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Bush and Ken Lay: Slip Slidin' Away
Page 1, 2, 3

Taking the White House

In the 2000 campaign, Lay was a Pioneer for Bush, raising $100,000. Enron also gave the Republicans $250,000 for the convention in Philadelphia and contributed $1.1 million in soft money to the Republican Party, more than twice what it contributed to Democrats. []

Lay and his wife then donated $10,000 to Bush’s Florida recount fund that paid for Republican lawyers and operatives to ensure that a full recount of Florida’s ballots never occurred. To this day, Bush has refused to release an accounting of how that recount fund money was spent.

After Bush took the White House in January 2001, Enron Corp., Enron’s President and Chief Operating Officer Jeffrey Skilling, and Ken Lay contributed $100,000 each for a total of $300,000 to the Bush-Cheney Inaugural Fund.

These contributions cemented Lay’s standing with the White House. From the beginning of the administration, Lay advised on policy and personnel. The Enron chief was on the short list for two Cabinet posts, Energy and Treasury, though he ultimately stayed in the private sector.

Starting in late February 2001, Lay and other Enron officials took part in at least a half dozen secret meetings to develop the Bush's energy plan. After one of the Enron meetings, Vice President Cheney's energy task force changed a draft energy proposal to include a provision to boost oil and natural gas production in India. The amendment was so narrow that it apparently was targeted only to help Enron's troubled Dabhol power plant in India. [Washington Post, Jan. 26, 2002]

Other parts of the Bush energy plan tracked closely to recommendations from Enron officials. Seventeen of the energy plan’s proposals were sought by and benefited Enron, according to Rep. Henry Waxman, D-Calif., ranking minority member on the House Government Reform Committee. One proposal called for repeal of the Public Utility Holding Company Act of 1935, which limits the activities of utilities and hindered Enron’s potential for acquisitions.

Besides listening to Lay's advice, Bush put the corporation's allies inside the federal government. Two top administration officials, Lawrence Lindsey, the White House’s chief economic adviser, and Robert Zoellick, the U.S. Trade Representative, both worked for Enron, Lindsey as a consultant and Zoellick as a paid member of Enron's advisory board. []

Bush also named Thomas E. White Jr., an 11-year veteran of Enron's corporate suites, secretary of the Army. White had run a key subsidiary, Enron Energy Services, which is now the focus of allegations about accounting irregularities. After taking office in May, White vowed to apply his Enron experience to privatizing utility services at military bases. White's subsidiary had been responsible for selling energy services and Enron was eager for contracts with the U.S. military.

Public Citizen, a liberal watchdog group, has demanded that White fully explain 29 meetings and phone calls with senior Enron officials after White became Army secretary. White says the conversations were with "personal friends" about "Enron's deteriorating financial conditions." [Washington Post, Jan. 27, 2002]

At least 14 administration officials owned stock in Enron, with Undersecretary of State Charlotte Beers and chief political adviser Karl Rove each reporting up to $250,000 worth of Enron stock when they joined the administration.

FERC Appointees

Lay exerted his influence, too, over government regulators already in place. Curtis Hebert Jr., a conservative Republican and a close political ally of Sen. Trent Lott of Mississippi, had been appointed to the Federal Energy Regulatory Commission during the Clinton administration. Like Bush and Lay, Hebert was a believer in free markets. Bush elevated Hebert to FERC chairman in January 2001.

While a strong believer in deregulation, Hebert broke ranks with Lay on two key points. Hebert was an advocate of state rights, an obstacle to Enron's desire for FERC to mandate consolidation of state utilities into four giant regional transmission organizations, or RTOs. By quickly pushing the states into RTOs, Enron and other big energy traders would have much larger markets for their energy sales.

Hebert also was worried about the complex derivative financing instruments that he saw among the leading energy traders, including Enron. After he became chairman, he started an investigation.

"One of our problems is that we do not have the expertise to truly unravel the complex arbitrage activities of a company like Enron," Hebert said. "We're trying to do it now, and we may have some results soon." [NYT, May 25, 2001]

By early 2001, Enron executives knew how complicated and how questionable their financial schemes had become. For several years, with greater and greater audacity, they had been creating affiliated partnerships where Enron hid debt and poor-performing assets outside the view of investors and government regulators.

The schemes enabled Enron to report robust earnings and keep its stock price high, as senior executives sold off more than $1 billion in stock and made millions of dollars from self-interested deals with the partnerships. Lay personally collected more than $112 million in cash from salary, bonuses and sale of Enron stock in the past three years. He owned three houses in Aspen, Colo., valued at more than $15 million. [Washington Post, Feb. 3, 2002]

Hebert said he got a call from Lay with a proposed deal. Lay wanted Hebert to support a faster transition to a national retailing structure for electricity. If he did, Enron would back him, so he could keep his job.

The FERC chairman later told the New York Times that he was "offended" by the veiled threat. He understood that Lay's political influence could put his job in jeopardy, since Bush held the power to appoint FERC chairmen and Lay had demonstrated sway over selection of administration appointees. Besides supplying Bush aides with a list of preferred candidates, Lay had personally interviewed one possible FERC nominee.

Lay offered a different account of the phone call. He said Hebert was the one "requesting" Enron's support at the White House, though Lay acknowledged that the pair "very possibly" discussed issues involving FERC's authority over the nation's electricity grids. [NYT, May 25, 2001]

California Crisis

While Cheney was hammering out his energy plan and Lay was discussing energy options with FERC, a full-scale energy crisis was sweeping California. In a partially deregulated market served by Enron and other energy traders, electricity prices soared 800 percent in one year. Rolling blackouts crisscrossed the state.

A recently released memo from Lay to Cheney advised the administration last April not to use price caps to spare Californians from soaring energy costs, according to the San Francisco Chronicle. "The administration should reject any attempt to re-regulate wholesale power markets by adopting price caps or returning to archaic methods of determining the cost-base of wholesale power," the memo said. [San Francisco Chronicle, 01/30/02]

The Bush administration adopted Enron’s position in its political battle with California Gov. Gray Davis, a Democrat. Many California politicians and consumers came to suspect that the energy traders were manipulating the shortages to inflate prices and boost profits. Davis has suggested that Enron "gamed" the system.

Early last summer, the political showdown ended in a draw when the FERC accepted limited price caps. Aggressive conservation by consumers and a cool summer also brought the crisis under control.

In August, with three years left on his term, FERC Chairman Hebert abruptly resigned. He offered as a lame explanation a desire "to seek other opportunities." While it appears that Bush engineered Hebert's resignation, it remains unclear how much progress Hebert's inquiry made in penetrating the secrets of Enron's complex financial instruments.

With Hebert gone, Bush filled the commission with pro-Enron allies who pushed an agenda favoring faster deregulation of the nation's energy grids. Bush promoted former Texas Public Utilities commissioner Pat Wood III, whom Bush named to the FERC in March 2001, to be FERC chairman. With Wood in charge and another new Republican appointee, Nora Mead Brownell, on the commission, the consolidation of the nation's energy markets moved to the front burner.

Lay had included Wood and Brownell, a controversial member of the Pennsylvania Public Utility Commission, on his list of preferred FERC candidates. His support appears to have been critical to their selections. [AP, Jan. 31, 2002]

On Brownell's appointment, Lay called Rove to say that Brownell "was a strong force in getting the right outcome" in Pennsylvania’s deregulation plan, according to a July, 17, 2001, letter that Waxman referred to the White House counsel, citing a Wall Street Journal report. []

Kyoto 'Differences'

Since Enron's collapse, Lay has become a potential political liability for Bush, who has responded by putting as much space as possible between himself and the now-ousted Enron chairman. White House aides cited, for instance, the fact that Enron favored U.S. ratification of the Kyoto Treaty to reduce global-warming emissions, while Bush has repudiated the agreement in favor of so-called "market-based" solutions.

But the global warming difference may be less than meets the eye. Enron supported the Kyoto Treaty in hopes that it would create a market in pollution credits that could be traded through Enron and thus boost its business. The plan would allow polluting companies to keep polluting if they buy credits from cleaner companies.

While the Bush administration has yet to lay out a comprehensive global warming policy, the pollution credit scheme is a market-based approach that fits well within Bush's ideology of letting corporations decide how they choose to address social and environmental problems. Pollution credits similar to those favored by Enron would likely be a centerpiece of a Bush global warming plan. It is therefore unclear what specific policy differences exist between Bush and Lay on global warming.

The other talking point from the administration intended to put distance between the White House and Enron is the claim that administration officials did nothing to help save Enron from collapse. While acknowledging that Lay called both the Treasury Secretary Paul O’Neill and the Secretary of Commerce Donald Evans in late October, the White House has drawn a clear line that no actions were taken by either official on Enron’s behalf.

However, the New York Times reports in a chronology of Enron’s downfall that Secretary O’Neill did instruct Under Secretary for Domestic Finance Peter Fisher to "look into the condition of Enron." Fisher reportedly talked with Enron President Greg Whalley "six to eight times" over a few day period in late October and early November. The full substance of those conversations have not been made public, though Fisher claims Whalley sought help with Enron’s creditors, help that Fisher says he did not grant. [NYT, 1/13/02]

Striking a more personal note in his attempt to demonstrate his disapproval of Enron, Bush told reporters that his sympathies really rested with laid-off Enron employees and small Enron investors who saw their life savings wiped out. Bush said his own mother-in-law lost $8,000 when Enron collapsed.

Bush's comments sounded like a pitch to the average American, who was supposed to believe that the Bush family felt the pain of the little guys who took a beating while the corporate bigwigs made off with fortunes.

The reality is starkly different. Based on the wealth of recent and historical news accounts, Bush has long worked hand-in-glove with Enron's fundamental business interests. On policy important to Enron's corporate strategies – energy trading, deregulation, tort reform, tax rates for corporations, support for government agencies that promote overseas investments for U.S. companies – there is no daylight between Bush and Lay.

The truth is that the Bush-Lay relationship is as close a public-private relationship as there has been in modern American history. It conjures images from the Frank Capra classic describing another political era, Mr. Smith Goes to Washington, in which the strings are pulled by a political machine run by party boss Jim Taylor.

The political plot of the Bush-Lay connection is unique in its own time, but critical to both men. It could even be said that Enron wouldn't have become the seventh-largest U.S. company – in a position for its executives to make off with hundreds of millions of dollars while leaving small investors and low-level employees to take the fall – without years of assistance from George W. Bush.

And Bush might not have succeeded in taking the White House without the help of Enron and Ken Lay.

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