The last time a state–California–tried to create a fake electricity market, it led to the collapse of the grid and the Enron scandal. On this week’s Liberty Cafe, we examine the possibility that Texas could face another Enron-type scandal as the state’s PUC attempts to make up its own fake electricity market.
This Podcast was transcribed by a robot called Otter.ai. Please forgive any errors in the text, as robots still have a lot to learn:
Some of my listeners may remember the Enron scandal back in the early 2000s, Enron was like Houston company run by Ken Lay, and was making billions of dollars, trading in energy markets and doing all kinds of things which turned out to be not necessarily necessarily all legal and not necessarily all profitable. But it looked really good for a while, in fact, Enron actually bought naming rights to where they use an Astros play. So what is now a Minute Maid Park used to be in Ron field. But that all came to a collapse. When a lot of things were exposed the illegal activities and just the the nature of some of the investments and activities they were engaged in? Well, it could be based on what the Public Utility Commission of Texas is doing, and in remaking the Texas electricity market that we may be looking forward. And maybe not that far in the future to another Enron scandal here in Texas. I will talk more about that, on this week’s episode 112 of the Liberty cafe. Hi, this is Bill peacock. It is a blessing today, as it always is, is a blessing to have you listening in to the Liberty cafe. And it’s always blessed to be sponsored by and blessed by the good folks over Texas scorecard. Go to Texas scorecard.com, find out all the great things they’re doing, listen to other podcasts over there, and read their articles and just see what you can do to get more engaged in the battle for liberty. The battle for political liberty, of course, is an important one. But even more than that, is the battle for the liberty of our souls, being freed from our sin so that we can walk in Liberty, and then expect that liberty in the political office and the political world. But the only way that liberty comes to us first is through Jesus Christ. So go on over to Texas scorecard and keep listening here. And we’ll keep talking about these issues. Well, as I mentioned, it’s a possibility that Texas could be heading for another Enron scandal. Why would I say that based on what the Public Utility Commission is doing? Well, first, let’s just go back and briefly talk about what Enron did. So Enron had this huge business, and they were not so much in the business of producing energy, but trading in energy and developing energy products. And, and a lot of it turned out to not be very real. But they had these these fantastically complex financial statements that were confusing, not just your average shareholder, but also to analysts, they didn’t know quite what to make of these, these financial statements that were being put out. But that didn’t stop them from all, at least for most of them, and for a long time, placing great value on the company itself. And then they also had this very complex business model. That in then also, some unethical practices were taking place. And so ultimately, this led the company to using accounting practices that misrepresented earnings. And because if their earnings died down, the company value was going to just go kaput. They also did things like modifying their balance sheets to indicate a more favorable performance. And then they just they went into a lot of, like I said before speculative business ventures, which just really proved disastrous, and then they gave huge compensation packages to a lot of these executives, who turned out to be not really bringing that much value to the company. So what Enron did, and a lot of these deals were just wrong. And they went out of business. When their company just collapsed, basically, their president Ken Lay was convicted along with a lot of other people. He actually died before he he was vacationing in the few months before he was sentenced to jail and he died of a heart attack. You know, no doubt probably brought on a little bit. All the stress by this, this whole event. And then, Arthur Andersen, the accounting firm for Enron also went out of business now that wasn’t really because Arthur Andersen as a whole went did something wrong. Maybe, maybe not. Some of their accountants or partners did some bad stuff, and maybe not. But this was clearly prosecutorial abuse that went after Arthur Andersen and, you know within probably a year or so of the there being the company being convicted of a crime which meant they couldn’t operate anymore. Basically, they were exonerated the courts of appeals courts throughout their convictions, but by them, there was no longer any Arthur Andersen. So we always have to look at these things from from the perspective of what the Justice Department is doing in these types of things. And this was a perfect example. It’s like the abuses and Watergate, the abuses and the Trump, Russia collusion thing, the abuses that are going on now in the FBI, those kinds of things. So we always have to keep those in mind. But that doesn’t mean that Enron just wasn’t a bad company. But relating this back to the Texas electricity market. What we have here is we need to talk about briefly is Enron’s activities out in California. So this was, in some ways, quite different, related, but still quite different from what they were doing in a lot of their other businesses. So back in the late 1990s, there was this electricity restructuring craze, I mean, and it was going on everywhere, California and Texas and New York and Ohio. And a lot of states, at least a third maybe if not a few more than that. Were three because liberals and conservatives all agreed that the old rate of return system where the Pete The Public Utility Commission told a generator to go out and spend $2 billion building a generation plant, and that they would get 8.65% return on investment on an annual basis was not serving consumers. It was expensive. It was unwieldly unwieldly. And it just didn’t work for consumers. It made their electricity more expensive, particularly in light of cheap natural gas. And so everybody went around restructuring or bringing introducing competition into their electricity market, Texas did it. And they were the only ones who did it all the way and made it work really well. As we know today, if you’ve been listening to Liberty cafe, the PUC is in the process of destroying what’s left of competition in the Texas electricity market. They’ve been working on this for a little over a decade now about a decade now. Just reducing time and time again. Well, okay, really, about 15 years, but reducing competition that the legislature put into it and the early PC put into the market. It’s just been going away. And this thing they’re doing right now will probably be the last step. But California did it just like Texas did, except they didn’t do it very well, which is no surprise because I said liberals and conservatives alike agreed on this, but but the liberals in many cases, and particularly out in California just couldn’t bring themselves to actually let competition get into the market. So what they did out in California was created an electricity market. That wasn’t really an electricity market, they created a fake quasi electricity market. That was not the market at all, but a bunch of rules and mechanisms and all these kinds of things, that the regulator’s out in California thought was what a market actually looked like. But it wasn’t one in our market actually looked like it wasn’t the market at all, it was this, this quasi market kind of structure that they thought would function like a market. But it would protect consumers from all these terrible companies who you just can’t let them work in a market by themselves because they’re going to be their consumers. And so they made this this this market up that would protect consumers? Well, it actually did the very author opposite, because what happened out there was, you know, these people in the state agencies, they’re just not as smart as the people in the private sector. And they don’t really understand business, they don’t really understand competition, they don’t really understand markets. What they understand is they want to control stuff. So that it’s not that they’re not smart. They have some smarts about them. But they’re not very wise. And the people in the market are smarter, and wiser, not necessarily always wise from a biblical standpoint where they want to always do the right thing, but still have a lot more smarts than the regulators. And so when California built this market and thought they would protect consumers, the folks at Enron looked at and said, we know how to game this market. You can always try and gain markets, but in a really competitive, true market. Competition takes care of all that. What happens is when you get a bunch of regulations, put on top of this that starts slowing things down. And then when you get the government just to create this market kind of thing. That’s when the problems really get bad because Enron went in there and rigged and figured out how to manipulate and game the system and made hundreds of millions, probably billions of dollars. I don’t remember the numbers right now. And It just basically brought the system crashing down out there. But as far as I remember, and as far as I can tell, the things Enron did out in California were perfectly legal. They just worked within the system out there. And the regulators had no idea that the system they set up would allow Enron to do the things they did. So. So how does that relate back here to Texas? Well, as I said, Texas is in the last throes of the competitive market here. And you may have listened last week when I talked about the Texas PC thumbing its nose at Governor Abbott because it Governor Abbott had sent a letter to the PC Commissioner saying move forward, in in restructuring the Texas electricity market, but they didn’t do anything. The week, they’re at their meeting the week after that letter. And so it’s going why did they do that? Why they’re thumbing their nose? Well, it turns out, they were just pausing a little bit, because this past week, the PC came out and passed the restructuring. Now what happened this time was essentially the PC thumbed its nose at the Texas Senate, because prior to the even the governor’s letter, the Texas Senate, or at least the members of Business and Commerce Committee, who oversees the PUC at the Texas Senate, and sent a letter to the PC saying, Whoa, hold on people. You guys are moving too fast. What and what you’re talking about doing isn’t what we intended for you to be doing when we passed this legislation back in 2021. And so they went from thumbing their nose at the governor, it turned out they didn’t quite do that. It just kind of looked like it on the outside to specifically thumbing their nose at the Texas Senate. And in particular, I think it lieutenant governor, Dan Patrick, because it’s the piece, the Texas Business and Commerce Committee has made themselves clear. But so as lieutenant governor, Dan Patrick, that he thinks what the PCs doing should turn in another direction. And he’s got some options out there as well. I don’t think what he wants to do is necessarily good. But nonetheless, you have this dynamic that the PUC is telling the Senate and the leader of the Senate, the lieutenant governor, that we’re going to do whatever we think now, they did stop in the process after adopting this model moving forward and say, Look, we’re gonna pause during the legislative session. But it really looks like that may not do much good. I mean, we’ll see what happens. But obviously, the governor is a Texas is telling them to move forward with this model. The House of Representatives is full of nothing but corporate cronies just released the leadership over there. And all they didn’t want to do is spin, send billions of dollars to, to big corporations, including generators, and gas companies and things like that. They’ve been really bad that it’s been awful what they’ve done since, well, for a long time, in some ways, but particularly since we’ve got a new speaker, and particularly since we’ve seen all the blowback from the winter storm URI back in 2021. So it looks like the PC may be moving forward with this plan, Despite the objections of the Texas Senate, we’ll have to see how that plays out over session. The one thing that might slow that down a little bit, is that the sunset I mean, the sunset commission is reviewing right now the Texas Public Utility Commission, which means the legislature has to pass a bill to renew the PUC otherwise, it goes out of existence towards the end of this year. So that might be a leverage point that the Senate can do, they might not be able to force otherwise force the House to pass a bill that they like and Governor to sign it, but they could just kill a sunset bill, the PC goes away. And then where does that leave everybody? So who knows how that’s gonna play out. But let’s just assume for the moment that they move forward, the PUC on some plan like this? Well, essentially, what they are doing is making up a brand new electricity market that nobody’s ever heard of before. Nobody’s ever seen function before. They got a consultant who drew up plans for for about five different ways to create a new electricity market. And everybody’s looking at this going, what do you what are you doing? Nobody’s ever heard about this before. And guess what happens when you make up a new electricity market? First of all, it’s not an electricity market, right? It’s a false construct that pretends like it’s going to be electricity market. And does that sound familiar to you? Well, it should because we just talked about that in California. And this is the exact same thing that the California tried to do. 20 Plus A few years ago. Now, I haven’t looked closely enough at the structure of this plan come in to compare it to what California did. But that’s not really the important thing. The important thing is they’re both made up. And, and I guarantee you, it will let me let me read some, just a quick blurb from the Houston Chronicle because I think that’ll help us understand a little bit more what’s going on. This is from the from the Houston Chronicle. The PUC approved a series of guiding principles, and a broad blueprint for how it would like the market to work, and it directed ERCOT and PC staff to study and submit proposals for how best to implement the new market structure. We might say that the new quasi semi made up market structure. Some specific recommendations proposed Thursday, however, cause friction at the meeting. Most of those points were raised by Commissioner Jimmy Glatfelter. When he described what he would like to see added to the PCM proposal. The PCM proposal is what the PUC is thinking about adopting. He worried that if generators and their affiliated electric retail retailers such as NRG and reliant or VISTA and Tsu sold and bought performance credits. among themselves, they could hypothetically game the market and concentrate market share. Peter lake that’s a chairman of the PUC said that that would be unlikely because those transactions would be centrally cleared through ERCOT. The New York Stock Exchange has market manipulation all the time, and it’s still centrally cleared GLAAD filthy said the commissioners ultimately, task ERCOT staff to study whether implementing that type of ban would signify would have a negative impact on the market. So here’s the point I’d like to make. So Lake said that manipulation would be unlikely because those transactions would be centrally cleared through ERCOT. Well, that’s actually the real problem. There’s nothing wrong with having a market where the market participants use some kind of central clearinghouse to clear their transactions. What what is wrong, though, is when the government sets up this quasi fake kind of market, and tells all the participants how they’re going to act in this market, and where it’s going to be cleared, and how all that it’s going to work. Because I guarantee you, just like in California, the people who work in the Texas electricity market are smarter and brighter and better understand how markets work than the people who are going to be designing this market. Again, not that there’s folks that there are folks that are caught and folks at the PC who are smart and bright. But ultimately, and a lot of them have business and industry experience in the business before coming over to be regulators. But ultimately, they don’t have the day to day knowledge of how this thing works, and how it should a market should operate. They’re really short on how markets should operate. So they’re going to design something that doesn’t work, right? The way markets really should work, right? And people in the marketplace, or the fake marketplace, generators and retailers, and those kinds of folks are going to figure out ways to manipulate it. I mean, that’s my prediction. And so we might run into a scandal, like we had with Enron, 20 or so years ago, where businesses in Texas are doing what the laws allow them to do, but which the regulator’s didn’t anticipate, and somebody’s gonna make a lot of money off of that. And then everybody’s gonna complain about these companies making billions of dollars, and they’re going to call it a scandal. And they’re going to want to go after these companies and find them a whole lot for market manipulation, when really all they’re doing is just using the market as it was designed by the regulators. So that’s the problem we might be facing. That’s why we might be facing another Enron scandal. But we can avoid all this by rather than having regulators design a brand new market, have them get their hands and their teeth, and whatever it is, they’re sticking into the current market and forcing them to get them those out of the current market and stop them from being able to manipulate the market. For instance, just one example. Back during a thunderstorm Yuri, the price of electricity was $2,000 per megawatt hour. That’s really high. But the PC commissioners, egged on by their staff, it wasn’t just the commissioners does it the staff wanted to do it best. My understanding is they raised the price of electricity to $9,000 per megawatt hour, and broke, everybody raised our bills, put people out of business, put Texans or Texas consumers and billions of dollars of debt. Right now that’s starting, that’s costing us about 700 billion a year because of that price hike, because it’s going to be paid off over many years. And why did they do that? Well, because they thought, well, the price isn’t high enough. And we need electricity. So if we raise the price higher, more people will be producing electricity. And then that will in the blackouts. Well, that sounds like a brilliant theory, but there was a problem with it. With the freeze, there wasn’t any more electricity to be found. There was nobody who could generate more electricity, it wasn’t because the price wasn’t high enough. And they were just holding back until the price went higher. It was because their plants were frozen, or they weren’t able to get natural gas, or the wind wasn’t blowing, or the sun wasn’t shining. Those were the problems. It wasn’t a problem with the market. It was a problem with the weather. And it was a problem with the interventions in the market. Also, that led to us having so much wind and solar in the state of Texas that caused a lot of the problems. It was also a problem with market regulators. He shut down electricity to to transmission stations and other places. They were transmitting natural gas to generators could use it, the vast majority of the problems that led to the blackout, not not just the cold weather, and shortages. But to the blackout that lasted for three days. That was all government intervention. The last thing we need here in Texas, is to see winter storm URI the intervention and the market manipulation that that took place before and up to n into winter storm Yuri the last thing we need to see that is on steroids with the PUC creating a new electricity market. But that looks like it’s what they’re going to do. Well, thank you very much for being with me today on this week’s Liberty cafe. And I hope that you have a blessed week, and also hope that you run over to Texas scorecard, sponsored Liberty cafe and see what they’re up to. Thank you for listening to the Liberty cafe with Bill peacock. This show is produced by Texas scorecard. You can learn more about the show and find other shows at Texas scorecard.com. Be sure you subscribe and rate the show on whatever platform you listen on. See you next time
Transcribed by https://otter.ai
