Back in Los Angeles, Lay leaned toward Steve Bergstrom from Dynegy. “If the Governor doesn’t show up soon,” he said softly, “no matter what we talk about, this isn’t going to be a good meeting.”
After thirty minutes Davis walked into his conference room. Aides scurried to be sure that the sound was on.
“Okay,” Davis said. “Let’s go.”
He offered no apologies or explanations.
Summers kicked things off, reviewing a series of recent recommendations. Long-term electricity prices needed to be stabilized, the market calmed, so California could enter into long-term power contracts. Announcing plans to temporarily suspend the environmental studies required to build a power plant would be a big step forward.
Some analysis had already been conducted, one industry executive said. The companies agreed that long-term prices could be locked in at just under seven cents per kilowatt hour. That was a little more than a penny above the current mandated retail price. A small rate hike, and the utilities could be back in financial health.
Davis looked straight into the monitor.
“That’s all very interesting,” he said. “But as I said in Washington, I cannot agree to any rate increase. And no environmental waivers for the power plants.”
The energy executives spoke up. They had gone as far as they could. Lay suggested that they dig through the numbers to show how closely everything had been shaved.
On the television screen in Los Angeles, Larry Summers looked like he was about to jump out of his skin.
“Governor,” Summers said, fixing his eyes on the screen in front of him, “it appears to me that these guys have done a pretty good job figuring out what the markets will do if the political leaders in California make the tough decisions to get things stabilized.”
The numbers were close, and certainly would help circumvent disaster. “We have to do what’s doable,” he said, “and not just what we want politically.”
Lay watched Davis stiffen. This isn’t working.
“The political reality is that I cannot agree to any rate increase or any environmental waivers,” Davis said. “We’ve got to find some other way to solve the problem.”
The answer should be price caps, Davis said. Just knock down the amount that the energy companies could charge. Some of the other state officials in the room agreed.
Summers’s voice rang through the room. “Price caps are just something temporary while we put together a bigger packet of reforms. It would distort the market.”
The Clinton Administration had allowed California to impose temporary caps, but it would be up to the Bush Administration to decide if those continued. And in the long term, Summers said, they were destructive, because they would push energy producers out of the California market.
The discussion meandered around the table. Neither side would budge. The attitude of some energy-industry executives was almost detached, as if they were indifferent to the prospect of a financial collapse in California.
About thirty minutes had passed. Then, without explanation, Davis abruptly left the room.
With Davis gone, the conversation continued for several minutes. Finally Summers spoke.
“I see the governor hasn’t returned,” he said. “I think we should suspend the conversation until he does.”
Everyone sat in silence for ten minutes. Finally Summers stood, signaling for some of the industry executives to follow him to a nearby anteroom. Sperling from the White House and several Treasury aides followed.
———
Away from the camera, Summers lectured the energy executives. They couldn’t just shrug the crisis off as California’s problem. They needed to bend over backward to find a way out. Their business was on the line.
“Do you guys understand the political reality?” Summers asked. “If you don’t agree to something that works for California, they are going to come at you with every political and legal gun blazing.”
Sperling agreed. “Without some arrangement, they have to come after you. You may think you’ve done nothing wrong legally. We don’t know. But they have to come after you.”
The executives objected. They had worked hard to make a deal work, they said, but the Governor refused to budge.
“It doesn’t matter!” Summers snapped. “Regardless of whether it’s a bad system, or whether they need a price increase. They are going to dig into your companies, upward, left, and right. You’re going to be the demons.”
In fact, Summers said, if this was handled badly, the prospects for deregulation were going to dim. “The whole trend could go the other way,” he said.
One executive started to argue that California’s system wasn’t real deregulation.
“You’re missing the point!” Summers shot back. “What state legislature is ever going to consider deregulation again if this problem isn’t solved?”
Davis hadn’t returned. Lay caught the eye of Bergstrom from Dynegy and signaled they should head out into the hall. They huddled outside the doorway. “This is really strange,” Bergstrom said.
Lay agreed. “You can’t make any progress when one of your principals keeps leaving the meeting.”
“I’m not even sure it was worth coming.” Bergstrom shook his head. Maybe Davis just wasn’t serious. There was all this talk about him as a top contender for the Democratic presidential nomination in 2004; maybe he was just setting up a showdown with the Bush Administration.
“Well, one thing’s for sure,” Lay said. “He’s got a better chance of solving this with these guys than he will with the Bush Administration.”
Davis returned about thirty minutes after he had left. Someone told Washington to find Summers, who was still lecturing energy executives off camera. A minute later, Summers returned. He took his seat, furious.
“Governor,” he said sharply, “a lot of us here have given up our Saturday afternoon to make progress on this problem. Some of us have commitments tonight. We’re willing to keep working if we can make some progress.”
He pressed his hands against the table. “But if we can’t make any progress, we really shouldn’t waste time,” he said. “Let’s just decide now we’re not going to get this solved, certainly not in this Administration’s lifetime.”
Davis looked unruffled. “Larry, I really appreciate what everybody’s trying to do,” he said. “But I have made it clear from the beginning that I cannot and will not agree to any solution that increases rates to consumers in California or requires any type of environmental waiver.”
He glanced around the room. “And if all of you think that’s the only way we can solve this, then we might as well go in a different direction,” he said.
The solution was price caps, Davis said again.
In Washington, Summers launched into one final lecture about the evils of price controls. Then he threw in the towel.
“I wonder if, in fact, it’s not best to decide that we are not going to solve this problem today, and let everybody go home to be with their families,” he said.
On the video screen, Davis appeared calm.
“I think that’s right,” he said.
The meeting ended, and the video was shut off. Several officials gathered in the anteroom, frustrated and angry. They complained that Davis was too big a stumbling block, seemingly focused on just saving his political skin.
“So if we get to the 2004 Democratic convention and this guy is a serious contender for President,” one Treasury official said, “which one of us is going to lead the ‘Anybody but Davis’ crowd?”
Fastow turned from the two connected computer monitors on the credenza behind his desk and waved his new general counsel, Jordan Mintz, into the office.
“Jordan, hey, thanks for coming up,” he said.
It was three days later, January 16. The two men took seats at the conference table. Fastow explained that a board meeting was coming up in a few weeks, and there needed to be a presentation on the LJM funds. Mintz’s predecessor used
to handle them, Fastow said, recommending that he just follow the established format. Mintz agreed.
Fastow sat back. “We starting work on the proxy?”
Yes, Mintz said. The document sent to shareholders before the annual meeting was about half done. That was a filing that contained many of the disclosures about the LJM deals.
“Okay, good,” Fastow said. “Do you know the basis for why my compensation from LJM wasn’t disclosed last year?”
He did, Mintz said. The lawyers had concluded that enough transactions were still open that it wasn’t practical to reveal Fastow’s financial rewards until later.
“That’s right,” Fastow said. “And I think we can make the same argument this year.”
Mintz shifted in his seat. “I don’t know if we’re going to be able to, Andy,” he said. “I’ve been through the files, and there have been a number of transactions that have already settled.”
Fastow argued the point, and Mintz promised to check everything with Ron Astin at Vinson & Elkins and Rex Rogers, the assistant general counsel, who both had extensive knowledge of securities law.
“Okay, fine,” Fastow said. “Just get back to me.”
Fastow walked over to his desk, checking the markets on his computer screen. After a moment, he turned and headed back toward Mintz, chuckling softly to himself.
“If Skilling ever found out how much I’ve made,” he laughed, “he’d have no choice but to shut down LJM.”
Mintz hesitantly joined in the laughter. “Oh, come on, Andy.”
Fastow chuckled again and nodded. “No, no. Really.”
Minutes later, Mintz was back in his office, typing an e-mail to Rogers and Astin. He explained what Fastow had just said, including the part about Skilling’s predicted reaction to the LJM payouts. Then he forwarded the message to Rob Walls in the general counsel’s office. Walls, in turn, sent the message to Derrick, Enron’s general counsel.
The lawyers all debated the meaning among themselves. Rogers and Astin were skeptical that Fastow’s compensation could be calculated. Still, no one tipped off Skilling that Fastow was afraid of what he might learn.
Finally, Astin came in with the final word. He was very comfortable with the previous year’s limited disclosure. Fastow’s compensation—an amount unknown to the lawyers—could stay secret.
Shortly after that decision, Walls bumped into Astin in the lobby of the Enron building and pushed him again on whether the company was going too far in keeping the information under wraps.
“Look, Ron, I’m not going to stick my neck out for Andy Fastow,” Walls said.
“I’m not sticking my neck out,” Astin replied. “I am playing it right down the middle.”
On January 19, few of Enron’s top executives could be found anywhere near the company headquarters. Instead, they were getting ready for the big event that weekend—the inauguration of George W Bush as forty-third President of the United States. By early that Friday, much of the senior management team was headed out to Houston Intercontinental, ready to stamp Enron’s imprint on the new Administration.
That morning, Lay stood beside his wife, Linda, outside the Enron hangar, watching a few black sedans approach. Lay stepped forward as one pulled up nearby. Former President George Bush and his wife, Barbara, got out of the car.
“Mr. President, Barbara,” Lay said, “I’m so delighted this worked out. We’re just incredibly pleased you’re willing to share this time with us.”
Bush smiled. “Well, we’re pleased that you’re going to give us a ride up there.”
The Lays and the Bushes climbed aboard the Enron corporate jet and found their seats. Lay felt the moment; here he was, a onetime Missouri farm boy, with a front-row seat to history. This weekend, a former President would be watching his son assume the same high office, and Lay would be witnessing the events through the family’s eyes. He commented to the Bushes how incredible it all was to him.
“Well, it’s an honor for us to be able to do this, Ken,” Bush replied.
“Absolutely, Ken, Linda,” Barbara Bush added. “We’re just honored you could share this time with us.”
The plane taxied out to the runway and was aloft in seconds. Lay chuckled; apparently planes carrying former presidents were cleared more quickly for takeoff.
Corporate planes clogged the skies over Washington, but the Enron jet landed immediately. The Lays and the Bushes stepped off. A stretch limo, complete with police escort, waited on the tarmac. Bush walked to the passenger door. The Lays looked around for their car.
Bush signaled to them. “Linda, Ken, come on, get in here. We’ve got to go.”
The Lays hesitated, then climbed in, figuring they would get a lift to their hotel. As the car moved through Washington, the Bushes chatted about the first event, a Kennedy Center reception hosted by General Motors and its onetime top Washington representative, Andrew Card, who tomorrow would become White House Chief of Staff.
The car pulled up to the front of the arts center. Bush tugged on Lay’s arm. “Come in with us,” he said.
The Lays hadn’t been invited to the party, but they weren’t about to turn down a former President. Inside, Card rushed over to greet the Bushes, who gestured toward the Lays. Card thrust out his hand.
“Nice to have you here,” he said. “Delighted you brought the President and Barbara here with you.”
About that moment, Jeff Skilling and Rebecca Carter stepped out of a black Lincoln Town Car in front of the Library of Congress. Carter’s taupe evening gown fluttered in the breeze as Skilling, in black tie, escorted her inside. They handed their invitations to security guards and passed through metal detectors.
The two milled about, chatting with industry executives. Suddenly, a staff person appeared, setting up a thin rope to hold back the crowds. Skilling and Carter were right against it.
The President-elect and his wife appeared in the entryway. Bush walked down the line of supporters, shaking everyone’s hand. He reached Rebecca Carter and smiled.
“Mr. President,” she said.
“Hey, how are you?” Bush replied, shaking her hand.
A woman shoved her way between Skilling and Carter, and Bush released Carter’s hand as he turned to greet the new arrival. Skilling glanced down and raised his eyebrows. Bush was on automatic pilot, his hand still drifting up and down beside Carter. Bush moved on, taking Skilling’s hand.
“Mr. President-elect,” Skilling said. “Jeff Skilling from Enron.”
Bush’s smile widened. “Hey!” he exclaimed. “That’s a great company!”
The next day, a chilly rain soaked Washington, transforming large portions of the inaugural grounds into slicks of mud. As a biting wind blew, George Bush took the oath of office, then stepped up to the podium.
“I am honored and humbled to stand here,” Bush said, “where so many of America’s leaders have come before me.”
On the great lawn in front of the inaugural platform, Skilling sat in a chair sinking into the ground. He was cold and uncomfortable. His clothes were wet, his cashmere overcoat ruined. Just before the inaugural, he had been in the office of Tom DeLay, the Republican congressman from Texas. He wished he had stayed there, and stayed dry.
He glanced at Carter, who was shivering beside him.
“Isn’t this cool?” he said softly. “Aren’t you glad we gave money to the Bush campaign?”
Well, he figured, at least he wasn’t the only Enron executive who was miserable right now.
———
Nearby, Ken Lay brought a steaming cup of coffee to his lips, blowing on it lightly. He was sitting with his daughter Elizabeth Vittor in the warmth of Bistro Bis, the restaurant at the Hotel George in downtown Washington. From their linen-covered table, the two stared at the restaurant television, watching Bush deliver his inaugural address.
They had considered attending the inaugural, even had VIP tickets, but it was just too cold. Besides, Lay would see Bush at the White House soon anyway.
>
Minutes before ten o’clock the next morning, a driver from Carey car service stopped in front of the east gate of the White House. He lowered his sedan window as a guard approached. “Mr. and Mrs. Kenneth Lay,” he said.
From the back, the Lays watched as the guard first checked a list, then conducted a quick security inspection of the car. The gate opened, and the sedan pulled around the driveway. Staffers opened both passenger doors, and the Lays stepped out, holding hands as they walked inside. Leaving their coats with a checker, they walked down a hallway into the expansive first floor of the White House.
There was a huge brunch buffet, with eggs, sweet rolls, and muffins for the select group invited to share the new President’s first morning meal at the White House. Lay glanced to one side and saw former President Bush at a table with Barbara, enjoying brunch as some of their grandchildren ran along the floor nearby.
The new President’s selections for his Cabinet secretaries were scattered about the room: Donald Rumsfeld from Defense, Colin Powell from State, Tommy Thompson from Health and Human Services. Nearby, Lay saw Don Evans, his longtime friend who had just been elevated from the Bush campaign’s national finance chairman to the post of Commerce Secretary. He and Linda walked over.
“Don,” Lay said, “congratulations on your selection. I know you’re going to do a great job.”
Evans smiled. “Thank you, Ken. And I want to thank you and Linda for all the strong support you gave George.”
Lay basked in the praise.
Minutes later, George and Laura Bush made their way through the hectic swirl of supporters on the main floor of the White House. They wandered into the West Room, shaking hands and accepting congratulations, then moved on to an adjacent parlor. Bush was chatting with some well-wishers when he noticed Ken and Linda Lay walking toward him. He excused himself and moved through the crowds.
“Kenny boy!” Bush exclaimed. “Welcome to the White House!”
Bush shook Lay’s hand and gave Linda a hug and a kiss.
“I’m so glad you and Linda are here,” Bush said. “I really appreciate everything you’ve done for Laura and me, and for all the support you’ve given my campaigns.”
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