No Evidence That Communications Between the FERC Chairman and the
Chairman of Enron Corporation Violated Criminal Statutes or	 
Ethics Regulations (16-AUG-01, GAO-01-1020R).			 
								 
This letter responds to congressional interest in the		 
communications between Curt Hebert, Jr., Chairman of the Federal 
Energy Regulatory Commission (FERC), and Kenneth Lay, Chairman of
Enron Corporation which were discussed in an article in the New  
York Times on May 25, 2001. Concerns were raised these		 
communications might have violated  federal criminal statutes or 
ethics regulations. GAO found that there was no evidence that the
Chairman attempted to use public office for private gain or that 
Mr. Lay offered anything of value to Mr. Herbert.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-1020R					        
    ACCNO:   A01625						        
  TITLE:     No Evidence That Communications Between the FERC Chairman
             and the Chairman of Enron Corporation Violated Criminal Statutes 
             or Ethics Regulations                                            
     DATE:   08/16/2001 
  SUBJECT:   Communication					 
	     Ethical conduct					 

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GAO-01-1020R
     
GAO- 01- 1020R Communications Between FERC and Enron United States General
Accounting Office

Washington, DC 20548

August 16, 2001 The Honorable Joseph I. Lieberman Chairman Committee on
Governmental Affairs United States Senate

Subject: No Evidence That Communications Between the FERC Chairman and the
Chairman of Enron Corporation Violated Criminal Statutes or Ethics
Regulations

Dear Mr. Chairman: This letter responds to your May 30, 2001, request that
we review the communications between Curt Hï¿½bert, Jr., Chairman of the
Federal Energy Regulatory Commission (FERC), 1 and Kenneth Lay, Chairman of
Enron Corporation, who were the subjects of an article published in The New
York Times on May 25, 2001. You were concerned that communications between
the Chairman of FERC, an independent federal agency, and the Chairman of
Enron, an entity regulated by that agency, may violate applicable federal
criminal statutes or ethics regulations.

We conducted our work in June 2001. We interviewed witnesses who have first-
hand knowledge of the conversation referred to in the Times article-- Mr.
Hï¿½bert, his Chief of Staff, FERC?s General Counsel, and Mr. Lay.

In summary, based on our review of the information we gathered and
consultation with our General Counsel, we found no evidence that either Mr.
Hï¿½bert or Mr. Lay violated criminal statutes or ethics regulations.

Communications Between Mr. Hï¿½bert and Mr. Lay

Messrs. Hï¿½bert and Lay confirmed that they had a telephone conversation in
February 2001, that Mr. Hï¿½bert asked Mr. Lay to endorse him continuing as
FERC?s Chairman, 2 and that Mr. Lay asked Mr. Hï¿½bert about his views on what
FERC?s policy

1 President George Bush named Mr. Hï¿½bert as FERC Chairman on January 22,
2001. The President, with the advice and consent of the Senate, appoints all
FERC commissioners to 5- year terms. The President designates one of the
commissioners to serve as Chairman; the designated Chairman need not be
approved by the Senate. Thus, Mr. Hï¿½bert serves as Chairman at the
President?s sufferance and could be replaced, without Senate approval, if
the President desired. On August 7, 2001, it was reported that Mr. Hï¿½bert
announced his resignation, to be effective at the end of August 2001. 2
According to Mr. Lay, Enron had written to the White House supporting Mr.
Hï¿½bert when he was first

appointed FERC Chairman.

GAO- 01- 1020R Communications Between FERC and Enron 2 should be on access
to the electricity grid. Further, they both agree that they did not

discuss any matters Enron Corporation had before FERC. However, they
disagree on how the conversation about FERC?s policy on access should be
interpreted. Mr. Hï¿½bert believes that Mr. Lay was attempting to tie his
support for Mr. Hï¿½bert continuing as Chairman to a change in Mr. Hï¿½bert?s
position on this policy issue. Mr. Lay said that because Mr. Hï¿½bert was
pressing him for an endorsement, 3 he took the opportunity to ask him about
his position on access, an issue that he and Mr. Hï¿½bert did not agree on.
However, Mr. Lay said he never told Mr. Hï¿½bert that Mr. Hï¿½bert?s position on
this issue was tied to his endorsement, nor did he imply any such
connection. Mr. Lay told us that during the conversation, Mr. Hï¿½bert said
that FERC was addressing some issues and that Mr. Lay would probably be
happy with the direction in which FERC was moving. This statement conflicts
with Mr. Hï¿½bert?s recollection. Mr. Hï¿½bert told us that he refused to waiver
on his policy.

Mr. Hï¿½bert?s Chief of Staff and General Counsel were present during all or
part 4 of the telephone conversation between Messrs. Hï¿½bert and Lay but
heard only Mr. Hï¿½bert?s conversation. They based their characterization of
the substance of the conversation on what they heard and their subsequent
conversation with Mr. Hï¿½bert. They both agree that Mr. Hï¿½bert asked Mr. Lay
to endorse him continuing as Chairman. They further agree that they heard
Mr. Hï¿½bert justify his position concerning the access issue to Mr. Lay. In
addition, they both said that after the telephone conversation, Mr. Hï¿½bert
said that he would not get Mr. Lay?s support unless he changed his position
and that he could not compromise his position.

GAO Legal Analysis

Three criminal statutes have some relevance to these circumstances. The
first, 18 U. S. C. section 201, a bribery statute, makes it a crime to give,
offer, or promise anything of value to a public official with the intent to
influence any official act; the statute also makes it a crime for any public
official to demand, seek, receive, accept, or agree to receive or accept
anything of value in return for being influenced in performing any official
act. The second, 18 U. S. C. section 210, makes it a crime to offer or
promise money or a thing of value to any person in consideration of the use
or promise to use any influence to procure any appointive office in the U.
S. government. The third, 18 U. S. C. section 211, makes it a crime to
solicit or receive any money or thing of value in consideration of the
promise of support or use of influence in obtaining public office.

Additionally, there are ethics regulations to which all executive branch
employees must adhere. Executive Order 12674 specifically states that an
employee shall not solicit or accept any gift or item of monetary value from
a person or entity seeking official action from, or conducting activities
regulated by, the employee?s agency. The executive order further specifies
that employees shall not use public office for

3 According to Mr. Lay, Mr. Hï¿½bert expressed concern about the possibility
that Pat Wood would be appointed to replace him as Chairman. Mr. Lay told us
that in February, rumors were circulating that President Bush might appoint
Mr. Wood to serve as a FERC commissioner and that the President might
designate Mr. Wood to replace Mr. Hï¿½bert as Chairman. Mr. Wood was nominated
as a commissioner by the President on April 30 and confirmed by the Senate
on May 25. 4 FERC?s General Counsel said that sometime after February 9,
2001, he was summoned to

Mr. Hï¿½bert?s office where Mr. Hï¿½bert was already engaged in a telephone
conversation with Mr. Lay.

GAO- 01- 1020R Communications Between FERC and Enron 3 private gain, and
that employees shall act impartially and not give preferential

treatment to any private organization or individual. The Office of
Government Ethics has promulgated Standards of Ethical Conduct to which all
executive branch employees are required to adhere. 5 These standards repeat
that employees shall not use public office for private gain, shall act
impartially, and shall not give preferential treatment to any private
organization or individual. 6 Moreover, FERC has issued regulations that
supplement the Office of Government Ethics? standards. In general, FERC
employees with decisionmaking responsibilities are prohibited from having
offthe- record (i. e., ex parte) communications relevant to the merits (i.
e., capable of affecting the outcome of or influencing a decision) of a
contested on- the- record proceeding. However, FERC?s regulations
specifically exclude from their definition of prohibited off- the- record
communications, any relevant communications with respect to general
background or broad policy discussions involving an industry FERC regulates,
where the discussion occurs outside the context of any particular proceeding
and does not affect the specific merits of the proceeding. Significantly,
the regulations state that it is FERC?s policy to encourage the public,
including those subject to regulation by FERC, to submit suggestions,
comments, or proposals concerning substantial prospective regulatory policy
issues. This policy is intended to serve as a means of advising FERC of
potential significant issues and problems that may come before it during its
activities.

Regardless of who initiated the discussion concerning open access, it does
not appear that any of the criminal statutes summarized above were violated.
All three statutes require that money or a ?thing of value? be offered or
solicited in return for something else. The only thing that may have been
sought or offered here was Mr. Lay?s political support for Mr. Hï¿½bert
continuing as Chairman. Although the courts interpret the term thing of
value broadly to include both tangibles and intangibles, our review of case
law found no support for the proposition that mere political support may be
considered a thing of value for purposes of the relevant criminal statutes.

Moreover, under the plain language of each of the above- referenced criminal
statutes, the offer of a thing of value must be tied to an expectation of a
corresponding action by the other party. That is, there must be an expected
quid pro quo, a specific intent to give or receive something of value in
exchange for an official act. Here, there is no evidence that such an
exchange was contemplated, and Mr. Lay specifically said that he did not tie
his support to Mr. Hï¿½bert changing his position on access. When Mr. Hï¿½bert
asked for Mr. Lay?s endorsement, it was not unreasonable for Mr. Lay to
ascertain whether the Chairman would take a position that would be to
Enron?s advantage. Mr. Lay wanted the Chairman to take a position in favor
of making open access mandatory. According to Mr. Hï¿½bert, when he said that
he would not support mandatory open access, Mr. Lay said that he would not
support Mr. Hï¿½bert continuing as Chairman. In fact, after Messrs. Lay and
Hï¿½bert discussed open access, neither party was willing to budge from his
own position, and neither party offered to use his influence for the benefit
of the other. Thus, there was no exchange or offer to exchange something of
value for some action or influence by the recipient.

5 5 C. F. R. sect. 2635.101 et seq. 6 5 C. F. R. sect.sect. 2635.101( b)( 7), (8), and
2635.702.

GAO- 01- 1020R Communications Between FERC and Enron 4 The essence of the
above- referenced regulations is that government employees may

not use their public offices for private gain, and government employees must
act impartially and not give preferential treatment to any private
organization or individual. Even though Mr. Hï¿½bert asked Mr. Lay for his
support, there is simply no evidence that he used his public office to
obtain that support or that he offered to give preferential treatment to
Enron. To the contrary, Mr. Hï¿½bert refused to change his position on access
even though that refusal might have cost him Mr. Lay?s support.

In addition, as stated previously, FERC?s regulations explicitly encourage
parties regulated by FERC to submit suggestions, comments, or proposals
concerning substantial prospective regulatory policy issues as a means of
advising FERC of potential significant issues and problems. Thus, discussion
of important policy issues such as access to the electrical transmission
grid by representatives of companies like Enron is specifically encouraged
as a matter of policy under FERC?s regulations. The only restraint imposed
by FERC?s regulations is that FERC decisionmakers may not have ex parte
discussions relevant to the merits of contested on- the- record proceedings
pending before FERC with parties to those proceedings. Here, both Mr. Lay
and Mr. Hï¿½bert specifically said that while Enron had some matters before
the FERC, they did not talk about those matters. This was confirmed by our
interviews with the other individuals who were present when the conversation
took place. Thus, the FERC rules on ex parte communications were not
violated.

Conclusion

On the basis of information obtained in the interviews and a review of the
statutes and regulations previously discussed, we found no evidence that
applicable federal criminal statutes or ethics regulations were violated.
There is no evidence that the Chairman attempted to use his public office
for private gain, acted other than impartially, or offered preferential
treatment to Mr. Lay and Enron. Likewise, there is no evidence that Mr. Lay
offered a thing of value to Mr. Hï¿½bert, the FERC Chairman, as that term has
been interpreted by the courts on similar issues.

- - - - As arranged with your office, unless you announce its contents
earlier, we plan no further distribution of this letter until 30 days after
the date of the letter. At that time, we will send copies of the letter to
interested congressional committees and the Chairman of FERC. We will also
make copies available to others on request.

GAO- 01- 1020R Communications Between FERC and Enron 5 The letter will also
be available at www. gao. gov. If you have any questions, please

call me at (202) 512- 7455 or Director Ronald Malfi at (202) 512- 6722.
Senior Analyst Shelia James, Senior Attorney Peter Iannicelli, and Assistant
General Counsel Robert Cramer made key contributions to this letter.

Sincerely yours, Robert H. Hast Managing Director Office of Special
Investigations

(600898)
*** End of document. ***