The Trail Out Of Texas

By Adam Zagorin Sunday, Feb. 10, 2002
    • If Ken Lay finally raises his right hand in a Senate hearing room this week, one of the things his interrogators will want to know is just how close the former Enron CEO was to George W. Bush. Their relationship dates back to before Bush was Governor of Texas. Bush sent Lay a chummy note on his 55th birthday in 1997 ("Wow! That is really old," Bush wrote. "It's a good thing your wife is so young and beautiful"). But last week in Texas, Bush allies claimed Bush never fully trusted Lay, and they portrayed Lay as a classic cowboy type--all hat and no cattle--a braggart who pretended to enjoy better access to Bush than he really had. "Lay reminds me of one of those boys who shoots in the sky and claims he hit everything that falls," says Mark Stiles, a Democrat and former state legislator who was close to Bush. "Lay was just a glad-hander."

    Whatever Bush may have thought of Lay, there's no doubt that each was useful to the other. As a free-market conservative, Bush championed causes dear to Lay's heart: energy deregulation and tort reform. And Enron has been Bush's largest campaign donor. Lay hired James Baker and Robert Mosbacher, prominent members of the first Bush Administration, after they left office. During George W.'s run for the White House, the candidate's staff and family used Enron jets 14 times (though Bush himself never did).

    404 Not Found

    404 Not Found

    nginx/1.14.0 (Ubuntu)

    In January 2001, Lay wrote to Clay Johnson, the White House personnel director, with a list of some eight candidates to be considered for presidential appointments. And Bush duly named two of Lay's picks to the Federal Energy Regulatory Commission, which oversees the nation's electricity and gas markets. Since they are where Enron made most of its money, this was a win for Lay.

    The White House has not disclosed who else was on Lay's list. But there's no question that Lay was focused on the FERC and its influence over Enron's markets. Pat Wood, whose name was on the list Lay gave the White House, is a respected former Texas regulator who has been backed by Enron since the early 1990s. The company first warmed to him because of his support for deregulation. Last week Lay's 1994 "Dear George" letter endorsing Wood was made public. After receiving the letter, Bush appointed Wood to the Texas Public Utility Commission. To Enron's delight, Wood spent much of his tenure deregulating electricity, though not always in the way the company wanted.

    When Bush moved to the White House, Lay promoted Wood's appointment to the FERC. (Bush admired Wood and might have appointed him anyway.) Lay then spoke to FERC chairman Curtis Hebert, a Republican. Hebert says Lay warned that he should take a more aggressive approach to deregulation or risk losing Enron's support. Lay denies Hebert's claim. But Bush did name Wood as the FERC's chairman, and Hebert resigned. Later, under public pressure to impose price caps on California electricity, Wood joined in a unanimous vote to do so, a position Enron opposed. Now the FERC is investigating whether Enron manipulated energy prices in California, and at least one Congressman is calling for Wood to resign, owing to Enron's possible role in his appointment.

    Another name on Lay's White House list was that of Nora Brownell, a Pennsylvania utility regulator. Enron discovered her in 1997 when it was trying to break into the lucrative Pennsylvania electricity market. (That year Bush adviser Karl Rove recommended that Enron hire political strategist Ralph Reed to build grass-roots support in the state.) Lay also jumped into the Pennsylvania fray, urging Bush to call his friend Governor Tom Ridge on behalf of Enron. "I called George W. to kind of tell him what was going on," Lay explained to the New York Times. "And I said that it would be very helpful to Enron, which is obviously a large company in the state of Texas, if he could just call the Governor [Ridge] and tell him [Enron] is a serious company." Bush reportedly made the call.

    Later in 1997, commissioner Brownell cast a crucial vote when Pennsylvania's Public Utility Commission decided to deregulate the state market. After Bush entered the White House, Lay promoted Brownell for a commissioner's post at the FERC. By that time, the electricity crisis had hit California, where Enron had major contracts. Amid calls for reregulation and electricity price caps to rescue the state, Lay attended a 30-min. meeting in the White House in April and gave an eight-point memo to Dick Cheney arguing strongly against such measures. Several weeks later, the energy task force chaired by Cheney issued its report, which opposed reregulation and the principle of price caps.

    Bush and Cheney did not need much convincing. After all, they were once energy executives too.