Last summer, California lawmakers, led by Gray Davis, lobbied the FERC to place price caps on energy prices in California. But the administration, in the person of Vice President Dick Cheney, refused to step in.

On April 18, Cheney told the Los Angeles Times, "California is looked on by many folks as a classic example of the kinds of problems that arise when you do use price caps," referring to the caps on retail energy prices under the state's deregulation plan, put in place to protect California consumers.

When asked about regulating wholesale energy prices in California, Cheney said, "I don't see that as a possibility ... Any package you can wrap it in, any fancy rhetoric you can prop it up with, it does not solve the problem."

Cheney's comments came just one day after the vice president met with Lay to discuss energy policy. In his letter to Waxman Cheney says that while he and Lay never discussed Enron's looming financial woes, they did talk about California.

"The vice president met with Mr. Kenneth L. Lay, chairman and chief executive officer of the Enron Corporation," the letter states. "The meeting occurred on April 17, 2001, and lasted for about a half-hour. They discussed energy policy matters, including the energy crisis in California, and did not discuss information concerning the financial position of the Enron Corporation."

Enron has long been seen as a way for Democrats -- particularly in California -- to score political points against the Bush administration. Even before the company's bankruptcy, it had become a sort of shorthand for Democrats wanting to paint an administration that was propped up by big contributions from the energy industry in exchange for federal policy that would not interfere with their profits.

In his State of the State address last year, Davis, who himself received $10,000 in campaign contributions from Enron, blamed "out-of-state profiteers" for manipulating California energy prices and "holding California hostage." Lockyer was a bit less tactful, saying, "I would love to personally escort Lay to an 8-by-10 cell that he could share with a tattooed dude who says, 'Hi, my name is Spike, honey.'"

After Cheney's refusal to intervene in the California crisis, Sen. Dianne Feinstein, D-Calif., said the administration was doing the energy industry's bidding at the expense of California energy users. "It was very disappointing," she says. "He spoke about letting the free market work and drilling in Alaska. That's not going to help California in the short term. We need price caps until we're able to fix this very broken market ... There seems to be no interest in really wanting to understand the California situation."

But Davis spokesman Steve Maviglio said the governor did not think that the Lay meeting directly influenced Cheney's or Bush's decision to take a hands-off approach in California. "I think we always thought it was philosophical to begin with," he said. "Cheney and Lay seem to have the same philosophical bent about markets, so it wasn't a real shocker."

Davis spoke to Lay repeatedly throughout the California crisis, "because he had the president's ear," on energy issues, according to Maviglio. But Lay, like the administration, argued against the FERC bailing out California. "In California, when the shit hit the fan, they were very vocal in their support for deregulation" of the retail side of the energy market, he said.

Lay and Enron clearly enjoyed immense influence in the new Bush White House. Lay reportedly had a large say in who would head the FERC, the agency that regulated Lay's company. Lay was adamant in getting an FERC chairman who supported Enron's plan to provide "open access" to state retail power markets. The reluctance of Curtis Hebert, a Republican who briefly became chairman after Bush's election, to support the plan was reportedly part of the reason that Lay, and Bush, dumped the Clinton appointee.

In an interview on PBS's "Frontline," Hebert was asked about his relationship with Lay and the White House.

"Mr. Lay made no secret with us about his close relationship with the president and the White House and so on. We've been told that he in fact says things like, 'I'll help you with what you need politically, let's say, staying on as chairman of the FERC, if you'll go along with me on this policy issue.' Did that ever happen?" asked the interviewer.

"I would never make that trade," Hebert responded.

"Did he ever propose such a trade?"

"I would just say that I would never make such a trade."

"Our sources tell us that in fact he offered to talk to the president on your behalf if you would go along with what he wanted."

"I don't think there's any doubt he would be a much stronger supporter of mine if I ... were willing to do what he would want me to do."

Weeks later, Bush replaced Hebert with Texan Patrick Henry Wood, with Lay's blessing.

Two weeks later, bowing to immense political pressure by the state's worsening crisis, the FERC adopted a limited price cap plan to provide some relief to Californians. But those caps did not go far enough, according to consumer advocates.

"They were mitigations," says Doug Heller, consumer advocate for the Foundation for Taxpayer and Consumer Rights. "But they still capped prices at a higher level than was reasonable. There were ways around it, but at least it was something."

Soon after the price caps took hold, the state entered into long-term contracts with other energy prices, and after a cooler-than-expected summer, the energy crisis subsided.

But, Heller says, the damage had already been done. "Before the energy crisis, the average price, or the average peak price, was about $30 per megawatt hour. The contracts Davis signed range from $100 to $150 per hour for the next two years, then slowly drop over 10 years into the $60 range. But thanks to this gouging, the state is still now paying about five times the pre-deregulated price and 10 years out, will still be paying about twice the price of energy before deregulation."

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