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Contra Costa Times (California)
Jul 08, 2004 - 01:00 AM

by Mike Taugher; CONTRA COSTA TIMES

Lay championed energy deregulation

When California's electricity crisis hit in 2000, Kenneth Lay and the company he headed came to symbolize all that California lawmakers saw as wrong with energy deregulation.

Yet Lay himself was not directly involved in crafting California's 1996 deregulation plan, say state legislative aides and others involved in the deliberations.

On the other hand, the former Enron CEO -- whose company harvested a windfall during the electricity crisis -- generated momentum for deregulation, both nationally and in California, critics said.

"Even though Enron didn't make off with the biggest bag of money, you have to look at Enron and specifically Ken Lay to understand how we got into (the energy crisis) in the first place," said Doug Heller, a spokesman for the Foundation for Taxpayer and Consumer Rights, which is strongly opposed to deregulation.

California lawmakers continue to push for roughly $9 billion they say energy companies should refund as a result of market manipulation during the crisis.

The indictment that is expected to be unsealed today is unlikely to include charges related to the energy crisis. Rather, it is expected to focus on damage done to shareholders and employees. Yet California officials welcomed news of the indictment as further proof that the company most often blamed for the energy crisis was afoul of the law.

"This marks another step forward in holding the leaders of Enron accountable for their many misdeeds, which included taking advantage of California by manipulating the energy market for financial gain," Sen. Dianne Feinstein, D-Calif., said.

"The evidence continues to mount that the energy pirates did manipulate the market and did it in an arrogant and greedy way," said California Attorney General Bill Lockyer, who once suggested to a reporter that Lay be jailed with a cellmate named "Spike."

On Wednesday, Lockyer said he made the controversial comment to pressure energy companies to renegotiate costly electricity contracts purchased by the California Department of Water Resources.

"I feel some vindication in having suggested Enron was a criminal enterprise," Lockyer said.

As a politically astute champion of electricity deregulation, Lay enjoyed enormous influence on the national stage.

He had an extraordinarily close relationship with George W. Bush, first when Bush was governor of Texas and later as president, and wielded substantial influence over federal energy policies.

Lay was widely credited, for example, with reshaping the federal agency that oversees energy restructuring, the Federal Energy Regulatory Commission, by handpicking Patrick Wood III as its chairman.

Internal e-mails and transcripts of telephone conversations that have been made public as a result of investigations into Enron's business practices show that Lay also was interested in events in California.

Lay asked western power traders, through an intermediary, about how prices were reacting to a major address by then-Gov. Gray Davis that dealt, in part, with the energy crisis, according to one transcript. Another transcript shows an Enron lobbyist trying to get information on how much the company profited from regulators' delays in capping power prices in California.

In 2001, he met with business leaders, including the future governor of California, Arnold Schwarzenegger, to push a "solution" to the energy crisis that would keep the state on track to deregulation.




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