Yasmin Aliya Khan
The Texas Energy Crisis and Enron
Hello! Welcome to the Global Thread podcast. I’m your host, Yasmin Aliya Khan, and I’m very happy you’re here.
And honestly, I’m very happy that I’m here, too, because, as I’m sure you all have heard by now, Texas has been dealing with some issues. I live in Houston, Texas, the energy capital of the world, and we can’t seem to get a handle on our energy production or stores. The entire state of Texas, after being hit by a polar vortex on Monday, February 15th, was plunged into a state of emergency, with millions of Texans without electricity or gas to heat their homes or cook their food. On top of that, as pipes began to freeze over and burst, water pressure suffered, leading to boil water notices and water restrictions.
Yes, It Gets Cold in Texas
It’s no surprise that Texans aren’t used to the cold, especially those of us in the southern part of the state. We don’t like being cold. That’s probably why most of us live here. But beyond just Texans complaining about some low temperatures, the state simply isn’t equipped to deal with winter weather. In the north, as soon as ice hits the streets, there are huge trucks dropping sand and salt on the roads and sidewalks to prevent vehicles from slipping. They have these huge snow plows that get snow out of the way. Cars are equipped with snow tires and tire chains. People have snow shovels and winter weather gear. Me? My warmest coat, if you can call it a coat, is actually a ski jacket that an ex-boyfriend bought me in December of 2008. I broke up with him in January of 2009, but I kept the jacket.
Also, it’s worth mentioning that cold weather in Texas is not unheard of! I’ve lived in Houston for about 20 years now… I think we moved down from Connecticut in 1999 because I remember Y2K was a thing and I had just bought the Backstreet Boys’ “Millennium” album. Since then, it’s snowed a handful of times. Temperatures have dropped to below freezing. It was never a huge deal. At worst, the city shuts down for a day or two until everything, inevitably, warms back up. We don’t drive on the roads in case there’s ice, and again, we don’t have the infrastructure or supplies to deal with it. Usually, at worst, it’s just an inconvenience, and at best, we get to wear whatever cute winter clothes we do have and drink lots of hot chocolate by our electric fireplaces. It’s not a life or death situation.
Why would we have expected this time to be any different? We had been hearing about this polar vortex for maybe two weeks or so before it was expected to hit. Homeowners started covering their plants and wrapping their pipes, maybe stocking up on enough snacks to last a day or two since we figured the roads wouldn’t be great for driving on. Nothing crazy.
So, imagine our surprise when many of us were left without power for days on end while below freezing, and in some cases, below 0 temperatures endured. Imagine our surprise when our pipes burst and flooded our now-freezing homes. Imagine our surprise when dozens of Texans died in their homes and cars from hypothermia and carbon monoxide poisoning. Imagine our fear and frustration when phone lines were down and we couldn’t communicate with our loved ones either to seek or offer aid.
My Blackout Story
I guess, before diving too much into the “whys” behind all of this, I’ll give you a bit of my own personal account. I think stories like this get blown up in the news and people who aren’t living through it don’t really understand how bad it is on the ground. Personal stories can help sometimes, and unlike most stories that I have or likely will cover on this podcast, I’ve actually lived through this one firsthand.
Sunday! Valentine’s Day.
It was my mom’s birthday, but instead of doing something small and pandemic-friendly for her at her house, we opted against it in case the rain and freezing temperatures set in early and we wouldn’t be able to get home.
I remember being concerned for my friend who works in a nursing home and wasn’t going to be able to take off from work during the week. I was worried about her getting to and from work, but she assured me that her work was putting her up in a hotel nearby so she wouldn’t have to drive too far on icy roads.
While my boyfriend was busy tending to his garden babies in anticipation of the freeze, I ran to the store for wine and tea… the essentials. Our fridge and pantry were already decently well-stocked, so I wasn’t too worried about that.
That night, freezing rain woke us up. No cause for alarm - that’s exactly what was forecast. By the time the sun came up in the morning, there was maybe an inch of snow on the ground, if that, but a lot of ice. Again, that was expected. I tried to turn on a lamp near me to see if the power was out, and as expected, it was.
They had cautioned us about power outages prior to the storm, but I’ll admit that I was a little confused as to why. As I’d mentioned earlier, this wasn’t exactly an unusual weather event, but I figured the temperatures were going to be much lower than they had been in the past. Lower temperatures would mean more energy needed to heat homes, but still, I thought they were just being cautious. They said we might experience rolling blackouts, with power outages lasting 15-30 minutes at a time.
But for us, the power was out for several hours from the time we woke up. I’m not sure how long it had been out before we woke up, but it must have been a little while because the whole house was already pretty cold. Something else northerners might not realize - many homes in the south are not well insulated, by design. We’re not usually trying to hold heat in our homes - we’re trying to get it out.
I was receiving messages with updates from close friends and family members, but I wasn’t able to respond to them; my texts weren’t going through. Cell service was spotty. I couldn’t access the internet without WiFi, and I couldn’t access WiFi without power. I was, thankfully, somehow still able to make phone calls, so I called my parents to check in with them.
My boyfriend’s cell service was a little better, so we were able to get some updates from Instagram, Twitter, and the Houston subreddit. That helped.
That first day, the power would come and go, but for hours at a time. Our gas-powered fireplace wouldn’t light without electricity, so once the power was out, we didn’t even have that. Next time, we’ll know to keep D batteries on hand for similar situations. I haven’t even seen a D battery since the 90s, but I guess I’ve got to go buy some now.
So, we built a fort in the living room, mainly out of boredom, but by the end, it was a pretty legit fort. And it’s a good thing we built it because it was actually pretty well insulated in there, like an igloo. That first night, the power went out at around 7 or 8 PM and just never came back on. We listened to The Haunting of Hill House on Audible, which in retrospect, was a terrible decision because I dozed off and woke up at a super scary part while it was cold and dark. So creepy, but yeah… we ended up sleeping in the fort that night.
By morning, the house was very cold. Up to that point, it was easy to be chill about everything, no pun intended, but I had a moment when my teeth were chattering and we couldn’t even make tea anymore. Most people who know me know that once my tea supply is compromised, it’s only a matter of time before I get grumpy. At that moment, I looked to my boyfriend and told him very calmly and matter-of-factly, “If I’m cold for much longer, I’m going to be mad.” Without another word, he sat me down on the couch and layered about five blankets on top of me. What a guy.
Thankfully, that was the most harrowing it got for us because his parents had power at their house. We were wary of driving on the roads, but they don’t live too far from us. We made it over there and ended up staying with them for the night. By the time we came back to our house, the power was on, but as of me recording this, we still have to boil our water. We’ve got some bottles to get us through, for now, but grocery stores are still low in stock on essentials. Well, they’re low in everything. For a while, shelves were literally completely bare, and gas stations are still low in gas. A friend of mine waited in line for an hour to get gas, but they ran out two cars ahead of him, so instead, he just went inside and bought an iced tea so he wouldn’t feel like he’d completely wasted his time.
Another friend of mine lost power for something like 40 hours. There was a long stretch when I hadn’t heard from her, but of course, her phone battery had died. I remember worrying about her especially once the boil water notices started happening, because if people don’t have power or cell service, how would they even know not to drink the water?
My other friend has a baby and a small kid… their water shut off completely for a while.
Someone else I know had her first floor flooded from busted pipes, so that’s something she gets to deal with now. Similarly, someone else had some pipes burst somewhere in his apartment complex, so water started seeping into his apartment from the ceiling.
And I want to emphasize that these are all people that I know personally from across Texas. I have friends in Dallas-Fort Worth, Austin, San Antonio - all of us were experiencing similar issues. These aren’t stories that I heard on the news. This affected everyone in very real ways. And now we’re still dealing with the aftermath. I’ve been cleaning out my pantry and freezer all week, and it doesn’t look like we’ll be able to grocery shop or fill up our gas tanks any time soon. But on a positive note, the water and power situation is getting better, in Houston, at least. Most importantly, our usual Texas winter temperatures are back. Houston enjoyed a sunny 70-degree day today, and the rest of the state is well above 32, so thankfully, ice and freezing cold is no longer an issue, even for those still without power.
Alright, now that I hope you realize how bad it actually was and in many ways still is here, why is this a national headline?
Is it because all of this was forewarned and preventable but our state government officials did nothing to protect its own citizens in the name of higher energy profits?
Yes. Yes, it is.
I really wish it wasn’t so obvious sometimes. Like, I wish we could just have a crisis that was purely brought on by natural causes, a true “We’re all in this together” type situation that wasn’t so easily attributable to greedy politicians and lobbyists. Or maybe a situation where the scientists really didn’t see it coming, so they couldn’t even have issued warnings for people to later dismiss and ignore. Or I think I really just wish that humanitarian issues wouldn’t, inevitably, become so deeply politicized that regular people suffer more than is ever necessary for them to just so a few terrible people can attempt to cover up their own glaring incompetencies.
I wish everything I just said was hyperbolic.
But instead, we’re talking about this.
Ok, let’s go back to Enron. Remember them?
Enron was an energy game-changer, thriving and loving life at the turn of the century. It was also a farce, a disaster that ultimately cost people millions of dollars and thousands of jobs. It even took down one of the largest accounting and auditing firms in the world.
Speaking of, I think I mentioned earlier that Houston is the energy capital of the world - not the state, not the country - the entire world.
According to houston.org, (and this is a long quote),
“Houston is the headquarters and the intellectual capital for virtually every segment of the energy industry including exploration, production, transmission, marketing, supply, and technology. Houston employs nearly a third of the nation's jobs in oil and gas extraction. Home to 4,600 energy-related firms, the region remains at the forefront of foreign investment in energy - particularly in Mexico.
The critical mass created by such a high concentration of companies and thought leaders in one geographic area yields opportunities for all sectors of the energy industry, including a growing focus on energy tech and renewable forms of energy.”
Energy is a huge part of life for Houstonians, even for those of us who don’t work directly for the industry. We have very low gas prices compared to other parts of the country, and many energy companies have headquarters here. The average Houstonian probably knows a lot more about oil and gas than you do, and maybe even more than they realize. If you’re a technology, engineering, research, law, or any kind of business student, you’ve got a good chance of finding a well-paying job right out of school working for someone like Shell or Halliburton or Schlumberger. Needless to say, downtown and midtown Houston is full of yuppies. If you ever come to visit, don’t say I didn’t warn you.
So Enron, naturally, was also based in Houston. Enron was an energy company that famously tanked after being embroiled in an elaborate accounting scandal. That’s, of course, putting it very simply. In a lot of ways, it makes sense to think of Enron’s business practices as a very, very large-scale Ponzi scheme with millions of unwitting and unwilling victims. They were trading and betting on energy futures; selling things they didn’t and never intended to have on hand because they never thought they’d actually have to deliver; forging documents to trick the SEC and other oversight organizations; they even set up a fake office at one point so that external business analysts would see how busy they were and think they were legit in an effort to artificially inflate their stock price and valuation. That’s actually very similar to something Bernie Madoff did at one point, just to give you an idea of how corrupt this company was.
Heading up this company was Kenneth Lay, or as George W. Bush affectionately called him, “Kenny Boy.”
Ken Lay formed Enron in 1985 by merging two existing energy companies. Around this same time, the United States under the Reagan administration began deregulating oil and natural gas prices. I know, we keep hearing that word, “deregulation.” What does it mean? It means that the marketplace is made more competitive. The government steps out of the industry so that capitalism can do its thing. Corporations can more easily move into the industry and prices adjust according to market demands. Ken Lay was an avid, avid proponent of deregulation, as any businessman in the energy industry would have been. As we all should know by now, deregulation opens doors for businesses to make money. May the best corporation win, right?
The other key player you need to know is Jeffrey Skilling. Skilling started off as a finance guy for Enron, working his way all the way up the corporate ladder to CEO by way of an aggressive growth strategy that was highly fraudulent. While Lay was all about deregulation, Skilling was all about greed. I don’t just mean that figuratively. I mean… he believed in greed. He believed that greed was the only true motivator for anyone to do anything. He bastardized the ideas of Darwin, deliberately enacting a “survival of the fittest” form of management that involved pitting employees against one another to increase competition within the company. This contributed to a highly unstable dog-eat-dog corporate culture that didn’t allow for trust between co-workers. It also prevented anything meaningful or long-term from happening as agreements and decisions reached were often overridden before they were even executed.
While the most ruthless and cutthroat Enron employees were rewarded with promotions and bonuses, regardless of how they hit their numbers, those who didn’t perform as aggressively were fired. It’s an insane way to run a business. This toxic corporate culture was driven by yes, greed, but also visions of grandeur, personal and company-wide arrogance, lack of accountability, lack of a moral compass, and the belief that more money would solve their existing money problems.
And as is the case with all fraudulent and Ponzi-like businesses, there were always money problems. The books were nonsense. They even had a finance guy who was so good at cooking them that they made him the CFO.
Between Skilling and Lay, the priority was always growth - fast growth. But Skilling was the one actually running the company. Lay was busy taking flights in his private jet and donating to political campaigns. He backed George W. Bush for governor of Texas, and in the 2000 presidential election, Enron was the single largest contributor to Bush’s campaign by way of both corporate and individual donations.
Talk about money in politics, Ken Lay had Bush’s ear. During Bush’s time as governor, he signed legislation to deregulate the state’s electricity markets.
A year later, Bush went on to the White House and Rick Perry took over as the Texas governor. You may remember Rick Perry from his stint on Dancing with the Stars, or maybe from his stint as an objectively bad presidential candidate. Maybe you know him as Trump’s energy secretary, who accepted the position and then realized he had no idea what the Department of Energy even was, even though during his aforementioned objectively bad presidential run, he forgot the name of the department, but also vowed to eliminate it. More recently, though, you might remember Rick Perry from the comment he made last week. He said,
“Texans would be without electricity for longer than three days to keep the federal government out of their business.”
I think it goes without saying that as a Texan, Rick Perry does not speak for me.
But prior to Texas deregulating electricity very much at the behest of Ken Lay, California beat us to it. They deregulated in the late 1990s, opening its doors for corporations and corporate greed.
It’s basic capitalistic economics at work here. It’s nothing new. It’s supply and demand, and it can certainly be a good thing, at least in theory. In theory, more competition within a space gives consumers more options. The consumer will naturally favor and patronize the best company offering the best value, and their competitors will have to adjust their own offerings accordingly to make themselves more attractive to the consumer. The consumer is the hot commodity that the company’s are after. It’s all about satisfying their needs.
Theory is very different from how things tend to play out, though. In the real world, monopolies often form, or one company comes to dominate an industry through better funding, better advertisements, and eventually, better economies of scale. The little guys can hardly compete with the big guys, especially when the big guys are playing by a whole different set of rules. Unfortunately for the consumer and for ethically-run businesses, the most basic tenets of supply-and-demand can be manipulated.
That’s exactly what Enron did in California. As Enron expanded its business out west, Californians suffered as a direct result. Enron manipulated the electricity supply by exploiting holes in the existing system and essentially hoarding electricity to drive up demand. When demand is high and supply is low, prices shoot upward. Consumers found themselves hit with exorbitant electric bills, with prices going from $45 to over $1400 per megawatt-hour in just one year. Rolling blackouts across the state meant that children were often sent home from school, and small businesses faced disruptions that led to many of them shutting down. Over a thousand California utility workers had to be laid off, and the now-struggling utility companies lost their credit standing and purchasing power. Because of this, the state had to purchase power at highly inflated rates, throwing the already deeply indebted state into further debt. Eventually, the federal government had to step in to prevent a statewide blackout.
And Enron never took accountability for its actions, instead choosing to blame California for letting them get away with it for so long. As further evidence of their clear conscience, the Enron employees more directly behind the blackouts were given promotions and hefty, hefty bonuses, thereby encouraging similar behavior in the future.
Fortunately for the rest of us, Enron wouldn’t be around for much longer in the future, with the company filing for bankruptcy and being dissolved in 2001. Many of the Enron executives were convicted for their actions with the company, including Lay, Skilling, and the book-cooking CFO, Andrew Fastow.
The Texas Energy Grid
Now, something else you may have heard about is that Texas has its own energy grid! The United States has three major energy grids - one for the west, one for the east, and one for Texas.
This goes beyond Texas’ culture of “We don’t need you, but you need us,” regarding its relationship with the United States. Texas likes to regularly remind the rest of the US that we’re only a part of the union because we choose to be. We’re always threatening secession and reminding people that we’re cowboys and we’re crazy and we do what we want.
Yeah, yeah. But this power grid thing isn’t about that… not entirely. It’s about greed. Again.
You see, the United States has something called FERC, or the Federal Energy Regulatory Commission. According to its website, it’s a “federal agency that regulates the transmission and wholesale sale of electricity and natural gas in interstate commerce and regulates the transportation of oil by pipeline in interstate commerce.”
There’s a keyword in there… interstate. FERC doesn’t have any authority over energy transactions taking place within a state, as long as it doesn’t state lines. So to evade oversight, Texas created its own energy grid, allowing it to do business as it so pleases.
Here’s the thing… This polar vortex didn’t just hit Texas. It hit a lot of southern states who would have, theoretically, been just as ill-prepared for the cold as we were, as far as no snow plows, no salt trucks, etc. But since those other states were connected to an interstate power grid, energy was able to be redirected from other states to them. If you look at the map of the blackouts from last week, yes, there are spots in our neighboring states that lost power for a bit. When you look at Texas, though, the entire state was without power. It’s a map that unapologetically shows how glaringly and unacceptably the Texas power grid has failed.
What makes this all the more worse is that FERC issued a report in 2011 warning that something like this could happen. They told Texas that our grid’s infrastructure was outdated and needed repairs. Our wind turbines were not properly winterized. Our natural gas lines were not winterized. Our pipelines were not well insulated.
But since Texas energy operates based on a capitalistic model, there was little to no incentive for energy companies to agree to the necessary repairs. The state government did nothing to ensure they were done, either. It simply would have cost energy companies too much money. So they all did nothing.
To pour more salt in the wound, while millions of his constituents were freezing in their homes without power, water, or cell service, Texas Governor Greg Abbott went on Fox News to complain about the windmills, effectively hijacking the narrative away from his own failures and blaming the crisis on renewable energy sources, using the moment as a political stump against the Green New Deal.
The problem with that is that Texas has never adopted the tenets of the Green New Deal. Texas is completely run by oil-hungry Republicans - and has been for decades. Our governor, lieutenant governor, and two senators all profit directly from the oil and gas industry. Our Texas House and Senate are both controlled by Republicans, so for the governor to blame any of this on Democratic leadership is nothing short of ridiculous.
On top of that, his choice to specifically blame the windmills was also deliberately misleading. Windmills function perfectly fine in places much colder than Texas, including the Arctic Circle. The difference is that those windmills are properly winterized. Additionally, the windmills only contribute a small percentage of energy to the state’s overall energy consumption. If it had been just the windmills failing, most Texans would have likely been fine, but as the governor knows, the fossil fuel lines also failed.
The most disheartening part about all of this, apart from the fact that dozens of Texans have died from this, is that it is unlikely anything will be done to prevent it from all happening again. Given the governor’s lack of accountability, his refusal to acknowledge the true cause of the crisis, and his attempts to scapegoat everyone from the Democrats to the Electric Reliability Council of Texas to the wind, I’m not optimistic that change will be coming. You have to admit you have a problem before you can fix it, don’t you?
I do want to quickly call out John Cornyn, the other Texas senator who has said… nothing. This entire time.
Unfortunately, Texas is a state that’s so entrenched in its own avarice and ego, not unlike the architects of the Enron scandal, that those tend to win the day. Over the past year or two, we’ve been told several times by our leaders about how much we’re willing to suffer and sacrifice on behalf of the free market, or freedom, or the economy, or whatever.
One final story that I think sums this all up pretty well. I’ve thought about it a few times since last week. I remember in 2018 when Ted Cruz was debating Beto O’Rourke during the Senate race. I can’t recall what the question was, but I remember Ted’s answer. It had something to do with what each candidate would do given a certain situation. Beto had a whole answer that was, as I remember thinking, well thought out and deliberate. He mentioned that his response would go just beyond offering “thoughts and prayers” to people. He said he’d offer some actual solutions.
Ted’s rebuttal was one of the more upsetting things I had heard from him, which is saying something. He defended “thoughts and prayers” as a legitimate and complete response to people in crisis, because I don’t know… apparently he fancies himself a good Christian, so maybe his prayers are actually worth something. He successfully pandered to Texas Christians while aligning himself with them, imbibing himself with all of the moral authority and untouchability that comes along with simply claiming to be a good person.
What he was really saying was that in a time of crisis, what he would actually do would be nothing.
Last week, Beto O’Rourke, who currently holds no political office in the state of Texas, used whatever clout he has leftover from his two failed political campaigns to organize volunteers to check in on thousands of elderly citizens across the state, helping them find food, shelter, and warmth.
Ted Cruz went to Mexico, then lied about it, and then lied again when his first batch of lies were quickly and easily debunked. He then tweeted about how the blackouts were “unacceptable” and how he would work hard to turn power back on for Texans. This was, of course, after the worst of the crisis had passed, after city officials, non-profit organizations, volunteers, and even a congresswoman from New York did his job for him.
One [actual] last thing before we go, the Texas Coalition of Affordable Power filed a report in 2014 that said,
“Deregulation cost Texans about $22 billion from 2002 to 2012. And residents in the deregulated market pay prices that are considerably higher than those who live in parts of the state that are still regulated.”
That’s it for this episode! I know it was a long one, so if you’ve stuck around this long, I applaud and appreciate you. If you’d like to read a transcript of this episode, or if you’d like to support this podcast, you can do so at globalthread.org. Thanks so much for listening. I’ll talk to y’all soon.