How Enron Did Texas
In the spring of 1991 Texas State Representative Kevin Bailey killed an Enron bill. The freshman Democrat from Houston had been advised by his veteran campaign manager to play ball with the company, which at that point was still just a natural-gas-pipeline concern. But Bailey didn't listen, and it very nearly ended his career. In 1992 he found himself in a primary fight against an Enron-recruited candidate, who promptly used Enron cash to hire away Bailey's own campaign manager. When Bailey narrowly won that contest, Enron tried to unseat him again in 1994. Bailey survived, but he was chastened. Even then, "Ken Lay had a lot of influence," he said. "People were afraid to mess with him, because they always knew he'd try to get you." In subsequent years, Enron grew steadily more powerful in Texas. The company rose in tandem with the state Republican Party, which has been lavishly bankrolled by Enron executives and PACs. By 1999, when the Republicans, led by George W. Bush, swept every statewide Democratic official out of office and seized control of the State Senate for the first time since Reconstruction, Enron was sitting at the top of the heap, the king of the lobby.
That was the year Enron pushed its holy grail, deregulation of retail electricity, through the Texas legislature. Through its joint venture, the New Power Company, Enron stood to make a bundle when competition officially began in January of this year--if only the company were around to see it. Instead, Lay and his wife are fighting for liquidity, and the state's top Republican officials are heading into an election year with a Texas-size albatross around their necks. Governor Rick Perry has taken more than $227,075 from the company, including a $25,000 check from Ken Lay delivered the day after Perry appointed a former Enron executive, Max Yzaguirre, to head the Texas Public Utility Commission. Yzaguirre resigned under pressure on January 18, but Perry says he will not be returning the money. Neither will Republican Attorney General John Cornyn, who has received $193,000 from Enron. Cornyn recused himself from the state's investigation of the meltdown, though so far there has been little activity on that front. State Comptroller Carole Keeton Rylander, the elected official who oversees the collection of taxes from companies like Enron, has received $63,000 in contributions. Enron is also the largest corporate contributor to the current membership of the Texas Supreme Court, whose justices are elected in expensive partisan races and where some portion of the coming Enron litigation may very well wind up.
Already some veteran politicos are invoking the dreaded name of Sharpstown, the Texas banking scandal of the early 1970s. In the wake of that disaster, voters replaced virtually every incumbent statewide elected official, as well as half the sitting legislators. As the current election season gets under way, each new revelation in the morning paper has campaign consultants scrambling to uncover who got what from Enron over the past decade, and what Enron got in return.
In Houston, Enron's money went to art museums, opera houses and hospitals; in Austin, it went to politicians. "Lay and the big executives were absolutely everywhere in political circles," Democratic lobbyist Patrick Woodson said. "I mean, Enron's influence was just enormous." For the better part of a decade, Enron applied that influence with single-minded purpose toward one goal: cracking open the lock that the state's investor-owned utilities, principally Texas Utilities and Houston Lighting and Power, had on retail electricity sales--and on Texas politics.
"You have to understand, what they did in Texas politics is pretty amazing," Woodson said. The real roadblock to deregulation was that the strongest lobby in Texas, the investor-owned utilities (or IOUs, in regulatory parlance), had no interest in competition. Never mind that when Enron began pushing for electricity dereg in the mid-1990s, there was little public interest in the idea, and that power in Texas was already relatively cheap, compared with New England or California. Nobody had ever taken on the big utilities and won--that was Enron's real coup. "Enron took them on and put for the first time credible financial resources up against them," Woodson said. "There's no question that if Enron had collapsed before the 1999 session," Kevin Bailey says, "we wouldn't have had dereg in Texas."
As Enron wedged its way into the inner circles of state government, the company's political largesse became legendary. "I think they viewed campaigns as an investment strategy, and it paid off for them," Woodson said. The most important investment Enron made was in George W. Bush's first gubernatorial campaign, in 1994. As Bush somewhat disingenuously sought to remind voters this past December, Lay had been a minor patron of Democratic Governor Ann Richards. But when W. entered politics, Lay switched horses in a big way. A longtime supporter of the Bush clan, Lay was considered for a Cabinet post during the first Bush presidency. He then became a close adviser to W. and a key source of funds: $146,500 from Enron PACs and executives in the 1994 campaign. After Bush eked out a narrow win over Richards, the new governor gave the company a fundamental component of its Texas strategy in one of his first appointments: Public Utility Commissioner Pat Wood, a deregulator's dream.
A Harvard law graduate from Port Arthur, Texas, Wood began his public career on the staff of the Federal Energy Regulatory Commission, which was in the process of deregulating natural gas sales. Eyebrows were raised when Wood returned to Washington last summer, this time as Bush's choice to head the FERC, because of revelations that Ken Lay himself had vetted the list of candidates and given Wood his approval. But Wood has always been Enron's man. According to a report by Lowell Bergman in the New York Times, Lay endorsed Wood, just 32 at the time, for the PUC job in a letter to Bush in 1994. After four months on the commission, Bush made Wood the chairman, the most powerful regulatory position in the state. In an interview with the Houston Chronicle last year, Wood said that his orders from Bush were clear: "Get us to a market," Bush told him.
By all accounts, Wood did not need any convincing. From the outset, the chairman's pronouncements about the desirability of competition sounded strikingly similar to Enron's growing public relations effort. "Pat Wood was Enron's favorite PUC commissioner," Woodson said. "He started the dereg process and really put the ball in motion for them. They were the biggest player politically and financially in the dereg movement, and Pat was with them every step of the way." Wood has earned praise from some public interest lobbyists, like Public Citizen's Tom Smith, for being amenable to their concerns. But even his supporters agree that competition always came first with Wood, before any other consideration. "They've got religion" became a common refrain about the PUC under Wood.