About the Author
Lou Dubose has covered Texas politics for twenty-five years. He is the co-author (with Molly Ivins) of two New York Times bestsellers, Shrub: The Short but Happy Political Life of George W. Bush and Bushwhacked: Life in George W. Bush’s America. In 2003 he wrote (with Texas Monthly writer Jan Reid) The Hammer: Tom DeLay, God, Money, and the Rise of the Republican Congress (released in paperback as The Hammer Comes Down: The Nasty, Brutish and Shortened Political Life of Tom DeLay). He has also written a political biography of Karl Rove. He lives in Austin, Texas, with his wife, Jeanne Goka.
Texas Observer executive editor Jake Bernstein has chronicled stories from Washington, D.C., to the jungles of Central America. As a weekly reporter in Miami, he covered the 2000 Florida recount and the Elián González story. While working as a freelancer in Guatemala and El Salvador, he wrote about the destruction of the rain forest and the end of guerrilla insurgencies. In Texas, Bernstein’s work on Tom DeLay’s campaign-finance scandals has won multiple journalism awards. He lives in Austin.
Excerpt. © Reprinted by permission. All rights reserved.
Chapter One
A Man, a Plan—and Names Named
By mid-April 2001, Dick Cheney had been vice president of the United States for less than three months. But he was already deeply involved in a series of secret meetings in his West Wing office. When more space was needed for these energy task force meetings, an employee on loan from the Energy Department would schedule the ornate Vice President’s Ceremonial Office in the Eisenhower Executive Office Building. The aide would also send out an e-mail designating precisely who would be allowed to attend the meetings the vice president was chairing. The April 17 list was a short one. Dick Cheney had quietly cleared his schedule to meet with a friend from Texas.
It’s not likely that Dick Cheney knew at the time that Enron was collapsing. But Ken Lay knew. The Enron CEO knew that the company he built had more liabilities than assets, a grossly inflated book value, and earnings statements that had little to do with actual earnings. The last best hope for the Houston-based energy giant lay in the unregulated electricity markets out west. Enron’s traders were gouging the California market, taking power plants off-line to create shortages, booking transmission lines for current that never moved, and shuttling electricity back and forth across state lines to circumvent price controls. Squeezed between what it cost them to buy power from Enron and what they could charge on the regulated retail market, one of the state’s two largest utility companies had filed for bankruptcy and the other had signed on to a government bailout. California was in an energy crisis unlike anything it had ever experienced. Governor Gray Davis was pleading for rate caps that would provide relief for the state’s devastated utility companies and the consumers enduring rolling brownouts and soaring utility bills. And Enron CEO Ken Lay was flying to Washington to talk to Dick Cheney.
The vice president was waiting. Lay handed him a three-page memo outlining Enron’s recommendations for the new national energy policy Cheney was developing. Most of what Enron asked for would be included in the report the vice president’s National Energy Policy Development Group would release the following month. One of Lay’s recommendations was urgent, because it related to the California energy market: “The administration should reject any attempt to reregulate wholesale power markets by adopting price caps.”
The following day, George Skelton, a reporter at the Los Angeles Times’s Sacramento bureau, got an unexpected call from a woman in the vice president’s press office asking Skelton if he wanted to interview Dick Cheney. Skelton says he thought the call might be the beginning of a campaign to make some inroads in the state Al Gore had swept in 2000. But Cheney wanted to talk energy. That was fine with Skelton, because at that time energy was the biggest story in the state. Cheney wasn’t the least bit tentative. “Price caps provide short-term relief for politicians,” he said. “But they do nothing to deal with the basic, fundamental problem.” Skelton pushed a little. Would the administration support temporary price caps to get the state through the summer?
“Six months? Six years?” Cheney said. “Once politicians can no longer resist the temptation to go with price caps, they usually are unable to even muster the courage to end them . . . I don’t see that as a possibility.”
California’s governor, both U.S. senators, even Republicans in California’s House delegation were begging the administration for price caps, or for some relief for utility rates that were forcing small-business owners to close their doors. But Cheney had already told Senator Dianne Feinstein that one of the lessons he learned in the Nixon administration was that price caps don’t work. Now he was calling a reporter to defend a position Ken Lay had laid out for him a day earlier. “Frankly,” Cheney said, “California is looked on by many folks as a classic example of the kinds of problems that arise when you do use price caps.” The vice president was such a free market zealot that he saw no government role in a utilities market that was savaging consumers. This was policy advocacy so fast and efficient that it seemed reflexive. Cheney heard from Ken Lay on Monday and called George Skelton on Tuesday, and Lay’s position on price caps was laid out under the vice president’s name in the Los Angeles Times on Wednesday.
The public was not aware of Lay’s visit to the White House. It’s not known whether Lay told Cheney that Enron was in trouble. The vice president refuses to answer the question, and Lay’s death in July 2006 while awaiting sentencing for bank and securities fraud suggests we’ll never know. But Cheney knew that in less than a year the wholesale cost of one megawatt-hour of electricity in California had jumped from $30 to $300—up to $1,500 at peak demand times. It was also widely reported that profits earned by power producers and marketers like Enron were up 400 to 600 percent.
Cheney did not prevail—in part because the administration didn’t have all its Federal Energy Regulatory Commission appointees in place. And in part because the situation in California had become so desperate. Several days after Cheney and Lay met, the Federal Energy Regulatory Commission ignored the vice president’s arguments and imposed price caps on energy traders working California. The wildly fluctuating markets were brought under control. FERC had pulled the plug on Enron’s California trading schemes, cleverly named “Fat Boy,” “Death Star,” and “Get Shorty.”
Enron collapsed six months later.
George Skelton never again heard from the vice president and says he didn’t expect to. But Cheney, who goes out of his way to avoid reporters and had organized energy task force meetings that were totally insulated from the press, had succeeded in getting Lay’s message out almost immediately—to the largest readership in the state of California.
President George W. Bush had created the National Energy Policy Development Group ten days after he took the oath of office. It was Dick Cheney’s idea, his big push to create a national energy policy and fix policy decisions he believed for too long had been made by the Environmental Protection Agency. The terrorist attacks of September 11 were more than eight months in the future, and Bush senior adviser Karl Rove had decided that a president who had lost the popular vote and been put into office by the Supreme Court should govern as if he had a mandate. Bush’s understanding of Washington was limited to a short run as loyalty enforcer in his father’s administration. As governor of Texas, he had been famously disengaged from public policy. But his vice president had served in three presidential administrations, had spent a decade in the U.S. House of Representatives, and had been secretary of defense during the first Gulf War. Bush named Cheney chairman of the energy task force, which also included the secretaries of Treasury, Commerce, Interior, Agriculture, Energy, and Transportation, EPA administrator Christine Todd Whitman, FEMA director Joe Allbaugh, and the White House deputy chiefs of staff for policy and economic policy. It was the first policy initiative the Bush administration would undertake. Its process and content would be shaped by the vice president—and, as it turned out, by the oil, gas, mining, and utilities interests he invited in—and it would all be done in secret.
No one paying attention to national politics could have been surprised to see oil and gas interests writing Dick Cheney’s energy policy. This is a fossil fuels administration; both men were bona fide members of a small fraternity of Texas oilpatch executives. Bush had spent ten years in the state’s Odessa Permian Basin oilfields, losing millions of dollars invested by others in his company but walking away with about $1 million for himself. Cheney left the Dallas-based oilfield construction and service giant Halliburton to join the Bush ticket in 2000 with approximately $45 million to show for his five-year effort.
Both men knew Ken Lay well; Bush had a closer relationship.
By the time Bush took his oath of office in January 2001, Lay and his Enron executives were Bush’s largest lifetime political backers, with more than $775,000 invested in his two campaigns for governor in Texas. Enron took an equity position in the Bush-Cheney presidency when it put $1.7 million into Republican races in the 2000 election. There was more than money. During the Florida recount and the weeks of litigation that followed, the Bush-Cheney political and legal team flew to Florida and Washington on Enron (and Halliburton) corporate jets, while Al Gore and his guys were booking coach. So after the inauguration, Lay and Enron vice president Robert Shapiro got face time with Cheney, and four other Enron officials also got into energy task force meetings with the vice president. If six executives from one company seemed excessive—well, as Cheney press aide Mary Matalin said, to make energy policy, you talk to energy experts.
Dick Cheney talked to energy experts, as the vice president’s visitors’ log began to look like the American Petroleum Institute membership list. This was no coincidence. Ten days before the inauguration, an oil and gas lobbyist on the administration transition team had invited a group of industry executives to the API’s Washington offices to draft a wish list. A month later, the same lobbyist, Steve Griles, was named deputy secretary of interior and assigned to work with Cheney’s energy task force. The energy executives Griles had called over to the API offices were suddenly presenting position papers to the energy task force.
