San Diego Union-Tribune

May 27, 2001

A-1

Bush, Davis on collision course
  President, Cheney firm: No price caps

By TOBY ECKERT
COPLEY NEWS SERVICE 

WASHINGTON -- When President Bush and Gov. Gray Davis meet this week to discuss California's power crisis, it will be a close-up clash of ideologies that until now have been playing out long distance.

To Californians struggling with rolling blackouts and skyrocketing power bills, Bush's allegiance to free-market principles and his rejection of electricity price controls can seem baffling -- if not payback for the state's vote against him in the presidential election.

Yet a look at the record shows that Bush and his energy czar, Vice President Dick Cheney, share an unshakable faith in open power markets shaped by conservative politics and their long association with an industry that has benefited greatly from deregulation.

It is a view fortified by energy company executives who enjoy easy access to top administration officials and counsel against measures like price controls. One company in particular, power marketer Enron Corp., appears to wield great influence with the White House on energy policy.

Davis argues that because the deregulation plan adopted by the state in 1996 turned out to be deeply flawed, a truly free market doesn't exist. Power marketers and generators now have enough leverage to charge, on average, more than $330 per megawatt-hour of electricity, 10 times what they were getting just a year ago.

Temporary Western price controls -- based on the cost of producing the power and a hefty, built-in profit margin for the power sellers -- would provide a respite until the problems are fixed, Davis contends. A recent Field Poll shows that an overwhelming majority of Californians, Republican and Democrat, share that view.

"It would be a grave mistake for the Bush administration to allow rigid ideology to stand in the way of doing what's best for our country," a frustrated Davis said recently. "Deregulation is not a religion."

The White House flatly denies it is looking at the issue with ideological blinders on, or through an energy industry prism. Bush and other administration officials argue that price controls have a proven history of backfiring -- drying up energy supplies at the same time they encourage more consumption.

"The president and this administration do not support price caps because they don't work," said White House spokeswoman Claire Buchan.

The folly of price controls is an article of faith in the oil industry, which was long subjected to them. Both Bush and Cheney prospered in that industry.

Bush founded an oil company in his native West Texas in 1977, shortly after graduating from business school. Arbusto Energy didn't find much oil, but Bush profited greatly in the boom-and-bust industry through mergers with bigger industry players.

Before Bush plucked him out of the private sector, Cheney headed
Halliburton Co., a leading oil-field services firm based in Dallas.

"I think there's no doubt that their views have been shaped by their
backgrounds in the industry and their broader ideological views about markets," said political analyst Stuart Rothenberg.

Cheney in particular has expressed a visceral aversion to price controls. His experience helping to craft broad wage and price limits in the Nixon administration left an indelible mark.

"The night the control regulations went to the Federal Register to be
published, they were 14 pages long. I know, because I typed them," Cheney said recently. "When we got through a couple years later, we had a roomful of regulations."

The price controls aggravated the oil shortage that plunged the nation into an energy crisis in the 1970s, Cheney argues.

"You could control domestic oil prices, but you couldn't control the price of imports that were set by the international market. . . . A lot of companies shut down, quit producing domestically," he said.

The new breed of power generators and marketers spawned by the
nationwide move toward electricity deregulation are also, by and large, fierce opponents of price controls. Houston-based Enron in particular has positioned itself as a major player in the world of freewheeling power sales, including in California.

Enron and its executives have been among Bush's biggest supporters throughout his political career and enjoy an unusually close relationship with the president. Company Chairman Kenneth Lay was one of the "Pioneers" who raised at least $100,000 for Bush during the presidential campaign.

Enron's political action committee and its executives poured $113,800 into Bush's coffers and put a corporate jet at his disposal, according to the Center for Responsive Politics, which tracks political spending.

Two top Bush administration officials -- economic adviser Lawrence Lindsey and U.S. Trade Representative Robert Zoellick -- once served on an Enron advisory board.

As Cheney was crafting the administration's recently unveiled energy policy, Lay was one of the handful of people who got to meet with him. Lay presented a three-page, eight-point list of priorities for open power markets, including an admonition that the administration "should reject any attempt to re-regulate wholesale power markets" with price caps or other controls.

Davis, by contrast, was invited to simply submit a one-page memo to the energy task force, his spokesman said.

Lay also reportedly advised the Bush administration on appointments to the Federal Energy Regulatory Commission. The commission has the power to impose price controls, but has so far balked at Davis' proposal.

Enron's clout with the administration has stoked the suspicions of critics.

"It's Lay that drives the policy," said Craig McDonald, director of Texans for Public Justice, which tracks political spending in that state.

Enron spokesman Mark Palmer dismissed such talk as "outrageous."

"The Cheney task force met with dozens of trade groups, industry
representatives, politicians, regulators," Palmer said.

But in recent weeks, even the normally cautious Davis has highlighted the Texas ties of the energy companies that have profited from California's travails, saying at one point that the Bush administration was allowing the companies "to get away with murder."

The White House says such allegations are just overheated rhetoric.

"That's goofy. It doesn't even merit a response," Cheney said when asked about Davis' comments. "The president and I are making decisions and policy based on what we think makes sense for the country."