George W. Bush and Kenneth Lay

    By Jason Leopold
    t R U t h o U t | Report

    The Bush administration knew Enron was on a collision course two months before the high-flying energy company collapsed in a wave of accounting scandals that wiped out $60 billion in shareholder value and left thousands of company employees penniless.

    It was August 15, 2001, when Enron lobbyist Pat Shortridge met with then-White House Economic Adviser Robert McNally, one day after Jeff Skilling made a stunning announcement that he was stepping down as president of Enron.

    Shortridge confided in McNally that Enron was headed for a financial meltdown - one that could very well cripple the country's energy markets - and urged the White House economic adviser to alert President Bush about the company's financial problems so he could help put together a federal bailout, according to thousands of pages of documents about the meeting released by the government's Enron Task Force.

    It certainly made sense for Enron to seek help from the White House. In August of 2001, Ken Lay was still known as "Kenny Boy" to President Bush, a nickname Bush bestowed upon him when the two men were up and comers in the Texas energy and political industries respectively.

    When Bush announced his intention to run for president, Enron and its employees gave more than $1 million to Bush's 2000 election campaign, the Republican Party and the Bush Inaugural, and Bush aides used the Enron corporate jet during the post-election fracas in Florida.

    With Thursday's guilty verdicts against Lay and Skilling on numerous counts of accounting fraud, conspiracy, and dozens of other charges, perhaps Enron should be remembered as - in addition to a symbol of greed - the first in what has become a long list of scandals that can be directly linked to the White House.

    Back in 2002, White House spokeswoman Anne Womack pointed out that the McNally/Shortridge meeting was acknowledged by the White House on May 22, 2002, in documents released to reporters and Senator Joe Lieberman, D-Conn.

    In those documents, it was noted that "Mr. McNally met with Mr. Shortridge and another individual who was not from Enron." Asked whether Enron's future had been discussed, Womack said, "If the meeting was about that, I would assume there wouldn't be anyone else there besides Mr. McNally and Mr. Shortridge."

    To this day, no one knows exactly what happened after the meeting between Shortridge and McNally in the summer of 2001. President Bush has never answered questions about what he knew and when he knew it and whether he took steps to save the company's long-time employees from losing their savings.

    One thing is for certain, however: once Enron's accounting machinations became public in October 2001, the Bush administration wasted no time in covering up its close ties with the energy company.

    In late 2001, Alberto Gonzales, who at the time was Bush's chief counsel, refused to comment on the substance of the August 15, 2001, meeting between McNally and Shortridge in which McNally was tipped off to Enron's coming demise.

    Gonzales said there was no known instance of Enron asking the White House for help prior to its bankruptcy proceedings. But according to Enron's December 2001 bankruptcy filing the company did just that.

    According to those documents, Lay called Treasury Secretary Paul O'Neill on October 28 to advise him that Enron was heading toward bankruptcy. The following day, Lay asked Commerce Secretary Don Evans for help in heading off a downgrading of Enron's credit rating by Wall Street credit rating agencies that would push the company into bankruptcy.

    A week later, former Enron president Greg Whalley called then-Treasury Under Secretary Peter Fisher six to eight times, seeking help in getting banks to lend more money to Enron.

    The White House also announced in January 2002 that Lawrence B. Lindsey, who headed Bush's National Economic Council, had directed a review in October - before the calls received by O'Neill and Evans - to see whether an Enron collapse could have a strong impact on the American economy. That admission prompted critics of the administration to sound several alarms.

    As Jennifer Palmieri, a spokeswoman for the Democratic National Committee, said at the time, "It shows once again that the administration did a lot of thinking about the fact that the company was going to collapse but they did absolutely nothing to make sure that 50,000 Enron employees would not lose their life savings."

    It also drew closer attention to the intensely close ties between Enron and the Bush administration. Lindsey had been a paid consultant for Enron, receiving $50,000 in 2000.

    And he was just one of several top White House and Republican Party officials who have had close Enron ties, including Robert Zoellick, former United States trade representative, who sat on an Enron advisory board in 2000; Karl Rove, senior White House political strategist, who held more than 1,000 Enron shares before selling them in June 2001; and Marc Racicot, onetime chairman of the Republican National Committee, who worked as an Enron lobbyist last year.

    When the White House finally complied with a subpoena in May of 2002 and released thousands of pages of documents about its contacts with Enron, it revealed that the company wielded enormous power and influence at the highest levels of government. One such document was a January 8, 2001, letter written to Bush's personnel director, Clay Johnson, recommending seven candidates to the Federal Energy Regulatory Commission. Two of the candidates Lay recommended, Pat Wood and Nora Brownell, were appointed to FERC by Bush; Wood was appointed chairman.

    When Wood left his post as chairman of FERC in 2005, Bush appointed Joseph Kelliher, a former policy adviser with the Department of Energy and a member of Vice President Cheney's energy task force, to head up FERC, the agency that controls the country's natural gas industry, hydroelectric projects, electric utilities, and oil pipelines and has played a critical role in the deregulation of those industries.

    However, what's most troubling about Kelliher's appointment to head FERC, a role in which his main priority will now be to protect consumers from the manipulative tactics of the very industry he enjoys a cozy relationship with, is the relentless lobbying of bigwigs in the energy industry in early 2001, as a member of Vice President Dick Cheney's energy task force, to help write President Bush's National Energy Policy in a way that would be financially beneficial to energy corporations - at the expense of consumers.

    The lengths to which Kelliher went to solicit key players in the energy industry to help write the National Energy Policy became apparent in 2003 when Judicial Watch, a bipartisan watchdog group that sued Vice President Dick Cheney to gain access to Cheney's list of industry insiders who participated in secret meetings with Cheney's energy task force, won a legal battle that forced the White House to release several hundred pages of task force related documents.

    One such document, a March 10, 2001, email to energy lobbyist Dana Contratto, was damning - in it, Kelliher asked Contratto, if he were "King" or "Il Duce," "what would you include in a national energy policy, especially with respect to natural gas issues?"

    On another occasion, Kelliher sought out Stephen Craig Sayle, an Enron lobbyist, to make similar recommendations. Sayle, former counsel for the House Commerce Committee, sent Kelliher Enron's "dream list," including a recommendation that the administration commit to market-based emissions trading, which was also used in administration's National Energy Policy.

    Sayle wrote to Kelliher that "a multi-pollutant regulatory strategy should be estimated for the power generation sector including: Gradually phased in [mercury, nitrogen oxides and sulfur dioxide emissions] reductions; Reform/replacement of NSR; Use of market-based/emission trading programs; Inclusion of both existing and new plants and equal treatment for both. The last bullet is the critical one to ensure that: a) we encourage the new generation that is required b) we ensure that the new technologies developed through DOE programs can come into the market."

    "Obviously, this is a dream list," Sayle said in the March 23, 2001, email he sent to Kelliher. "Not all will be done. But perhaps some of these ideas could be floated and adopted."

    Sayle also provided Kelliher with a PowerPoint presentation on behalf of his other energy clients in the so-called Clean Power Group, a consortium made up of a handful of the country's biggest energy companies, including NiSource Inc., Calpine Corp., Trigen Energy Corp., and El Paso Corp, whose mission, according to the group's web site, is to "streamline requirements under the Clean Air Act for electric generating facilities while at the same time making major reductions in air emissions."

    The PowerPoint presentation, "A Comprehensive Multi-Pollutant Emission Control Strategy for Power Generation," summarized the Clean Power Group's support of a "cap and trade" method in addressing emissions of mercury, nitrogen oxides and sulfur dioxide from power plants, but included a proposal for a voluntary cap on carbon dioxide. The Clean Power Group stood to benefit from the initiative it urged Kelliher to get the White House to adopt - the companies could release more emissions under its proposed plan than under the more restrictive rules the Clinton administration had put in place.

    After receiving Sayle's email and supporting material, Kelliher recommended that President Bush "direct the Administrator of the Environmental Protection Agency (EPA) to propose multi-pollutant legislation that would establish a flexible, market-based program to significantly reduce and cap emissions; provide regulatory certainty to allow utilities to make modifications to their plants without fear of new litigation; provide market based incentives, such as emissions-trading credits to help achieve the required reductions," all of which was approved by the president and eventually incorporated into the National Energy Policy.

    In fact, President Bush's "Clear Skies" initiative consists of many of the bullet points laid out months earlier in Sayle's email to Kelliher.

    In addition to Kelliher's correspondence with Sayle, he also met with oil and gas industry lobbyists, who helped write executive orders that Kelliher passed on directly to the White House. Two months later, the president issued executive orders nearly identical to those Kelliher received from the lobbyists months earlier.

    But perhaps the most egregious of crimes involving Enron and the Bush administration is how the White House turned a blind eye to the Enron's manipulation to the California electricity market, which ignited a crisis in 2000 that resulted in several days of rolling blackouts.

    On May 29, 2001, when the energy crisis reached its peak, Governor Gray Davis met with Bush at the Century Plaza Hotel in West Los Angeles, and pleaded with him to enact much-needed price controls on electricity sold in the state, which had skyrocketed to more than $200 per megawatt-hour.

    Davis asked Bush for federal assistance, such as imposing federally mandated price caps, to rein in soaring energy prices. But Bush refused, saying California legislators had designed an electricity market that left too many regulatory restrictions in place and that it was that which had caused electricity prices in the state to skyrocket.

    It was up to the governor to fix the problem, Bush said, adding that the crisis had nothing to do with energy companies' manipulating the market.

    But Bush's response, in hindsight, appeared to be part of a coordinated effort launched by Lay to have Davis shoulder the blame for the crisis, which ultimately led to an unprecedented recall of the governor and Republican-funded attack ads on Davis's handling of the energy crisis.

    A couple of weeks before the Davis and Bush meeting, the PBS news program Frontline interviewed Cheney. Cheney was asked by a correspondent from Frontline whether energy companies were acting like a cartel and using manipulative tactics to cause electricity prices to spike in California.

    "No," Cheney said. "The problem you had in California was caused by a combination of things - an unwise regulatory scheme, because they didn't really deregulate. Now they're trapped from unwise regulatory schemes, plus not having addressed the supply side of the issue. They've obviously created major problems for themselves and bankrupted PG&E in the process."

    In April 2001, a month before the Frontline interview and Bush's meeting with Davis, Cheney, who chaired Bush's energy task force, met with Lay to discuss Bush's National Energy Policy.

    Lay recommended some energy policy initiatives that would financially benefit his company, and gave Cheney a memo that included eight recommendations for the energy policy. Of the eight, seven were included in the energy policy's final draft. The energy policy was released in late May 2001, after the meeting between Bush and Davis, and after Cheney's Frontline interview.

    What many people have failed to realize is that Davis was right in his assessment that energy companies, including Enron, were manipulating the state's wholesale power market. To this day, neither Cheney nor Bush has acknowledged that they got it wrong and that their inaction helped fuel the California energy crisis.