By Jared Chausow
By Katie Toth
By Elizabeth Flock
By Albert Samaha
By Anna Merlan
By Jon Campbell
By Jon Campbell
By Albert Samaha
That's not the story presented by the D.C. watchdog Public Citizen, whose tale goes like this:
In an apparent response to a 1992 plea from Enron, Dr. Wendy Gramm, then chair of the federal Commodity Futures Trading Commission, moved to exempt the company's energy-swap operation from government oversight. By then, the Houston-based Enron was a major contributor to Senator Gramm's campaign.
A few days after she got the ball rolling on the exemption, Wendy Gramm resigned from the commission. Enron soon appointed her to its board of directors, where she served on the audit committee, which oversees the inner financial workings of the corporation. For this, the company paid her between $915,000 and $1.85 million in stocks and dividends, as much as $50,000 in annual salary, and $176,000 in attendance fees, according to a report by Public Citizen, a group that has relentlessly tracked Enron, which in turn has called the report unfair.
Meanwhile Enron had become Phil Gramm's largest corporate contributorand according to Public Citizen, the largest across-the board donor in its industry. Between 1989 and 2001, the company tossed Gramm just under $100,000.
In 1998, Wendy Gramm cashed in her Enron stock for $276,912. There's nothing unusual about a Washington regulator quitting the government and going to work for a private company she was regulating. And people often get rich in the process. Wendy Gramm, whose office didn't return Voice calls, has told reporters she sold the stock expressly to avoid any hint of a conflict of interest.
But that's not the end of the story.
In June 2000, Senator Gramm co-sponsored the Commodity Futures Modernization Act, a measure aimed at deregulating certain kinds of futures trading, but not energy futures. That bill never made it to the floor, and thus quietly died. Six months later, on December 15, Gramm curiously turned up as co-sponsor of a bill with the same name, the Commodity Futures Modernization Act, which did deregulate energy futures and which, without undergoing the usual committee hearings and preliminary votes, was immediately attached as a rider to an 11,000-page appropriations bill. It passed and was signed into law by President Bill Clinton six days later. Few lawmakers had likely perused the rider carefully, if they even knew it was there. And at any rate, Enron had given to the campaigns of over 200 legislators.
That's not to say no one opposed Enron's aims. An economics advisory group to Clintonwith representatives from the Federal Reserve, SEC, and Commodity Futures Trading Commissionhad come out against deregulated energy trading. They argued the market was ripe for manipulation. Yet the bill passed, setting Enron free to run what amounted to an energy auction, which Public Citizen claims "gained control over a significant share of California's electricity and natural gas market."
All during this period there was a series of remarkable coincidences. Between June and December 2000, the California energy situation was worsening but still not in crisis. After the Gramm bill went through, all hell broke loose, with one emergency rolling blackout after another. There were charges that out-of-state suppliers were withholding gas and running up the price. Finally, in June 2001, public pressure forced the Federal Energy Regulatory Commission, or FERC, to reassert price controls.
In the midst of this mess, Enron's "wholesale services" revenues quadrupled, hitting the $48.4 billion mark in the first quarter of 2001. That gain came on top of an earlier jump in income, from $35.5 billion to $93.3 billion from 1999 to 2000.
By reasserting federal controls, FERC basically killed Enron's auction system. Company executives then rushed to dump stock. CEO Kenneth Lay had been quietly selling Enron shares from early 1999 to the end of July 2001 for prices ranging from $31 to $86. (The stock's current value has dipped below 70 cents a share.) Lay eventually piled up $101.3 million for himself. Jim Derrick, general counsel, sold 160,000 shares between June 6 and June 15, 2001. Former CEO Jeffrey K. Skilling had sold 500,000 shares as of September 17, 2001. A few weeks later, on December 2, their company filed for bankruptcy.
Now the government officials who voted to call off federal oversight face the task of sorting out this labyrinthine disaster. Lawmakers have launched a dozen separate Capitol Hill investigations, seeking answers to why the executives got rich while the workersmany of whom had their life savings in Enron stocklost everything. The freewheeling Enron created a maze of some 2800 subsidiaries, many of which were offshore tax havens. The company also wove a web of influence, leading not only to the recusal of Attorney General John Ashcroft from the case, but that of the entire U.S. attorney's office in Houston as well.
If Enron saw itself as a friend to Washington, it expected some friendliness in return. As their ship began sinking, the execs began trying to call in the chips with the Bush administration. In October, Ken Lay called Don Evans, Bush's chief campaign man turned secretary of commerce, obviously seeking help. Evans said on Meet the Press Sunday that he passed this news on to Bush's chief of staff, Andrew Card, and spoke to Treasury Secretary Paul O'Neill, as well as members of an economic consulting group that included Lawrence Lindsay, who had previously been a consultant to Enron. By now, the insiders in both Enron and the government must have known the company was on the way down.
Next, Robert Rubin, Clinton's secretary of the treasury and now chairman of Citigroup, called a top Treasury official, inquiring about Enron's situation. Citigroup was holding $750 million in Enron debt, not exactly chump change even in these high-flying circles. The Bush administration insists no one offered the corporation help, and they likewise seem to have ignored the needs of the public. White House officials failed to counter Enron's propaganda, the endlessly repeated claims to the general public, workers, and investors that the company was in fine fettle.
All this happened as official Washington was poised for the resignationrumored but never tenderedof Treasury Secretary O'Neill. Among his much discussed replacements was none other than Phil Gramm.
Little noticed in the melee has been the transfer this month of Enron's major asset, the 17,000-mile Northern Natural Gas Company pipelines, to Dynegy, a smaller competitor. Northern pipelines carry gas from Texas's Permian Basin to the West and Midwest markets. The power behind Dynegy is ChevronTexaco, which has a 26 percent stake. When completed, this transaction will transform Dynegy into a vertical gas giant, with a hand in production, distribution, and end-use markets. In short, Dynegy becomes the next big player, controlling both the product and the pipes.
Evans talked on Sunday about the beauties of capitalism and the way everything worked just fine. Judging from the Enron case, the system's rightful fruit must be that executives get out unscathed, the little guys get screwed, and competition gets ditched in favor of a mega-monopoly on a scale not seen in America since John D. Rockefeller's Standard Oil Trust.
For his part, O'Neill sang the same carefree tune. "Companies come and go," O'Neill told the Associated Press this weekend. "That's the genius of capitalism."
Additional reporting: Michael Ridley
Plus: Enron Update: SEC Chief Has Potential Conflict of Interest By James Ridgeway
Also in the Voice this week: "BushidoThe Way of Oil: America Gets Into the Energy Business With the Former Evil Empire" By Roger Trilling