Summary of Book 2

Summary of Book 2

Edison to Enron: Energy Markets and Political Strategies

M & M Scrivener Press

There are few flowing histories of the U.S. energy industry, just beaucoup books describing particular individuals, companies, or themes relating to the U.S. oil, natural gas, or electricity businesses. A few cover industry eras but are very academic. One rare exception is The Prize, a history of the petroleum industry by Daniel Yergin, which serves as a model for my Book 2.

Edison to Enron begins with the career and fall of Samuel Insull, one of the great American businessmen, whose unique experience provides a powerful comparison and contrast to that of Ken Lay and Enron. Insull not only brings the Thomas Edison era to life (he was Edison’s “financial factotum,” as one historian put it). Insull’s post-Edison career as head of Chicago Edison Company is a window onto the development of the modern electricity industry. Insull became the leading figure in his industry, and his relentless expansion resulted in the nation’s largest holding company.

The parallels between Insull and Lay are striking. Insull fathered public-utility regulation in the electricity industry, an inheritance that Enron would transform via the “mandatory open access” regulatory regime. The accounting firm Arthur Andersen gained national prestige with the Insull account and died from its controversial work for Enron. Samuel Insull was Mr. Chicago and Ken Lay Mr. Houston. Both icons were on top of the world and thought themselves to be invincible. Both fell to the very bottom. But there were differences too: Insull’s fall was much less deserved than that of Lay, and Insull was acquitted at trial while Lay was not.

Insull’s career comprises the first three of the book’s 11 chapters. Next comes a four-chapter section based on Ken Lay’s two-time mentor—Jack Bowen. Bowen went to work for the Warren Buffet of his day, Clint Murchison, a legendary figure whom few now know. Murchison invested in hundreds of businesses, almost all of which were money-makers. In particular, the “Wheeler-Dealer from Texas,” who made the cover of national magazines such as Time, founded major natural gas pipeline companies that are part of the Enron story in different ways.

It was Jack Bowen at Florida Gas Company (which Enron would later acquire), who hired Ken Lay from government. And some years later, while CEO of Transco Energy Company, the major gas supplier to New York City, Bowen hired Lay again. Lay, Transco’s president, was expected to succeed Bowen as CEO when Houston Natural Gas (HNG) called. HNG, through merger, would become Enron.

The last four chapters of Book 2 concern Houston Natural Gas, the major gas supplier to the Texas Gulf Coast, one of the boom areas of the United States. The HNG story begins with the legendary John Henry Kirby, who in 1901 attracted $40 million of capital from St. Louis and the Northeast to form interlocking oil and timber companies. Three years later, the companies declared bankruptcy, an event that drew national attention. Kirby went on to have a colorful career as Mr. Houston and as a nationally known figure from the South, but bankruptcy stuck him again during the Great Depression. The parallels between Kirby and Lay are notable and even striking.

HNG, meanwhile, had a storybook history under three chairmen: Frank Smith, John Wimberly, and Robert Herring. Herring, in particular, was a revered Houston leader whose career was many things that Lay’s would not be. Herring’s pre-HNG career centered upon Ray Fish, who was the world’s greatest pipeline builder. (Fish is the subject of his own chapter.) It was Herring’s death in 1981 that precipitated a series of events that led to HNG’s luring Ken Lay away from Jack Bowen at Transco. (And Herring’s death led his wife, Joanne, on a path that would culminate in a story chronicled in the book and movie, Charlie Wilson’s War.

Audience

The case studies and company histories of Book 2 will interest several audiences:

• Five Fortune 500 companies with major assets that are detailed in the book: El Paso Corporation, GE, Southern Union Company, TransCanada, and Williams Companies
• Historians of the natural gas and electricity industries
• Aficionados of American business history
• Those interested in the pre-Enron career of Ken Lay

As for competing books, there are histories of Samuel Insull, but each is either dated (Insull, by Forrest McDonald) or superficial (From Edison to Enron: The Business of Power and What It Means for the Future of Electricity by Richard Munson). A recent biography of Insull, The Merchant of Power, by John Wasik, reestablishes the importance of Insull in American historiography but lacks a worldview to draw the right conclusions from his career and life.

Edison to Enron: Energy Markets and Political Strategies

Introduction: Energy History in Rhyme

      Part I: The Chief

Chapter 1   Building General Electric

Prodigy
Breakthrough!
Thomas Edison
“Financial Factotum”
J.P. Morgan
From Dynamo to Jumbo
Edison Construction Department
Edison Light Company
Edison Machine Works
Competition Maximus
Going Napoleonic
Edison General Electric Company: 1889—92
General Electric Company (1892)
Farewell, New York

Chapter 2   Dynamo at Chicago Edison: 1892—1907

Hello, Chicago
Settling In
Innovation Maximus
“Cut-and-Try” Rates
Consolidation (Horizontal Integration)
Scaling Production/Distribution
Two-Part Rate Design
Financing
Chicago, Industry Leader
A Marriage of National Note
A Political Birth (Commonwealth Edison Company)
A Call for Public-Utility Regulation (1898)
From Chicago Edison to Commonwealth Edison
Selling Out Supply
Massing Production
Sales Redux
Vertical Integration
A New Name
15 Years of Progress

Chapter 3   Expanding Horizons: 1907—1918

Middle-Age Apex
Load Management
Rural Electrification
The Gospel of Consumption
More Massed Production
Public Service Company of Northern Illinois (1911)
Middle West Utilities (1912)
Peoples Gas Light and Coke Company (1913)
Road to Regulation
A Silver Anniversary (1917)
Corporate Culture
World War I
A New Path

Chapter 4   Peak and Peril: 1919—1931

Introduction
Commonwealth Edison: At the Core
Massed Production
Massed Consumption
World Leader
Resuscitating Peoples Gas
Public Service Northern Illinois: Measured Progress
Networked Power
Middle West Utilities: Going National
From Edison Spirit to Welfare Capitalism
Smilesian/Insullian Man
Perquisites
Managing Regulation
Leveraging Success
At the Peak

Chapter 5   Plummet and Ruin: 1930—38

Foibles and Flaws
Fatal Attractions
Pyramiding Gyrations
A Final Celebration
Collapse and Resignations
Resignation and Retrenchment
Political Scapegoat
The Trial
Sunset and Legacies

      PART II: The Boss—Jack Bowen

Chapter 6   Meadows to Murchison

Discovering Energy—and Clint Murchison
Southern Union to Delhi Oil
El Paso Natural Gas Company
Inside Delhi Oil

Chapter 7   A Monumental Mistake

Murchison at Twilight
Canadian Pipe Dreams
Getting Political
Dodging Failure
Parliament’s Bailout
Collateral Damage
Epilogue

Chapter 8   Florida Gas Company

From Coastal Transmission to Houston Corporation
A New CEO … for Florida Gas Company
Mr. Natural Gas
A Problem in Paradise
Diversification
Grandeur for Gas
The Energy Crisis
More Diversification
Management Changes
A Doctor for Natural Gas
Bigger Things for Bowen
Oil and Vinegar
Continental Resources Company
Ken Lay Moves On

Chapter 9   Transco Energy Company

To the Northeast
A Gas Supply Problem
Jack Bowen Arrives
Another Doctor Call [Ken Lay]
Public-Policy Activism
Looking Ahead
Lay Leaves Transco
George Slocum Takes Over
More Problems
New Leadership
Williams Companies
Retrospective

      PART III: Houston Natural Gas Corporation

Chapter 10   The Prince of Bankruptcy

“Father of Industrial Texas”
One Plan, Two Companies
Problems
Bankruptcy
Resurrection
The Great Man
Patriot and Protectionist
Bankruptcy, Again
John Henry Kirby Reconsidered
Unquenchable Optimist
“Lord Bountiful”
Capitalism à la Carte

Chapter 11   Pretty Boy and Mr. Pipeliner

“Pretty Boy”—Robert Herring
“A World Beyond”
Back to Texas
“Mr. Pipeliner”—Ray Fish
Fish Engineering Corporation
Pacific Northwest Pipeline
Losing a Protégé

Chapter 12   Formation and Maturation

Houston Oil Company Breaks Out
New Companies for Natural Gas
Competition Makes a Company
The Frank Smith Era (1933—55)
The John H. “Bus” Wimberly Era (1955—67)
Purchasing Houston Pipe Line
Purchasing Valley Gas Production, Inc.
Other Developments

Chapter 13   Robert Herring and After

The Robert Herring Era (1967—81)
A Fast Start
The Roaring 1970s
Energy Politics
A World Beyond
The M. D. Matthews Era (1981—84)
A New CEO
Operating Results
A Tender from Coastal Corporation
New Leadership: Ken Lay

Epilogue   Market Order, Political Peril

Market Ordering
More from Less—and Less to More
Creative Destruction
Sustainable Energy
Government Intervention
Typology of Interventionism
Interventionist Dynamics
Unintended Consequences
“Bootleggers and Baptists”
Public Utility Regulation: Manufactured Gas and Natural Gas
Beginnings
Call for Regulation
Statewide Regulation
Federal Regulation: Interstate Pipelines
Federal Regulation; Production
Revamped Federal Regulation
Why Regulation?
Public Utility Regulation: Electricity
Rent-Seeking Mentality
The Open Door for Ken Lay—and Enron
Source Notes
Bibliography
Name Index
Subject Index