The Army Secretary Returns Fire on Enron
Army Secretary Thomas White had a chance to take the witness stand in the court of public opinion on July 18, and he made the most of it. In an appearance before angry lawmakers, White insisted that crony capitalism wasn't a feature of his stewardship of Enron Energy Services (EES) during the California power crisis -- before he joined the government -- and that his role there certainly wasn't grounds for giving up his Pentagon post.
Surprisingly, after several hours of grilling White, several members of the Senate Commerce Committee seemed resigned to accept the explanations for his corporate behavior while he was vice-chairman of the Enron retail subsidiary. But others urged federal regulators to give the charges deeper scrutiny.
Lawmakers began the meeting loaded for bear. A host of senators went through the litany of allegations surrounding White: that he sold $12 million of Enron shares just before the company's value fell sharply and Enron went into Chapter 11, that he coordinated with other Enron divisions to profit from California's power crisis, and that he placed 77 phone calls to Enron executives after assuming his Pentagon post.
White responded to the first charge by saying he sold the stock to comply with ethics rules for government officials, requiring senior government managers to divest themselves of equities that might pose a conflict of interest. But White testified that the 660,000 Enron options he held onto were worth more than the stock he sold -- and those options subsequently became worthless.
In response to the second major charge, White insisted that as head of an Enron retail division he sought to keep prices low in order to retain customers. White repeatedly stated that he didn't see the Enron memos that spelled out strategies to manipulate the California market until the Federal Energy Regulatory Commission made them public.
As for his frequent phone calls to Enron execs during a time when top Enron officials were trying to win Bush Administration intervention to stave off bankruptcy, White said he made them only because "they were good friends, and I was concerned about how they were doing, and they were concerned about how I was doing," White said. "When I was employed in the private sector, I carried out my responsibilities in an entirely ethical manner."
CHARGES ON CHARGES.
Senator Barbara Boxer (D-Calif.) presented evidence that EES was in the red until her state's power crisis began. The subsidiary's earnings were boosted into the black, according to Boxer, only when EES adopted a "market-to-market" strategy of reselling the same electricity to different markets and each time charging a higher price. White offered no apologies, responding that the market-to-market pricing technique was "the industry standard."
Although White said he always sought to charge the lowest price for the energy EES sold, Commerce Committee Chairman Byron Dorgan (D-N.D.) cited evidence that EES was the largest customer of Enron Power Marketing, or EPMI, a wholesale division that charged the highest prices for electricity in the state. EPMI has already been implicated in infamous Enron memos detailing strategies -- bearing names such as "Bigboy" -- to reap profits from the California shortage in 2000 and 2001. White responded that EES purchased power from plenty of other providers, too, and that he wasn't party to any price manipulations.
White was even confronted with the results of interviews conducted by committee investigators with EES employees, who claimed White wasn't being truthful about his role. White's response was that "thousands of other employees" could register the opposite assessment.
After grilling the witness, Senator Ron Wyden (D-Ore.) called for the Federal Energy Regulations Commission and the Securities & Exchange Commission to investigate White. "It is so hard to reconcile that you are a hands-on executive with your statement that you didn't know what happened," Wyden said.
Nonetheless, underscoring just how difficult it may be to build a case against White, Wyden, who is one of the Army Secretary's more outspoken critics, observed after an inconclusive back-and-forth: "I think, Secretary White, you and I both agree that this is pretty dense stuff." White could only agree.
By Rachel Osterman on Capitol Hill
Edited by Douglas Harbrecht