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Senator Dianne Feinstein (D-CA) calls for the Senate Committee on Governmental Affairs to hold hearings on a possible improper relationship between Enron and the Federal Energy Regulatory Commission (FERC). Her call for an investigation is prompted by media reports of Enron CEO Kenneth Lay pressuring FERC chairman Curtis Hebert to deregulate the energy industry in ways favorable to Enron (see August 14, 2001). Feinstein writes to Senator Joseph Lieberman (D-CT), the ranking member of the committee, “Despite evidence of manipulation and price gouging in both the electricity and natural gas markets in California and the West, and a finding by FERC last November of ‘unjust and unreasonable’ rates, the commission has failed to take the actions necessary to bring reliability and stability to the marketplace… [I]t is clear that the citizens of the United States, especially the people of California, who are suffering from FERC’s failure to do its job, deserve an investigation and full public hearing into what happened. FERC is a $175 million a year agency charged with regulating the energy industry, and it would be unconscionable if any of the nation’s electricity traders or generators were in a position to be able to determine who chairs or becomes a member of the commission.” Lay is accused of forcing Hebert from his position in favor of another, more Enron-friendly chairman, Pat Wood. Feinstein adds, “Since FERC has refused to fulfill its legally mandated function under the Federal Power Act to restore ‘just and reasonable’ electricity rates, we need to ask whether undue influence by the companies that FERC regulates has resulted in its failure to act… In California, the total cost of electricity in 1999 was $7 billion. This climbed to $28 billion in 2000 and is predicted to reach $70 billion this year. At the same time, with FERC refusing to act, power generators and marketers have made record profits. The people of our nation deserve a full investigation.” (US Senate 5/25/2001)
Curtis Hebert is replaced by Pat Wood as the head of the Federal Energy Regulatory Commission (FERC). Hebert announced his resignation on August 6. (US Department of Energy 12/2001) Hebert, a Clinton appointee who nevertheless is a conservative Republican, an ally of Senator Trent Lott (R-MS), and quite friendly towards the energy corporations, had been named to the FERC shortly before Clinton left office; Bush named him to chair the commission in January 2001. (Parry 5/26/2006)
Replaced at Enron Request - Hebert is apparently replaced at the request of Enron CEO Kenneth Lay, who did not find Hebert responsive enough in doing Enron’s bidding. Hebert had just taken the position of FERC chairman in January when he received a phone call from Lay, in which Lay pressured him to back a faster pace in opening up access to the US electricity transmission grid to Enron and other corporations. (Lay later admits making the call, but will say that keeping or firing Hebert is the president’s decision, not his.) When Hebert did not move fast enough for Lay, he is replaced by Pat Wood, a close friend of both Lay and President Bush. (Borger 5/26/2001; Scheer 12/11/2001) Lay apparently threatened Hebert with the loss of his job if he didn’t cooperate with Enron’s request for a more pro-Enron regulatory posture. (CNN 1/14/2002)
Opposed Enron Consolidation Plan - Hebert was leery of Enron’s plan to force consolidation of the various state utilities into four huge regional transmission organizations (RTOs), a plan that would have given Enron and other energy traders far larger markets for their energy sales. Hebert, true to his conservative beliefs, is a states’ rights advocate who was uncomfortable with the plan to merge the state utilities into four federal entities. Lay told Hebert flatly that if he supported the transition to the RTOs, Lay would back him in retaining his position with FERC. Hebert told reporters that he was “offended” at the veiled threat, but knew that Lay could back up his pressure, having already demonstrated his influence over selecting Bush administration appointees by giving Bush officials a list of preferred candidates and personally interviewing at least one potential FERC nominee (see January 21, 2001). (Moyers 2/2/2002; Parry 5/26/2006) According to Hebert, Lay told him that “he and Enron would like to support me as chairman, but we would have to agree on principles.” (Borger 5/26/2001) Hebert added to another reporter, “I think he would be a much bigger supporter of mine if I was willing to do what he wanted me to do.” Lay recently admitted to making such a list of preferred candidates: “I brought a list. We certainly presented a list, and I think that was by way of letter. As I recall I signed a letter which, in fact, had some recommendations as to people that we thought would be good commissioners.…I’m not sure I ever personally interviewed any of them but I think in fact there were conversations between at least some of them and some of my people from time to time.” (Moyers 2/2/2002)
Cheney Behind Ouster - Joe Garcia, a Florida energy regulator, says he was interviewed by Lay and other Enron officials. After Hebert made it clear to Lay that he wouldn’t go along with Lay’s plans to reorganize the nation’s utilities, Vice President Dick Cheney, who supervises the Bush administration’s energy policies (see May 16, 2001, began questioning Hebert’s fitness. (Borger 5/26/2001) Cheney said in May 2001, “Pat Wood has got to be the new chairman of FERC.” In private, Cheney said then that Hebert was out as chairman and Wood was in, though Hebert did not know at the time that his days were numbered. (Moyers 2/2/2002) “It just confirms what we believed and what we’ve been saying, that the Bush-Cheney energy plan is written by corporations and it’s in the interests of the corporations,” says the National Environmental Trust’s Kevin Curtis. (Borger 5/26/2001) Not only was Hebert not responsive enough to Lay’s pressure, but he had become a focus of criticism for his refusal to scrutinize Enron’s price gouging in the California energy deregulation debacle. Wood’s more moderate position helps ease the worries of other states themselves losing confidence in the Bush administration’s deregulation advocacy. (Bradley 1/2/2002)
Hebert Investigating Enron Schemes - And even more unsettling for Enron, Hebert was beginning to investigate Enron’s complicated derivative-financing procedures, an investigation that may have led to an untimely exposure of Enron’s financial exploitation of the US’s energy deregulation—exploitation that was going on under plans nicknamed, among other monikers, “Fat Boy,” “Death Star,” “Get Shorty,” all of which siphoned electricity away from areas that needed it most and being paid exorbitant fees for phantom transfers of energy supposedly to ease transmission-line congestion. (Parry 5/26/2006) “One of our problems is that we do not have the expertise to truly unravel the complex arbitrage activities of a company like Enron,” Hebert recently told reporters. “We’re trying to do it now and we may have some results soon.” (Borger 5/26/2001) Instead, Hebert is forced out of FERC. Senator Dianne Feinstein (D-CA) called for an investigation into Enron’s improper influence of the FERC committee after the media revealed Lay’s phone call to Hebert in May 2001 (see May 25, 2001).
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