Robert Bryce November 6, 2002
Surely it's just a coincidence. What else would explain why Enron Oil and Gas, a subsidiary of Enron Corp, would have been in business with George W Bush back in 1986? Bush the Younger was many things, including the eldest son of the vice president of the United States. A successful oilman he was not. Bush's forays into the energy business had been nothing short of disastrous. In 1984, Bush had no choice but to merge his faltering firm, Bush Exploration Company, with another company, Spectrum 7. But by mid-1986, Bush had done his magic on the privately owned Spectrum 7. The company wasn't producing much energy of any kind, and Bush was actively trying to sell again. Despite Spectrum 7's lousy record, it somehow got into business with Enron Oil and Gas. And on October 16, 1986, Enron Oil and Gas announced that it had completed a well a few miles outside of Midland, Texas, that was producing 24,000 cubic feet of natural gas and 411 barrels of oil per day. Enron owned 52% of the well; 10% belonged to Spectrum 7.
Now, the oil and gas business is full of speculators, and wells are often drilled with multiple investors with varying backgrounds. But the early Bush-Enron connection points out just how small the energy business is. Lay's ties to George W Bush go back to 1980, when Bush made his first bid for the White House. Bush, who had recently served as director of the Central Intelligence Agency, needed campaign funds after his surprise win in the Iowa caucuses. So Lay, who had probably met Bush through mutual friends in the energy business in Houston, gave money to Bush's campaign. Though Bush didn't win, Ronald Reagan made him vice president. Bush went on to chair the panel that pushed Reagan's task force on deregulation. One of Reagan's biggest moves in deregulation involved the lifting of federal controls on natural gas markets, a move that Lay had long favoured.
When the elder Bush got to the White House, he didn't forget Lay. Bush rewarded Lay during his presidency with one of the most coveted perks of being a presidential pal, a sleep-over at the White House.
When Bush the Younger decided to run for governor of Texas in fall 1993, one of his first stops on the campaign trail was Houston. During his visit, George W Bush asked Lay to be the finance chairman of his campaign in Harris County, which includes Houston. Lay didn't take the job. He preferred to give George W Bush a $12,500 (£8,000 at today's rates) cheque and work behind the scenes. In his stead, Bush's campaign in the county was headed by Lay's second in command at Enron, Rich Kinder. In all, Lay, Kinder, and other Enron executives donated $146,500 to George W Bush, almost seven times more than the amount they gave to the incumbent candidate, Democrat Ann Richards. The donations by the execs, combined with money from Enron's political action committee, made the Houston company Bush's biggest campaign contributor.
After George W Bush defeated Richards, Enron gave $50,000 to Bush's inaugural committee. Lay began lobbying Bush almost immediately. In December 1994, before Bush moved into the Governor's mansion in downtown Austin, Lay began sending him regular letters on energy policy, tax issues, lawsuit reform and other matters. That month, Lay asked Bush to appoint Pat Wood, who supported the deregulation of electric utilities, to the state's public utility commission. Bush complied with Lay's request. And later on, Bush would appoint Wood - again at Lay's recommendation - to the federal energy regulatory commission.
And while Lay maintained close ties to the Bush family throughout George W Bush's stint as governor of Texas, those connections would be even more valuable to him and to Enron if Bush the Younger could throw the Democrats out of the White House. In December 1999, while Bush was pounding the campaign trail, Lay again wrote to his friend, addressing it to "George and Laura" [Bush's wife]. "Linda and I are so proud of both of you and look forward to seeing both of you in the White House."
Lay had been one of Bush's first "pioneers", each of whom pledged to raise $100,000 for Bush. He had also made Enron's fleet of aircraft available to his campaign. The Bush campaign used Enron's jets to fly to different events on eight different occasions - more than any other corporation. During the 2000 election cycle, Lay contributed more than $275,000 to the Republican National Committee. Enron's total donations to the party exceeded $1.1million. When the outcome of the election was in doubt after the polls closed in November 2000, Lay and his wife, Linda, gave $10,000 to help finance the Bush campaign's Florida operation during the recount after the election.
After Bush prevailed in the election (thanks to assistance by the US supreme court) Ken and Linda Lay gave another $100,000 to help finance Bush's inaugural gala. In all, Enron and its top execs kicked in $300,000 for the inauguration festivities. Naturally enough, the day after the inauguration, Lay went to a private lunch party at the White House, where he got to schmooze with the new president one on one. A few weeks later, Lay had dinner with the president.
It wasn't long before Enron's bet on George W Bush was paying off in more important ways, too. Although the California energy crisis was raging throughout his first few months in office in 2001, the president refused - for nearly six months - to consider the possibility that the golden state's power markets were being manipulated. In some parts of the state, electricity rates had gone from $30 per megawatt hour to an alarming $1,500 per megawatt hour. Rolling blackouts - and threats of blackouts - had the state in a near constant uproar. By the time Bush had spent about 180 days in the White House, the state of California had spent nearly $8 billion buying power on the open market just to keep the lights on.
Despite the crisis, Dianne Feinstein, a senator from California - the most populous state in the union - couldn't get an appointment with Bush. The White House had plenty of time for Enron, though. On April 17 2001, Vice President Cheney had a private meeting with Enron chairman Ken Lay. During the meeting, Lay offered suggestions for Cheney's energy task force and lobbied Cheney against price caps in California. Cheney quickly adopted Lay's argument. The day after his meeting with Lay, Cheney mocked the idea of price caps. He told the Los Angeles Times that caps would only provide "short-term political relief for the politicians." In late May, Bush visited California and, like Cheney, attacked the idea that price caps - something the California governor, Gray Davis, and Feinstein had been begging for - might help the state restore order to its electricity system.
Bush and Cheney were wrong. Enron and several other power companies had been manipulating the California energy market for months and collecting huge revenues for their efforts. Using strategies with colourful names like Death Star, Get Shorty, Fat Boy, and Ricochet, Enron had apparently figured out ways to play the state's power system and drive up prices. Finally, on June 18 2001, after weeks of rising intrigue, the federal energy regulatory commission approved limited price caps for California. The move quickly settled the state's power markets.
Enron's connections in the White House went much further than George W Bush. The new president's chief economic adviser, Larry Lindsey, was on Enron's payroll before going to the White House, earning $100,000 in consulting fees from the Houston company. Marc Racicot, the former governor of Montana, lobbied for Enron before Bush named him to lead the Republican national committee. Robert Zoellick, Bush's choice for US trade representative, served on an Enron advisory council. Thomas White, Bush's secretary of the army, was the vice chairman of Enron Energy Services, a money-losing charade of a company. Nevertheless, when White left Enron, he owned more than $25 million in the company's stock. Bush's chief strategist and political guru, Karl Rove, owned more than $100,000 of Enron stock when Bush took office.
Bush's White House provided Lay and Enron with unprecedented access. In addition to the meeting with Lay, Enron officials met with Cheney's task force (the national energy policy development group) five times and talked to it by phone on at least six other occasions about the measure. Their effort shows. The national energy policy development group's final report - Reliable, Affordable and Environmentally Sound Energy for America's Future - released in mid-May 2001, contains a number of provisions very favourable to Enron. For instance, the report recommends the creation of a national electricity grid, a move that could allow Enron to trade electric power more readily in all regions of the country.
The report says permitting for gas pipelines should be expedited, a factor that would help Enron, already one of the largest pipeline companies in the world, build more capacity more quickly. The report talks about the California crisis, the need for energy efficiency, increased domestic natural gas production and, of course, India. Didn't you know that the cost of butane in Bombay is critical to soccer moms in Seattle? Cheney's group recommended that "the president direct the secretaries of state and energy to work with India's ministry of petroleum and natural gas to help India maximise its domestic oil and gas production".
Not only could Lay get Bush's ear on appointments, he could get federal reports to mention countries like India, where Enron, with the Dabhol electricity and liquefied natural gas project (also mentioned in Cheney's report), was a major investor.
To be fair, the energy report also discusses America's growing reliance on energy from Mexico and Canada. But the state department, which participated in the writing of the energy report, didn't add the India section; the White House did. Ken Lay's money on George W Bush had been well spent.
