 1990s.
Infamously, Enron was a Houston-based energy company that pioneered the use of financial instruments in the natural gas business but collapsed in 2001 after years of accounting fraud came to light. Yet long before Enron became synonymous with white collar crime, the company’s leadership was deeply invested in energy deregulation. After finding success operating in the natural gas market (which had been deregulated in the 1980s), the company’s leaders, Lay and Jeff Skilling, turned their attention to electricity deregulation.
In 1992, President George H.W. Bush signed the Energy Policy Act into law, which represented a decisive, national step forward in the pursuit of electricity deregulation.
In the mid-'90s, Enron effectively declared war, intending to smash through any barrier standing in the way of electricity deregulation. Drawing on military metaphors, the company’s 1996 annual report stated: “In the U.S. we are moving forward in a state by state advance to support deregulation and quicken its pace.”
While the push was self-interested, designed to benefit Enron’s bottom line, the company framed its efforts by promising that if “new markets” were “liberated” consumers would see “benefits so big that they will actually improve the quality of life of individuals here and around the globe.” The company was waging a “massive public relations and legislative battle” to “bring competition to the U.S. retail market for electricity, one of the last great monopolies.”
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