LA Weekly (California)

Call it the most electric scandal yet to circulate about the governor-elect. As the story goes, Arnold Schwarzenegger conspired with energy barons in May 2001 to help them keep $9 billion in ill-got gains amassed by manipulating the California energy market.

The evil plan?

Recall Gray Davis — that well-known tiger for consumers.

They also had to keep Lieutenant Governor Cruz Bustamante from replacing Davis for their machinations to triumph. To do that, the conspirators would tar Bustamante for accepting campaign donations from Indians (instead of from Enron‘s Ken Lay).

Great plot line. And plausible in a world where weapons of mass destruction vanish like a mirage — and where there’s a billion a week to spend in Iraq, but nary a dime for universal health coverage at home. But this scenario, though it rattles a skeleton in Schwarzenegger’s closet, fails to put meat on those bones. The real question marks regarding Schwarzenegger’s energy policy concern his future actions, not his past ones.

The au courant spin comes from journalist Greg Palast, author of “The Best Democracy Money Can Buy”, whose online Arnold tell-all has become one of the Internet’s hottest forwards. The alleged smoking gun is a May 17, 2001, meeting that included Enron chairman Kenneth Lay, Arnold Schwarzenegger and others. This date fell during the latter part of the energy crisis, just after Lieutenant Governor Bustamante filed suit, as a private citizen, against energy providers. So far, so true.

The meeting itself is apparently verified by internal Enron e-mails obtained by the Santa Monica–based Foundation for Taxpayer & Consumer Rights. But from this point, Palast employs freewheeling speculation — or at least he has yet to cite a source or document suggesting otherwise. Palast calls the meeting a “tryst between Maria’s husband and the corporate con men,” namely Lay and “convicted stock swindler Mike Milken.” Palast writes: “It turns out that Schwarzenegger knowingly joined the hush-hush encounter as part of a campaign to sabotage a Davis-Bustamante plan to make Enron and other power pirates then ravaging California pay back the $9 billion.”

Palast’s understanding of historical context is just plain off.

In May of 2001, Davis was more than a year away from re-election, and his re-election was no sure thing. So concocting a recall was premature to say the least, or at least out of sequential order. And to suggest a “Davis-Bustamante plan” completely overlooks the mutual enmity between a guv and lite guv who were barely on speaking terms.

Meanwhile, Bustamante’s two energy-related lawsuits have gone nowhere, despite Palast’s praise of Bustamante’s “cojones” for bringing them on. A well-placed source in state government asserts in an interview that Bustamante’s suit, though still active, has been a “non-factor” in attempts to collect from Enron, Dynegy et al. When the lawsuits were filed, cynics regarded Bustamante’s
litigation as resume building for his 2006 campaign for governor. When that campaign arrived early — because of the recall — Bustamante predictably praised his lawsuits for helping to bring the energy giants to heel, a claim the government source characterized as “complete horseshit.”

In other words, the litigation may not, in fact, be the “biggest single threat to Ken Lay and the electricity lords,” as Palast would have it.

Consumer advocate Douglas Heller takes a middling view. “It’s a good lawsuit, one that we had talked about filing ourselves,” says Heller, senior consumer advocate with the Foundation for Taxpayer & Consumer Rights. “Litigation takes a while.” Heller declines to take Palast to task, but he also makes no grand conspiracy claim based on the e-mails. “I don’t know if Palast has documents other than the ones we gave him,” he says diplomatically.

The documents do offer compelling insights, even without leaping to a Schwarzenegger conspiracy. Ken Lay’s trip to California came at the height of the energy crisis. “We had had three sets of rolling blackouts, the third a week and a half prior to the meeting,” recounts Heller. “The price of electricity had skyrocketed by about 1,000 percent. Californians were now paying the highest electricity bills in the nation. And one of the big utilities had filed for bankruptcy protection, while the other was pleading for a bailout in the state Legislature. Enron was still flying high. It had a great quarter.”

CEO Lay had recently met with Vice President Dick Cheney in Washington —
meetings about which Cheney still refuses to release information. Those encounters, notes Heller, are more compelling and important than Schwarzenegger’s presence at the L.A. confab.

Lay did indeed have a California agenda, but Schwarzenegger was not apparently a major part of it. The obvious target was then-Mayor Richard Riordan. An e-mail briefing describes Riordan to Lay as “a very wealthy Republican businessman who has been term-limited out and has not yet made public his future political aspirations (a bid for governor has been mentioned by insiders).”

This rundown, from an Enron public-affairs specialist, continues: “You might congratulate him on helping to settle the Writers Guild strike and ask if he’d now like to resolve the energy crisis. (He’s in a bit of a spat with Dave Freeman over who can claim credit for LADWP’s success during this energy situation — see attached L.A. Times article). You can say you’ve been told that he was one of the clearer heads during the deregulation process and [was] instrumental in keeping DWP out of the regulatory mess. This is an opportunity for Riordan to help broker a solution, and that’s why you’re calling him… Explain about our comprehensive solution — business support is critical to garner political support.”

The memo lists 25 potential invitees for Riordan to bring together with Lay in L.A., including prominent Democrats such as billionaire philanthropist Eli Broad. Schwarzenegger isn’t on the list, suggesting that he was added by Riordan or Riordan’s staff. In a later e-mail, a list of 13 “attendees” does not include Broad, but does mention Schwarzenegger and Milken.

The evidence indicates an agenda more obvious and direct than recalling Davis. “I think Lay and Enron were desperately looking for support for their deregulation agenda that had fallen into utter disrepute in California,” says Heller. “I believe that Ken Lay knew there were some big problems ahead of him potentially. He was probably here, as the e-mails say, to shore up business-community support.”

The Weekly’s Bill Bradley concluded as much in a November 2001 article — six months after the meeting — based on a source familiar with what transpired. Lay, wrote Bradley, sought “to enlist high-level support for the continuation of deregulation in California. He also criticized the just-enacted state power authority . . . He also stressed that deregulation can work, that prices for electricity can begin to moderate from their skyrocketing levels.”

At the time, the focus on Riordan was prescient, because he shortly thereafter became the front-runner for the Republican gubernatorial nomination. Despite a thumbs-up from George W. Bush, Riordan lost out to the more conservative Bill Simon Jr. after a series of attack ads paid for by Governor Gray Davis.

Riordan apparently also had invited Simon to the meeting with Lay, but the e-mails imply Simon didn’t show up. So did Lay have enough of a crystal ball to see past Riordan, past the emergence of Simon, and past a thousand other occurrences of chance and fate to the future requisite of a Davis recall?

Ken Lay ain’t that smart, as his own company’s collapse aptly demonstrates.

Still, some legitimate questions remain for Governor Schwarzenegger. “All we know is that he met with Ken Lay,” says Heller. “But what does he think about Lay and what he and his company did in California? Did they discuss the future of deregulation? Would he support legislation to re-regulate the system? Would he continue efforts against these companies? These are not lascivious details of actions on a movie set. These are issues that hit Californians’ pocketbooks.”

Schwarzenegger has said that he doesn’t remember the meeting with Lay, and as a candidate he was habitually short on specifics. Riordan also has not commented about the meeting. And the Weekly was unable to get more specifics from Palast about other evidence he may possess.

The state’s pursuit of energy providers continues, mainly under the aegis of the state Attorney General’s Office. “We’ve got $9 billion worth of refund claims pending before the Federal Energy Regulatory Commission that are based on gaming, withholding of power and violations of rules,” says A-G spokesman Tom Dresslar. “Separately, we’re pursuing civil-enforcement actions in the courts for violations of antitrust laws, charging illegal rates and unlawful business practices, to name a few examples of misconduct.”

Voters did not recall Attorney General Bill Lockyer, who has no intention of abandoning these efforts. If the Bush-appointed federal commission, as expected, fails to side with California, Lockyer is prepared to appeal in court. Governor Davis was largely an ally on this front, along with a broad coalition that includes the state Public Utilities Commission and the state’s largest
investor-owned utilities — Southern California Edison and Pacific Gas & Electric.

Schwarzenegger’s position on these efforts is unclear. Palast predicts that the new governor will, as allegedly planned, bless “sweetheart settlements with the power companies.” And “when that happens, Bustamante’s court cases are probably lost.”

It’s worth noting that critics accused Gray Davis of any number of sweetheart deals with power companies. And he blessed a few settlements himself. Still, Palast’s concern about fair refunds for California is widely shared — because the feds are indeed willing to settle the state’s claims for pennies on the dollar. The counterattack, however, has been driven by Attorney General Lockyer
and his own partners in litigation, not by Bustamante’s legal action, said state sources.

The Governor’s Office does hold sway over the state’s expensive long-term energy contracts. Davis had a difficult time renegotiating these deals, which were made under duress during the energy crisis. There’s not much more Schwarzenegger could do to sweeten the contracts for these providers, even if he wanted to. Nor could he do much for Lay or Enron, which for their part have been recalled to oblivion.

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