The memo, a copy of which was obtained by The Chronicle, was handed by former Enron Chairman Ken Lay to Vice President Dick Cheney last April when the two met to discuss the administration's response to California's energy crisis.

The White House acknowledged last night that aspects of the memo resembled elements of Cheney's energy plan, but it refused to say whether the document was included in notes that Cheney now refuses to divulge to congressional investigators.

The General Accounting Office is threatening to sue the administration if it doesn't disclose details of its talks with Enron officials.

The three-page document contains eight points spelling out Enron's case for why federal authorities should refrain from imposing price caps or other measures sought by California officials to stabilize runaway electricity prices.

A number of the positions in the memo subsequently made it into Cheney's energy plan or were reflected in comments by senior administration officials.

"Events in California and in other parts of the country demonstrated that the benefits of competition have yet to be realized and have not yet reached consumers," the memo argues.

"The following actions need to be taken," it continues, outlining positions on a series of matters. Some of the topics, such as equal access to transmission grids and interconnection of power networks, are largely technical in nature.

The key point as far as California was concerned was whether soaring wholesale power prices should be limited or whether such prices were merely a reflection of normal supply-and-demand dynamics.

"The administration should reject any attempt to re-regulate wholesale power markets by adopting price caps or returning to archaic methods of determining the cost-base of wholesale power," the memo says.

It adds that even temporary price restrictions "will be detrimental to power markets and will discourage private investment."

The memo blames California officials for having made only "limited progress" in tackling the state's power woes. It says that if the administration were to follow all of Enron's recommendations, the measures "would mitigate this crisis."

An Enron spokesman confirmed that the memo had been given by Lay to Cheney during their one-on-one talks.

Mary Matalin, an adviser to the vice president, said Cheney's energy plan included input from many sources. "Just because some of the things (in the memo) are included in the plan doesn't mean they were from the talks" between Cheney and Lay, she said.

Still, as far as price caps go, the administration was quick to fall into lockstep with Enron's opposition to any federal regulatory moves. "We think that's a mistake," Cheney said just weeks after his meeting with Lay.

Nevertheless, federal regulators finally imposed price limits in June based on the cost of the least-efficient, and thus most expensive, generating plant. Democrats in Washington had threatened to act on their own if the regulators did not come up with a remedy for California's troubles.

Cheney also echoed Enron's position on the culpability of California's leaders in exacerbating the state's energy problems.

"When the problem became obvious last year, over a year ago, they didn't respond," he said in May.

Noting that California had experienced rolling blackouts and the bankruptcy of its biggest utility, he also said, "I don't think that's a sterling record of leadership, I would guess, on their part."

To be sure, Cheney, Lay and President Bush, as well as other industry players, shared a belief in deregulation well before the lights went out in California. But the memo underscores the broad kinship between Enron and the administration in drafting official policy.

Steve Maviglio, a spokesman for Gov. Gray Davis, said it came as no surprise that Enron had substantial clout in formation of the Bush administration's stance on California's difficulties.

"What the federal government did during the energy crisis was pretend that the problem didn't exist and say that the markets can solve everything, and that's the same thing Ken Lay told the governor," Maviglio said.

He added that "the administration was espousing what Enron was espousing -- that the markets should fix themselves."

Whatever else, it's extraordinary for a private company, particularly one accused by California officials of having gouged the state with wildly inflated energy prices, to have played such a prominent role in the White House's response to the crisis.

"If the administration was allowing Enron to guide its policy during the California energy crisis, consumers should be outraged," said Janee Briesemeister, senior policy analyst at Consumers Union in Austin, Texas.

"It's not unusual for a company to hand policymakers their ideas for what should be done," she added. "Things break down when policymakers refuse to admit that they used what was brought to them by industry."

Cheney's argument, as he told an interviewer Sunday, is that revealing details of his talks with Enron would undermine "the ability of the president and the vice president to solicit advice from anybody they want in confidence."

Bush echoed this sentiment a day later, saying that confidential talks are necessary to "get good, sound opinions." He reiterated that stance yesterday in a meeting with congressional leaders.

Craig McDonald, director of Texans for Public Justice, a watchdog group, called it laughable for the administration to cast its secrecy as a defense of high-minded principle.

"All they're fighting for is to keep the wraps on how much clout Enron had over Dick Cheney's energy plan," he said.

©2002 San Francisco Chronicle

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