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Texas Gov. Greg Abbott

Why The Rigged Energy System In Texas Won’t Improve Anytime Soon

Reprinted with permission from DC Report

The misery and death in Texas, where the state electric grid was taken down by unusual but predictable cold weather, underscore the misguided conservative Republican values of less regulation, devil-may-care burning of fossil fuels, dangerous tax cuts and unfettered trust in markets as the universal problem solver.

In Texas, the blame for the unheated homes, the dark urban skylines, and winter water shortages is on just one politician—Greg Abbott. He has been governor of the Lone Star state for more than six years.

Abbott gained notoriety in the past few days for making the ridiculous claim that Texans are freezing because windmills fail in the cold. The fact is that they are running just fine in such spots as Iowa, Minnesota, Alaska, Finland and even Siberia.

Texans froze because Texas state government:

  • Failed to require that natural gas pipelines be built in anticipation of severe weather
  • Didn't require sufficient natural gas storage for electric power plants
  • Neglected to insist that the electric grid itself be hardened against severe heat and cold, more of which is certain as climate change generates raucous weather

What did Abbott do? He appointed all three members of the Texas Public Utility Commission -- who failed to ensure the adequacy of the Texas electric grid for all weather.

Inadequate Reserves

Abbott's commissioners, embracing his anti-regulatory philosophy, did not require adequate power generation reserves. That's crucial. When electric generators go down in extreme weather, accidents or even planned maintenance, there needs to be plentiful additional capacity to ensure the juice flows.

The savings from cheap-skating in this area are quickly overwhelmed by the damage done by blackouts and days without power in either extreme cold or extreme heat.

Allowing utilities to slash the size of their staffs, especially line workers, compounds a disaster.

The set-up for this disaster began years before Abbott was born in 1957. Two decades earlier, during the Great Depression, Texas exempted itself from the then newly established federal regulation of electricity reliability and pricing.

Separate Power Grid

Most of Texas has its own power grid that doesn't connect to the massive Eastern U.S. or Western U.S. grids. The Panhandle and most of East Texas are on the Eastern Interconnection. The El Paso area is connected to the Western grid.

The rest of the state is under the system operator laughably named Electric Reliability Council of Texas, better known as ERCOT. Significantly, those areas connected to the rest of the country have not had issues.

That the Texas grid was not designed for predictable severe weather and lacked backup generating capacity has been known and documented for years. Yet under Abbott, the situation festered.

A blistering assessment of the Texas situation was provided to DCReport by two deeply informed electricity experts, Larry Kellerman, managing director of private equity investor I Squared Capital, and Robert McCullough, an independent utility economist in Oregon. They said: "The unfortunate state of the ERCOT power system can be summarized in two words: systematic unpreparedness. The origins of this disaster included the lowest reserve margins in North America, ignoring basic maxims of preparing for bad winter weather, and a market design that rewards shortages at the cost of consumers."

Kellerman's firm is a $24.5 billion private equity fund that invests in modernizing electric utility systems. McCullough is feared by utilities because of his ability to cut through their obfuscations with killer facts and smart financial analysis.

Getting Worse

The problems that Kellerman and McCullough documented in their report are only going to get worse so long as Abbott does what he has been doing. The governor comes up with crazy lies like blaming the proposed Green New Deal for his state's current electricity fiasco. His Republican allies in the legislature, by the way, are just as dishonest about the reasons the juice stopped flowing.

Indeed, anti-regulation ideology is so deep in the heart of Texas that Abbott's predecessor, Rick Perry, the Trump energy secretary, says Texans would rather freeze without electric power than let Washington regulate their grid.

Texas will have a terrible shortfall in its capacity to generate electricity at least through 2024, a National Electricity Reliability Council report shows. That means extreme hot or cold weather will result in more blackouts just when people most need air-conditioning or heating.

Texas fully embraced the idea of electricity markets to make for a stronger and more efficient electric system. It did so under auction rules sold to the Texas legislature by lobbyists for Enron. You remember Enron? It was the utterly corrupt, electricity-price manipulating Texas company whose top executives were tried and imprisoned after the company collapsed.

Some 14 years ago, I exposed the Enron-designed "electricity markets" for rules that inherently made prices rise, allowing power profiteers to gouge their customers' wallets.

Defenders of the Enron design of electricity auctions say that higher prices will prompt consumers to reduce their use of juice during peak demand periods. But without a convenient price change notification system how would you know that the price of power jumped ten-fold from five minutes ago?

Poor Economics

How can consumers respond to prices they don't know are rising – or falling? The only honest and economically sound answer is they can't. Abbott and his ill-informed appointees don't understand that, and don't want Texans to understand.

Kellerman and McCullough said Thursday the theory that "mandating even higher prices" will prevent blackouts "is simply poor economics." In Texas, the "widespread blackouts show that mandating high prices during emergencies has not created an incentive to build enough generation, make sure that it is operational during extreme weather or served consumers adequately."

And they note that the "privilege—not the inherent right—to participate in ERCOT's power marketplace" comes with a responsibility to apply well-established investment, design and operation practices "necessary to assure operational integrity during inclement weather."

Instead, the regulators appointed by Republican governors produced "a 20th-century solution for what should no longer be a 21st-century problem."

The cheapest and smartest way for electricity profiteers to fill their pockets is to eliminate generating capacity. Buying a fleet of power plants and then shutting one down allows profiteers to rig electricity markets so their profits balloon, as I showed here and here.

From $30 to $9,000

In Texas electricity that last week cost $30 soared to $9,000 once the bitter cold brought down much of the grid.

I've written about electricity regulation for more than four decades and taught its fundamentals for eight years to graduate business and law students at Syracuse University.

In 2006 in The New York Times, I showed how vulnerable the Texas electricity "market" is to manipulation by profiteers.

Creating electric grids that aren't up to the task is one of the ways that profiteers benefit. No American politician has done more to help profiteers than Abbott.

That Texans seem bewildered about their plight even though the problems have been known for years is not surprising. Texas utilities and their friends in office felt free under Abbott and his two Republican predecessors, Rick Perry and George W. Bush, to attack honest journalism about the electricity situation in Texas.

In particular there's the harassment of a Galveston newspaper reporter who wrote accurate pieces about facts that the Houston-based Reliant utility wanted to hide from its customers. Only one other Texas newspaper journalist wrote about the issue after which he was laid off.

One thing Texans should know is that going forward more deadly disasters caused by a lack of electricity generating capacity are predictable. The North American Electric Reliability Corp., assigned by Congress in 2005 to monitor reliability, found that only two of the 21 electric grids it studied will lack enough capacity to meet demand in 2024. That is a very short time in which to increase generating capacity.

The Canadian system serving Ontario province will be short 615 megawatts of capacity. The Texas shortfall will be six times that at 4,819 megawatts.

That electric generating capacity shortfall equals all the power needed to serve about 3.1 million homes. Texas has almost 10 million households.

When the predictable blackouts happen in the future will Texans know who is to blame for their misery? Or will they believe official fairy tales about wind turbines freezing up and the Green New Deal which as of now is only an idea?

What Robert Mueller Learned From Investigating Enron

What Robert Mueller Learned From Investigating Enron

Reprinted with permission fromProPublica.

This story was co-published withThe New York Times.

It seems safe to assume that nobody read Donald Trump Jr.’s damning emails with a Kremlin-connected lawyer more closely than Robert Mueller.

Mueller, the special counsel investigating possible ties between the Trump campaign and Russian officials, will surely be making calls to everyone involved in the now infamous meeting, including the president’s son; the president’s son-in-law, Jared Kushner; and his campaign chairman at the time, Paul Manafort.

As he does, the question is whether Mueller will be able to build a case that goes all the way to the top.

That could depend on what lessons he learned from overseeing the task force that investigated one of the biggest fraud cases in American history: the collapse of the energy giant Enron.

In December 2001, Enron filed what was then the largest corporate bankruptcy in American history. Just weeks later, Mueller, then the FBI director; Deputy Attorney General Larry Thompson; and the assistant attorney general for the criminal division, Michael Chertoff, formed the Enron Task Force, an elite team of FBI agents and federal prosecutors assigned to investigate and prosecute crimes related to the Houston-based energy trader. Andrew Weissmann, who recently joined Mueller’s Russia team, later led the task force.

The Enron team was patient and learned from its investigative and trial mistakes. After its yearslong run, it set a high-water mark for complex, high-profile financial inquiries, successfully indicting and imprisoning almost all of the company’s top executives.

Early on, the Enron team also won a jury conviction of the Arthur Andersen accounting firm, Enron’s auditor, on an obstruction-of-justice charge. That experience could prove valuable as the Russia team investigates — among many possible routes — whether President Trump obstructed justice when he fired James Comey, the FBI director.

Prosecuting the Enron executives went slowly. Not until 2006 did a jury find the former chief executive, Jeffrey K. Skilling, and the former chairman and chief executive, Kenneth L. Lay, guilty. (Lay died before sentencing.)

The frauds Enron was accused of were audacious. The company had hidden debt in a complex web of off-the-books companies and had faked its profits. Yet prosecutorial success was not inevitable. Skilling and Lay pleaded ignorance, blaming lower-level employees and arguing they had relied on the advice of their attorneys and auditors. The government did not have damning emails or wiretap evidence from either man. Prosecutors may face a similar challenge with Trump, who tweets but reportedly does not use email.

The Enron team got off to an auspicious start, with the Department of Justice providing adequate prosecutorial resources. Mueller helped recruit talented prosecutors and investigators from around the county and then got out of their way.

He and other top Justice Department officials then gave their team political cover. Enron and its executives were particularly close to the Bush family and top Republican officials. Early on, the team interviewed White House officials about their recollections. Republican political operatives voiced displeasure, but the team persisted.

The task force conducted its investigations effectively, flipping lower-level employees to build cases against the top bad actors. The Enron team made aggressive and risky moves. For example, it shocked Houston high society by charging the wife of Andrew Fastow, the chief financial officer, with tax evasion to put pressure on him. It worked. Fastow began to cooperate with the government. (His wife pleaded guilty.) Every prosecutor knows this strategy works, but for various reasons today, few put in the painstaking work needed to penetrate the sophisticated legal defenses of highly paid executives.

As it proceeded, the task force weathered relentless attacks. First, critics charged it was moving too slowly. Later, white-collar defense lawyers accused the team of intimidating witnesses and overzealously charging executives. The legal establishment particularly criticized the prosecution of Arthur Andersen. The government won at trial in 2002, but the Supreme Court overturned the verdict three years later on a narrow issue involving jury instructions.

Despite its successes, the Enron Task Force emerged with a mixed legacy thanks to its trial losses and reversals from higher courts. Among them, the Supreme Court reversed part of the Skilling verdict.

Today, many Justice Department officials have learned the wrong lessons from the Enron experience, accepting the idea that the task force was overzealous. Even Democratic appointees like Mary Jo White, President Obama’s chairwoman of the Securities and Exchange Commission, and Lanny Breuer, his assistant attorney general for the criminal division, came to believe the prosecution of Andersen had been a mistake.

Drawing the wrong lessons has consequences. In subsequent years, the Justice Department did not assign prosecutors to work solely on financial crisis cases. While the Bush Justice Department had acted quickly to create the Enron Task Force, the Obama department allowed plans to create a similar task force, after the banking collapse of 2008, to die amid bureaucratic infighting.

It was no surprise, then, that the Justice Department never put any top bankers from the biggest banks in prison after the financial crisis. Forgetting what went right with the Enron prosecutions has contributed to a problem that still plagues the Justice Department: It has lost the will and ability to prosecute top corporate executives from the largest corporations.

Today Mueller’s team is operating in an even hotter kitchen than the Enron Task Force did. The president has repeatedly called the investigation “a witch hunt,” and rumors abound that he could fire Mueller any day. A Trump ally, former House Speaker Newt Gingrich, has grumbled conspiratorially that the former FBI director was the “tip of the deep state spear” aimed at the president.

But the Enron Task Force may have given Mueller a hide thick enough to protect him from those attacks. More than that, Enron honed skills he’ll need now in the Russia investigation, which may well touch on money laundering, secrecy havens, complex accounting maneuvers, campaign finance violations — and multiple lies.

As I talked with Mueller’s former Enron Task Force colleagues in recent weeks, it became clear to me that he believes the Enron team was successful — and understands why. That means his special counsel team will probably move more slowly than people anticipate. But it might also shock people with its aggressive investigative and prosecutorial tactics. If Trump and his advisers committed crimes, Mueller will find them.

Jesse Eisinger is the author of The Chickenshit Club: Why the Justice Department Fails to Prosecute Executives.

White Billionaire Secretly Funds Surveillance Program Aimed at Baltimore’s Mostly Black Population

White Billionaire Secretly Funds Surveillance Program Aimed at Baltimore’s Mostly Black Population

Published with permission from AlterNet

Hedge funder uses private foundation to fund personal police project, circumventing democratic oversight.

Over the past few years, billionaires have unilaterally shut down a popular newsite, pushed common core on the Department of Education and steered candidates to a hardline position on Israel. Now one Texas-based billionaire (who began amassing his fortune at Enron) has singlehandedly spearheaded a massive spying program—secret until now—in a city 1500 miles away from where he lives.

John Arnold used his foundation to funnel $120,000 for an aerial surveillance program into a police charity, the Baltimore Community Foundation, which covered the costs for the department. According to Bloomberg Businessweek, which broke the story earlier this week, the program was not revealed to Baltimore citizens, and because it was funded by monies outside the normal channels of oversight, it did not need typical approval from elected city officials.

The surveillance program, implemented by Persistent Surveillance System’s Ross McNutt, involved a near-total visual surveillance of the population using a combination of on-the-ground cameras and cameras attached to a permanently rolling fleet of Cessna planes. The effort began last year when John Arnold heard a piece on the public radio program RadioLab featuring the technology, which was originally used in Iraq during the surge.

The Laura and John Arnold Foundation told McNutt if he could find a city that would allow the company to fly for several months, they would donate the money to keep the plane in the air. McNutt had met the lieutenant in charge of Baltimore’s ground-based camera system on the trade-show circuit, and they had become friendly. “We settled in on Baltimore because it was ready, it was willing, and it was just post-Freddie Gray,” McNutt says. The Arnolds’ foundation donated the money to the Baltimore Community Foundation.

It’s unclear how Baltimore could be “ready and willing” when the public wasn’t informed. What McNutt appears to mean is that the Baltimore Police Department was ready and would not seek public discussion.

While initial reports did not explore the racial component, it cannot be ignored. McNutt’s “post-Freddie Gray” remark carries with it racial implications, namely that the monitoring tool might be used to control protests or unrest in addition to preventing crime. Arnold, who is white, is using his tremendous power and wealth to treat a predominately black city as a guinea pig in his crime prevention trial raises questions of undue influence and the circumvention of normal, local democratic processes. The democratically elected body that would normally need to approve such a measure, the Baltimore Board of Estimates, is currently 60 percent African American. The foundation that served as the conduit between Arnold and the department is not sanctioned by voters and according to its spokesperson didn’t even “know what the money was for.” If true, this would rest the oversight of the program entirely on the shoulders of the hedge fund billionaire who was paying for it and the Baltimore Police Department that managed it.

No doubt anticipating bad press, the Baltimore Sun ran a glowing puff piece on the Arnolds Friday, showcasing the charitable work they do in Maryland. John Arnold is also a major backer of charter schools, a movement heavily favored by the hedge fund industry. He has also spent a considerable amount of time and money pushing so-called pension reform, a long-term project also supported by many in the hedge fund industry.

With the expansion of police body cameras and surveillance in general, the ways in which monitoring can also help prevent police violence are at the center of this controversy. Power asymmetry can affect what cameras record and prioritize, and typically works in favor of those who control the technology.

“This whole city is under a siege of cameras,” Baltimore resident Ralph Pritchett told Bloomberg Businessweek in its report. “In fact, they observed Freddie Gray himself the morning of his arrest on those cameras, before they picked him up. They could have watched that van, too, but no—they missed that one. I thought the cameras were supposed to protect us. But I’m thinking they’re there to just contradict anything that might be used against the city of Baltimore. Do they use them for justice? Evidently not.”

h/t Bloomberg Businessweek

Photo via Flickr/Jonathan McIntosh