Power Trader Tied to Bush Finds Washington All Ears
The New York Times
May 25, 2001
By LOWELL BERGMAN and JEFF GERTH
C urtis Hébert Jr., Washington's top electricity
regulator, said he had barely settled into his new job
this year when he had an unsettling telephone conversation
with Kenneth L. Lay, the head of the nation's largest
electricity trader, the Enron Corporation.
Mr. Hébert, chairman of the Federal Energy Regulatory
Commission, said that Mr. Lay, a close friend of President
Bush's, offered him a deal: If he changed his views on
electricity deregulation, Enron would continue to support
him in his new job.
Mr. Hébert (pronounced A- bear) recalled that Mr. Lay
prodded him to back a national push for retail competition in
the energy business and a faster pace in opening up access
to the electricity transmission grid to companies like Enron.
Mr. Hébert said he refused the offer. "I was offended," he
recalled, though he said he knew of Mr. Lay's influence in
Washington and thought the refusal could put his job in
jeopardy.
Asked about the conversation, Mr. Lay praised Mr. Hébert,
but recalled it differently. "I remember him requesting"
Enron's support at the White House, he said of Mr. Hébert.
Mr. Lay said he had "very possibly" discussed issues relating
to the commission's authority over access to the grid.
As to Mr. Hébert's job, Mr. Lay said he told the chairman that
"the final decision on this was going to be the president's,
certainly not ours."
Though the accounts of the discussion differ, that it took
place at all illustrates Enron's considerable influence in
Washington, especially at the commission, the agency
authorized to ensure fair prices in the nation's wholesale
electricity and natural gas markets, Enron's main business.
Mr. Lay has been one of Mr. Bush's largest campaign
contributors, and no other energy company gave more money
to Republican causes last year than Enron.
And it appears that Mr. Hébert may soon be replaced as the
commission's chairman, according to Vice President Dick
Cheney, the Bush administration's point man on energy
policy.
Mr. Lay has weighed in on candidates for other commission
posts, supplying President Bush's chief personnel adviser
with a list of preferred candidates. One Florida utility
regulator who hoped for but did not receive an appointment
as a commissioner said he had been "interviewed" by Mr.
Lay.
Mr. Lay also had access to the team writing the White
House's energy report, which embraces several initiatives
and issues dear to Enron.
The report's recommendations include finding ways to give
the federal government more power over electricity
transmission networks, a longtime goal of the company that
was spelled out in a memorandum Mr. Lay discussed during
a 30-minute meeting earlier this spring with Mr. Cheney.
Mr. Cheney's report includes much of what Mr. Lay
advocated during their meeting, documents show. Both men
deny discussing commission personnel issues during their
talk. But Mr. Lay had an unusual opportunity to make his
case about candidates in writing and in person to Mr. Bush's
personnel adviser, Clay Johnson. And when Mr. Bush picked
nominees to fill two vacant Republican slots on the five-
member commission, they both had the backing of Enron, as
well as other companies.
Mr. Lay is not shy about voicing his opinion or flexing his
political muscle. He has transformed the Houston-based
Enron from a sleepy natural-gas company into a $100 billion
energy giant with global reach, trading electricity in all
corners of the world and owning a multibillion- dollar power
project in India. He has also led the push to deregulate the
nation's electricity markets.
Senior Bush administration officials said they welcomed Mr.
Lay's input but did not always embrace it: President Bush
backed away from curbing carbon-dioxide emissions, an
effort supported by Enron, which had looked to trade
emission rights as part of its energy business.
"We'll make decisions based on what we think makes sound
public policy," Mr. Cheney said in an interview, not what
"Enron thinks."
The Bush-Lay bond traces back to Mr. Bush's father and
involves a personal and philosophical affinity. Moreover,
Enron and its executives gave $2.4 million to federal
candidates in the last election, more than any other energy
company. While some of that went to Democrats, 72 percent
went to Republicans, according to an analysis of election
records by the Center for Responsive Politics, a nonprofit
group.
"He's for a lot of things we're for," said Mr. Johnson.
But when it came to deciding on nominees for the
commission, Mr. Johnson said that Mr. Lay's views were not
that crucial. The two most important advisers, he said, were
Andrew Lundquist, the director of Mr. Cheney's energy task
force, and Pat Wood 3rd, the head of the Texas public utility
commission.
As governor, Mr. Bush named Mr. Wood to the utility
commission. This year, when the White House filled the two
Republican slots on the federal agency, Mr. Wood was the
first choice, Mr. Johnson said.
Consumer advocates and business executives praise Mr.
Wood. But Mr. Lay also had a role in promoting him. Shortly
after Mr. Bush was elected governor in 1994, Mr. Lay sent
him a letter endorsing Mr. Wood as the "best qualified"
person for the Texas commission.
In all, there are five seats on the commission, two held by
Republicans, two by Democrats and one held by a chairman
who serves at the pleasure of the president. Mr. Hébert, who
became a commissioner in 1997, was named chairman by
Mr. Bush in January.
The Federal Energy Regulatory Commission's mandate to
ensure fair prices in wholesale electricity and natural gas
markets makes it crucial to sellers like Enron as well as
consumers.
The movement toward deregulation sometimes leaves the
commission caught in a tug of war: power marketers like
Enron are trying to break into markets and grids controlled
by old-line utilities, which operate under state regulation.
The commission's chairman has considerable latitude in
setting its agenda.
As part of its oversight of the wholesale electricity markets,
the commission ordered several companies to refund what it
considered excessively high prices this year in California.
One lesser offender named in the commission's public filings
- $3.2 million, of a total of $125 million - was an Enron
subsidiary in Oregon.
Enron owns few generating assets, but buys and sells
electricity in the market. Many of those transactions
resemble the complicated risk-shifting techniques used by
Wall Street for financial instruments.
Mr. Hébert, after he became chairman, initiated an
examination into the effects those techniques have on the
electricity markets. "One of our problems is that we do not
have the expertise to truly unravel the complex arbitrage
activities of a company like Enron," he said, adding, "we're
trying to do it now, and we may have some results soon."
William L. Massey, one of the agency's two Democratic
commissioners, said he supported the inquiry but had not
been aware of it - an indication of the chairman's ability to
set the commission's agenda.
Finally, the commission is trying to speed the pace of
electricity deregulation by opening up the nation's
transmission grid, much of which is owned by privately
owned utilities that enjoy retail monopolies. Some Enron
officials say the commission has been moving too slowly to
open the grid. They attribute some of the problem to utilities.
But they also fault Mr. Hébert.
"Hébert still has undeserved confidence in some of the
vertically integrated companies coming to the table and
dealing openly" with transmission access issues, said
Richard S. Shapiro, an Enron senior vice president.
The utilities, however, maintain that they provide cheap and
reliable service for their customers. Washington lobbyists for
one Southern utility said that Enron was really interested in
focusing on the utility's big-business clients, which under
state regulation pay higher rates than residential
customers.
Since 1996, about half the states have moved to open their
retail markets to competition, and the commission has begun
to make it easier for outsiders to use the nation's
transmission grid. But the promise of cheaper rates has
been largely unfulfilled. So the push for more deregulation,
in which Enron has been a leader, has slowed, especially
when California's flawed program led to skyrocketing rates
and chaotic markets.
Mr. Hébert is a free-market conservative who favors
deregulation but also recognizes the importance of state's
rights. A former Mississippi regulator, he is a protégé of
Trent Lott, the Senate Republican leader from Mississippi.
Mr. Hébert said Mr. Lott was instrumental in his nomination
to the commission in 1997 by President Clinton.
President Bush elevated Mr. Hébert to chairman on
Inauguration Day, a move Mr. Lay said he told the White
House he supported.
Mr. Johnson, the White House personnel chief, said that Mr.
Lott and Mr. Hébert had both been told that Mr. Hébert could
remain chairman at least until the administration's
nominees - Mr. Wood and Nora Brownell, a Pennsylvania
utility regulator - are confirmed by the full Senate. The
Senate energy committee voted earlier this week to approve
the two nominees, after a hearing last week indicated strong
support.
It is widely expected that President Bush will name Mr.
Wood to replace Mr. Hébert as chairman after the Senate
acts.
In an interview for a forthcoming episode of "Frontline," the
PBS series, Mr. Cheney suggested as much. "Pat Wood's got
to be the new chairman of the F.E.R.C., and he'll have to
address" various problems in the electricity markets, he
said.
Mr. Hébert said that no one had told him he was being
replaced. If someone else is named chairman, Mr. Hébert
can remain a commissioner until the end of his term, which
expires in 2004.
It was a few weeks after President Bush made him chairman
that Mr. Hébert said he spoke by telephone with Mr. Lay.
Mr. Lay told him that "he and Enron would like to support me
as chairman, but we would have to agree on principles"
involving the commission's role in expanding electricity
competition, Mr. Hébert said of the conversation.
A senior commission official who was in Mr. Hébert's office
during the conversation said Mr. Hébert rebuffed Mr. Lay's
offer of a quid pro quo. The official said that he heard Mr.
Hébert's side of the conversation and then, after the call
ended, learned the rest from him.
Mr. Hébert said that he, too, backed competition but did not
think the commission had the legal authority to tell states
what to do in this area. Concerning the issue of opening
transmission access through the creation of regional
networks, Mr. Hebert supports a voluntary process while
Enron seeks a faster and more compulsory system.
Mr. Lay said that while he might have discussed issues
relating to the commission's authority concerning access to
the grid, "there was never any intent" to link that or any
other issue to Mr. Hébert's job status.
The commission is a quasijudicial agency, so
decision-makers like Mr. Hébert must avoid private
discussions about specific matters pending before the
commission. Mr. Hébert and Mr. Lay both said that line was
not crossed, but Mr. Hébert said he had never had such a
blunt talk with an energy-industry executive.
Mr. Lay added that his few recent conversations with Mr.
Hébert were nothing special. "We had a lot of access during
the Clinton administration," he said.
And he said that while making political contributions
"probably helps" to gain access to an official, he made them
"because I'm supporting candidates I strongly believe in."
Last June, Enron executives were asked to make voluntary
donations to the company's political action committee. The
solicitation letter noted that the company faced a range of
governmental issues, including electricity deregulation.
This year, some people who sought but did not get
nominations to the commission said that Mr. Lay and Enron
had had a role in the process.
One was Joe Garcia , a former Florida utilities regulator and
prominent Cuban-American activist. He said he had been
"interviewed" by a few Enron officials, including Mr. Lay, who
he said had not been as "forceful or insistent" as the other
Enron officials.
But in their conversation, Mr. Garcia said, Mr. Lay made
clear that he would be visiting the White House, adding that
"everyone knew of his relationship and his importance."
Mr. Johnson, the White House personnel chief, could not cite
another company besides Enron that sent him a list of
preferred candidates for the commission, but he
remembered hearing the views of Tom Kuhn, who heads the
utility industry trade group, the Edison Electric Institute. Mr.
Kuhn was a classmate of Mr. Johnson and Mr. Bush at Yale.
As for his conversation with Mr. Garcia, Mr. Lay said he was
comfortable with his candidacy but "I'm not sure what I told
him about my friends at the White House."
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