For the first time since the avalanche of corporate scandals began, a senior member of the Bush administration implicated in the wrongdoing will testify and face questioning before Congress. Army Secretary Thomas White is the former vice chairman of Enron Energy Services, the business unit alleged to have engaged in price-fixing during the California energy crisis. Last week, White was summoned by the Senate Commerce Committee to testify about “Enron’s ability to manipulate the California electricity market between May 2000 and June 2001, and EES’s role in Enron’s energy trading strategy.” Thursday’s his date before the cameras.
White has been involved in all sorts of questionable behavior—aggressive accounting, hiding debt, and a whole host of infractions as Army secretary—and Democrats will no doubt relish this opportunity to grandstand on corporate malfeasance by scolding and lecturing White about Enron. Indeed, they’ve already begun. But if they stick to California price-fixing, the putative focus of this hearing, it’s difficult to see how they could implicate White. On this particular issue, he’s almost certainly innocent.
Here’s why: Enron Energy Services was split into wholesale and retail divisions, whose economic motivations were diametrically opposed. The wholesale division made money by trading in energy: buying low and selling high. It’s the half that engaged in the infamous shady deals (with names like “Get Shorty” and “Fat Boy”) designed to circumvent price caps, boost California’s energy prices, and foment the energy congestion that caused rolling blackouts and prolonged the state’s crisis. It’s easy to see why the wholesale division would want to drive up energy prices: so they could make a fat profit selling to desperate Californians.
But White worked in the retail division. His half of EES operated differently, inking long-term deals with major customers like California’s state university system to supply their energy at a fixed price. White’s division made money, then, by acquiring energy at a price below that at which it had contracted to sell. Its economic motivation was to see energy prices as low as possible because lower prices translated to a larger profit margin.
So it makes little sense to think that White would have wanted to boost California’s energy prices. As White himself lamented to me recently, “I’m the guy who’s being called to testify in front of the committee not because I’m guilty, but because I’m the seniormost public official who will appear in front of a microphone.” This should finally become clear on Thursday.
White is guilty of plenty: His Enron division hid debt, practiced tricky accounting, and displayed remarkably poor business judgment. As Army secretary, he took a government plane to sell his Aspen ski house, failed to divest himself of Enron stock after promising to do so, and didn’t fully disclose his Enron contacts. So there are numerous issues on which White would be highly vulnerable before bloodthirsty Democrats—but California price-fixing isn’t one of them.