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Bush Did Try to Save Enron
Page 1, 2

California Blackouts

Bush’s ascension to power also came at a critical juncture in the California energy crisis. In a partially deregulated energy market served by Enron and other traders, electricity prices soared 800 percent in one year. Rolling blackouts crisscrossed the state.

After taking power, the Bush administration pulled back on federal efforts to monitor market manipulations. Bush also turned a deaf ear to appeals from public officials in California to give the state relief from the soaring costs of energy. To the Bush "free traders," price caps were anathema. The market should set the prices, they said, and any government interference would only make matters worse.

As California’s electricity prices continued to soar, however, Gov. Gray Davis and Sen. Dianne Feinstein voiced suspicions that the "free market" was not at work. Rather they saw corporate price-fixing gouging consumers and putting California’s economy at risk.

But California’s suspicions were mocked in Washington as examples of finger-pointing and conspiracy theories. The administration saw the chief culprit as excessive environmental regulation that discouraged the building of new power plants.

While Lay had easy access to the White House, California’s top Democratic officials found the doors closed. Feinstein said her requests for a one-on-one meeting with Bush to discuss the state’s energy crisis were rebuffed several times. The first time the rejection came in a form letter with her name misspelled, she said. [L.A. Times, April 19, 2001]

Instead of a personal meeting with Bush, Feinstein was allowed to join large groups that met twice with Cheney. She said both meetings were brief and the vice president seemed distracted. "When someone is looking at their watch, it gives you a pretty good idea they want to get out of the room," Feinstein said. [NYT, May 8, 2002]

Read My Lips

Senior Bush administration officials paid much closer heed to the views of Ken Lay.

An April 2001 memo from Lay to Cheney advised the administration to resist price caps. "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," Lay said. Even temporary price restrictions "will be detrimental to power markets and will discourage private investment." [San Francisco Chronicle, Jan. 30, 2002]

Cheney and Bush adopted Lay’s position in their political battles with Davis and the Democrats. On April 18, 2001, Cheney told the Los Angeles Times that the Bush administration opposed price caps because they would discourage investment, which Cheney called "the basic fundamental problem." [L.A. Times, April 19, 2001]

In May, Bush traveled to California on a trip choreographed like a president visiting a disaster area. Only this time, Bush wasn’t promising federal help to a state in need. He was carrying the same message that Lay had sent to Cheney. In effect, Bush was saying: Read my lips. No price caps.

"Price caps do nothing to reduce demand, and they do nothing to increase supply," Bush said. [L.A. Times, May 30, 2001]

Buying Time

After weeks of standoff, as electricity prices stayed high and began spreading to other Western states, the political showdown ended on June 18, 2001. FERC approved limited price caps, a reversal prompted by Republican fears of a political backlash that could cost them seats in Congress.

According to the Los Angeles Times, the Bush administration had received warnings from Republicans in Congress that "the administration’s opposition to price caps was a political blunder that could endanger GOP control of the House." [L.A. Times, June 19, 2001]

Still, the administration’s rear-guard action had bought Enron and the other energy traders precious months to reap hundreds of millions of dollars in trading profits in California. Although it may be impossible to put an exact figure on the overall cost or the damage to California’s economy, Gov. Davis has sought a refund of $9 billion from the energy traders.

The imposition of FERC's limited price caps – and the state’s aggressive conservation efforts – brought the energy crisis under control. That may have been good news for California, but not for Enron. By losing control over its ability to keep electricity prices artificially high, Enron faced new economic pressures.

"There are some hints of a connection (between the price caps and Enron’s collapse), including the billions of dollars in cash that flowed in and out of Enron as the crisis waxed and waned," the New York Times reported later. [NYT, May 9, 2002] Enron’s stock price began to decline, slipping from around $80 early in the year to the high-$40’s. That began to put pressure on the stock hedges inside the off-the-books partnerships.

Confronting India

In June, as FERC relented on California price caps, the White House went to bat for Enron on another touchy issue, the natural gas power plant that Enron had built in Dabhol, India.

The cost of the plant’s electricity was several times what India was paying, leading to an impasse that made the plant an expensive blunder. Enron wanted India to pay $250 million in unpaid bills or buy out Enron’s stake in the plant, worth about $2.3 billion.

Contract disputes between U.S. companies and foreign governments are normally handled by the Commerce Department or possibly at the State Department. But Enron’s Dabhol problem became a priority of Bush’s National Security Council staff. That level of interest was almost unprecedented, according to former NSC officials in both Republican and Democratic administrations.

On June 27, Cheney personally discussed Enron’s problem with Sonia Gandhi, the leader of India’s opposition Congress Party. "Good news is that the Veep mentioned Enron in his meeting with Sonia Gandhi yesterday," said an NSC e-mail on June 28, which was later released under a Freedom of Information Act request.

Throughout the summer, NSC staff coordinated U.S. pressure on India, drawing in the State Department, the Treasury Department, the Office of U.S. Trade Representative and the Overseas Private Investment Corp., which had committed $360 million in risk insurance to the Dabhol project.

The NSC-led "Dabhol Working Group" sought to broker meetings between Lay and senior Indian officials, including Brajesh Mishra, the national security adviser to Indian Prime Minister Atal Bihari Vajpayee. During a trip to India, a senior State Department official delivered a "demarche" or official warning to the Indian government. Still, New Delhi balked at the U.S. pressure.

Lay’s List

Also in the summer of 2001, Enron was consolidating its influence at FERC.

Nora Mead Brownell, a controversial member of the Pennsylvania Public Utility Commission, was named as a new FERC commissioner. In support of Brownell's appointment, Lay called White House aide Karl Rove to say that Brownell "was a strong force in getting the right outcome" in deregulating Pennsylvania’s energy market, according to a July, 17, 2001, letter that Waxman referred to the White House counsel, citing a Wall Street Journal report. []

Then, in August 2001, FERC Chairman Hebert, who had ordered that inquiry into Enron’s arbitrage schemes, abruptly resigned. He offered as an explanation a desire "to seek other opportunities." Hebert resigned six months into his four-year term.

While it appears that Bush engineered Hebert's resignation, it remains unclear how much progress Hebert's inquiry had made in penetrating the secrets of Enron's complex financial instruments.

Bush appointed former Texas Public Utilities commissioner Pat Wood III to be the new FERC chairman. Lay had included Wood and Brownell on a list of preferred FERC candidates. His support appears to have been critical to their selections. [AP, Jan. 31, 2002]

As Lay was exerting his influence in Washington, out of public view back in Houston, Enron’s accounting house-of-cards was tottering. On Aug. 15, Sherron Watkins, an Enron vice president, warned Lay that accounting irregularities, including the hedges tied to Enron stock, were threatening to undo the corporation.

Terror Priorities

On Sept. 11, the course of George W. Bush’s presidency took a sharp turn, as Islamic terrorists seized four U.S. airliners. Two were crashed into the World Trade Center towers at the heart of the U.S. financial markets. Another smashed into the Pentagon and the fourth crashed in Pennsylvania when passengers apparently battled for control.

Bush vowed to retaliate for the attacks with a war against terrorism and specifically with an offensive in Afghanistan to oust the Taliban government that had provided a safe haven for terrorist mastermind Osama bin Laden. On the front lines of that new war were Pakistan and India, traditional enemies who were engaged in a brush-fire war over the disputed territory of Kashmir.

Despite the importance of New Delhi’s cooperation in the war on terror, Enron’s Dabhol power plant stayed at the center of U.S. relations with India. On Sept. 28, the NSC-led Dabhol working group was preparing "talking points" about the Enron business dispute for Cheney to deliver in a meeting with India’s Foreign Minister Jaswant Singh.

On Oct. 9, the State Department was pressing Enron’s case with the Indians again. Undersecretary Alan Larson "raised the Dabhol issue with both FM Singh and NSA Mishra and got a commitment to ‘try’ to get the government energized on this issue prior to the PM’s visit to Washington on Nov. 9," an Oct. 23 NSC e-mail said. "Pls give me one/two bullets for the President to use during his meeting with Vajpayee."

Meanwhile, Enron’s financial situation was unraveling. Its credit rating was cut and its stock was falling. On Oct. 30, behind closed doors, SEC commissioners approved a formal investigation of Enron’s accounting.

The Dabhol Working Group, however, continued to press for India to make concessions to Enron. On Nov. 1, a couple of weeks after Lay had called Treasury Secretary O’Neill and Commerce Secretary Evans for financial assistance, the White House prepared a memo citing Dabhol talking points for Bush’s meeting with Prime Minister Vajpayee during a state visit to Washington.

On Nov. 6, OPIC President Peter Watson sent a stern warning to Vajpayee’s national security adviser Mishra. "The acute lack of progress in this matter has forced Dabhol to rise to the highest levels of the United States government," Watson said in a letter. The dispute "could have a negative effect regarding other U.S. agencies and their ability to function in India."

The Bush administration’s pressure on India over Dabhol did not end until Nov. 8, the day the SEC delivered subpoenas to Enron and the company announced that it was under formal SEC investigation. "President Bush can not talk about Dabhol," reported one internal e-mail timed off at 2:33 p.m. on Nov. 8. [For details on the Dabhol initiative, see the Washington Post, Jan. 19 & 25, 2002; Bloomberg News, Jan. 18, 2002]

On Jan. 18, 2002, after the Dabhol initiative became public, White House spokesman Ari Fleischer called the effort "not uncommon."

The White House, however, dragged its heels when pressed for details about both the meetings of Cheney’s energy task force and internal White House documents on Enron. The administration is battling the congressional General Accounting Office in court over the GAO’s subpoena for the task force records.

The Document War

On May 22, another front in the battle over Enron documents opened when the Democratic-controlled Senate Governmental Affairs Committee approved subpoenas to the White House in a 9-8 party-line vote. "We are asking for conversations that the president and vice president and others at the White House might have had with Enron," said Sen. Joseph Lieberman, D-Conn., the committee’s chairman.

The committee’s ranking Republican, Sen. Fred Thompson of Tennessee, said the subpoenas were unfair because "there has not been any indication that the executive office of the president had any involvement in the collapse of Enron in any way."

White House counsel Alberto R. Gonzales also stressed that theme in releasing a chronology of the White House contacts with Enron in an initial response to the committee’s action. He said Enron did not approach anyone in the White House "seeking help in connection with its financial difficulties prior to bankruptcy," an assertion that seems inaccurate given Lay’s calls to Treasury and Commerce.

While the White House is expected to battle to keep secret its Enron documents, the pieces of the mosaic continue to fall into place, revealing a picture of an administration eager to do what it could for Bush’s number one patron.

With tens of thousands of American investors hurt by Enron’s accounting shenanigans and millions of Californians gouged by energy-market manipulations, Bush may have reason to worry about what the release of more documents might show. If the White House doesn't succeed in keeping its records secret, more damaging details could emerge.

With Democrats reluctant to directly challenge a popular wartime president, these details could yet prove damaging to Bush and his party in an election year. In any case, the record is now clear that the Bush administration did what it could for Enron right up to the company’s collapse.

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