Lessons from the Enron Collapse
(Published January-February, 2002 In Infinite Energy Magazine Issue #41)
by Jed Rothwell
In December 2001, the Enron energy trading company declared Chapter 11, in the biggest bankruptcy filing in U.S. history. The ten largest filings since 1980 include two other energy companies: Texaco in 1987 and Pacific Gas & Electric in 2001.

Last year, Enron was the seventh largest corporation in the U.S. It was considered one of the most aggressive, successful, and politically well-connected. It made close friends with high officials in the U.S., Britain, and India. Rivals and enemies accused Enron of exploiting the confusion in newly deregulated utility markets for electricity, natural gas, water, and fiber optic communications. They say its accounting practices deliberately obscured profit and loss to confuse stockholders and regulators. Many people believe Enron masterminded the California energy crisis, fleecing rate payers and the state for billions of dollars.

Enron's political influence was extraordinary. The CEO is a close personal friend of President George W. Bush, and his biggest campaign contributor. Enron executives huddled with Vice President Cheney to help write the National Energy Policy. In May 2001, in an article titled "Bush Task Force on Energy Worked in Mysterious Ways," the New York Times reported: "Richard S. Shapiro, senior vice president of the Enron Corporation, a major Republican contributor and the nation's largest trader of wholesale electricity and natural gas, said top executives from his firm spent half an hour with Mr. Cheney, but he could not tell how much this may have influenced the final report."

The collapse had many causes. Enron made failed investments in fiber-optic networks, a power plant in India, and water distribution in the U.K. Top executives in the company are accused of unethical behavior. The SEC is investigating shady deals in which they allegedly enriched themselves, and formed partnerships designed to hide $500 million in losses. These are serious problems, but corporations have survived worse, and Enron could have been fixed with new management committed to reform. The fatal blow was the collapse in the price of energy and the sudden end of the California energy crisis, which drained cash and ruined Enron's credit. Enron was mainly a trading company, a business that depends on good credit and customer confidence.

What lessons do these events hold for cold fusion and other radically new and cheaper energy sources? Giant corporations are not as powerful as most people think. Stock value, capital, political connections, and clout can be erased by market forces, or by the public, in this case the enraged rate payers of California. If the public ever realizes that cold fusion is real, oil companies and the DOE will be doomed.

The energy industry has vast wealth, power, and influence. The U.S. has fought wars, in part to protect oil company interests in the Middle East. It sends billions of dollars in oil revenue to Saddam Hussein and other tyrants, who are committed to building weapons of mass destruction. None of this is necessary. The New York Times estimates that the U.S. could save 1.6 billion barrels of oil per year, more than all imports from the Middle East, with a single innovation: hybrid automobiles, now being sold by Toyota and Honda ("Sunday Magazine," December 9, 2001, "Hybrid Cars"). We risk nuclear annihilation, enrich our worst enemies, and run up gigantic trade deficits supposedly because the public does not want energy efficient automobiles, even though the savings in fuel would pay for the extra cost of the engines. It seems more likely that conservation is unpopular with policy makers. Judging by its actions, the government's main goal is to shore up oil company profits. The energy industry is ruthless. It is willing to risk catastrophic global warming to protect profits. It cuts short countless lives with pollution and flattens mountains to dig coal. If ever a corporation has held sway over national energy supplies and policy, and was in a position to dictate policy for its own benefit, it was Enron. Yet, when circumstances changed, Enron's power evaporated.

The California crisis was the main cause of Enron's demise. In retrospect, it is unlikely there was a significant physical shortage of generator capacity in California. In the first half of 2001, California consumed less electricity than in 1999 or 2000, yet it paid billions of dollars more, and power outages occurred. Investigators suspect that some generator plants were deliberately taken out of service ostensibly for maintenance, but actually as a ploy to tighten supplies and trigger emergency purchases. When the Federal government imposed price caps, and power companies could no longer collect a hundred times more revenue per kilowatt-hour than normal, the incentive to withhold supplies vanished. Maintenance went back to normal and the missing capacity reappeared. Many new generator plants are under construction in California and the Pacific Northwest. It seems likely there will be a capacity glut for the next five or ten years.

Left-wing critics say this fiasco demonstrates the failure of deregulation. They point to the City of Los Angeles, which has a city-owned generation system, and never suffered from a shortage or high rates. Conservative critics say the problem is that the market is half-regulated and half-free. From my perspective, the problem is not the laws, regulation, or deregulation, it is that these companies are trying to sell obsolete, overpriced technology to unwilling customers.

Last spring Vice President Cheney dismissed conservation, saying it "may be a sign of personal virtue, but it is not a sufficient basis for a sound, comprehensive energy policy." California rate payers cut consumption 10% by turning off unnecessary lights, buying new refrigerators, and compact fluorescent lights. They put Enron out of business. If the public-consumers and voters-ever realizes that cold fusion is real, it will insist the research be funded and products brought to market. The energy companies, the DOE, the Patent Office, the administration, OPEC, and many others will fight this, but the public has more power than all of them combined.