13. Schwarzenegger Met with Enron’s Key Lay Before the California Recall

by Project Censored
Published: Updated:

COMMON DREAMS, August 17, 2003
Title: “Ahnuld, Ken Lay, George Bush, Dick Cheney, and Gray Davis”
Author: Jason Leopold

THE LONDON OBSERVER, October 6, 2003
Title: “Arnold Unplugged- It’s Hasta la Vista to $9 Billion”
Author: Greg Palast

Additional Sources:
San Francisco Chronicle and CommonDreams, October 11,2003
Title: “Schwarzenegger Electricity Plan Fuels Fears of Another Debacle”
Author: Zachary Coile

San Francisco Chronicle, May 26, 2001
Title: “Enron’s Secret Bid to Save Deregulation: Private Meeting With Prominent Californians”
Authors: Christian Berthelsen, Scott Winokur, Chronicle Staff Writers

Faculty Evaluators: Laurie Dawson, John Lund
Student Researchers: Karina Pinon, Chris Bui and Josh Sisco

Arnold Schwarzenegger’s “solutions to California’s energy woes” reflect those of former Enron chief Ken Lay. On May 17, 2001, in the midst of California’s energy crisis, which was largely caused by Enron’s scandalous energy market manipulation, Schwarzenegger met with Lay to discuss “fixing” California’s energy crisis. Plans to “get deregulation right this time” called for more rate increases, an end to state and federal investigations, and less regulation. While California Governor Gray Davis and Lieutenant Governor Cruz Bustamante were taking direct action to re-regulate Califonia’s energy and get back the $9 billion that was vacuumed out of California by Enron and other energy companies, Schwarzenegger was being groomed to overthrow Davis in the recall. Thus canceling plans to re-regulate and recoup the $9 billion.

After the California’s energy debacle of 2000, Davis and Bustamante filed suit under California’s unique Civil Code provision 17200, the “Unfair Business Practices Act,” which would order all power companies, including Enron, to repay the nearly $9 billion they extorted from California citizens. The single biggest opponent of the suit, with the most to lose, was Enron’s CEO, Ken Lay.

Lay, a very close friend and long time associate of President Bush and Vice-president Cheney, and one of their largest campaign contributors, hastily assembled a meeting with prominent Californians (confirmed by the release of 34 pages of internal Enron email) to strategize opposition to the Davis-Bustamante campaign and garner influential support for energy deregulation.

Included in the meeting were Michael Milken, “junk bond king” convicted of fraud in 1990 who currently runs a think tank in Santa Monica that focuses on global and regional economies; Ray Irani, Chief Executive of Occidental Petroleum; former Los Angeles Mayor Richard Riordan; and movie star Arnold Schwarzenegger. (Riordan and Schwarzenegger were at that time being courted as GOP gubernatorial candidates.)

Attendees of the meeting received a small four-page packet entitled “Comprehensive Solution for California.” The packet called for an end to the federal and state investigations into Enron’s role in California’s energy crisis and proposed saddling consumers with the $9 billion loss. Discussions further focused on preventing Davis’s proposed re-regulation of energy markets.

With Davis in office and Bustamante his natural successor, there would be little chance of dismissing rock-solid charges of fraudulent reporting of sales transactions, fake power delivery scheduling, and blatant conspiracy. The grooming of a governor amenable to a laissez-faire and corrupt energy market was essential. Recalling Davis and replacing him with Schwarzenegger was the solution. With Governor Schwarzenegger in office, Bustamante’s case is dead, as few judges will let a case go to trial to protect a state whose governor has allowed the matter to be “settled.”

Governor Schwarzenegger is currently preparing a push to deregulate California’s electricity markets with an energy strategy driven by some of the same members of former Gov. Pete Wilson’s team who led the push for energy deregulations in the 1990s.

Consumer groups are warning that the Governor’s proposals would expose electricity users to greater fluctuations in prices while limiting state oversight of power trading-a combination that could allow the type of market manipulation that plagued California during the state’s energy crisis of 2000-01.

“Deregulation has already cost the state $50 billion, give or take,” said Mike Florio, senior attorney for the Utility reform Network, “Why on earth anyone would want to do that again is mystifying to us.”

UPDATE BY JASON LEOPOLD: There’s a certain amount of prejudice the mainstream media has toward investigative news stories that are published by alternative news outlets. News stories appearing in alternative publications are often dismissed or ignored by major news outlets as the work of conspiracy theorists, to cite just one example.

Often times, reporters for major newspapers never bother to follow up on a story printed in an alternative publication because, the way they see it, if it was that important it would have appeared in a bigger publication. Such was the case with the Arnold Schwarzenegger/Enron/George Bush/Dick Cheney story, which I wrote about in August 2001 while Schwarzenegger was campaigning for governor of California.

There were one or two major newspapers that made scant reference to the secret meeting Schwarzenegger attended in May 2001 at the Peninsula Hotel in Beverly Hills with Ken Lay, the disgraced former chairman of Enron Corp, the energy company that exploited California’s electricity market for financial gain. Schwarzenegger was tapped by Lay because of his celebrity clout in addition to the fact that he was being courted by Republicans to replace Davis as governor.

But those publications failed to put the timing of the meeting into context. Had they done so, it may have saved Gray Davis’ job. If they dug a little deeper, they would have found that while Schwarzenegger listened to Lay’s pitch on why California shouldn’t abandon deregulation, one energy company was nailed by federal energy regulators for shutting down it’s power plants to create an artificial shortage and boost wholesale prices in the state.

The discovery, however, was kept secret by federal energy regulators so Vice President Dick Cheney could release his National Energy Policy in May 2001. Had federal energy regulators released the evidence of the manipulation that took place in California it would have certainly derailed Cheney’s energy policy since it called for deregulating energy markets nationwide.

However, while Schwarzenegger shook hands with Ken Lay, former Gov. Gray Davis was lobbying President Bush and Cheney for price controls on soaring electricity prices. Bush and Cheney publicly blamed Davis for the crisis, saying he was too slow to act and dismissed his claims about an energy cartel manipulating the state’s power market. That, in part, skewed public opinion and left many in the state thinking that the crisis was Davis’s fault.

But, two years later, following Enron’s bankruptcy, evidence emerged proving Davis was right. Energy companies were manipulating the market and were responsible for skyrocketing prices and blackouts. After I connected the dots, showing how Schwarzenegger allowed himself to be courted by Lay, I asked him about the meeting at the Peninsula. Schwarzenegger said he didn’t remember.

But now, three years to the day after he left the Peninsula with the outline Lay handed him for keeping deregulation in place, Schwarzenegger is implementing Lay’s vision. In late April, the new governor sent a proposal to the state’s Public Utilities Commission urging regulators to reopen California’s power market to competition. Since this story was published, Reliant Energy was indicted by federal prosecutors for manipulating the California electricity market, the first criminal charges ever brought against a corporation related to the 2000-2001 energy crisis.

California’s energy woes are of particular importance today because the state’s grid operator is forecasting a shortage of electricity in the summer of 2004 if unusually high heat blankets the state, which is exactly what the National Weather Service predicted in early 2004.

For consumer groups, hot weather combined with a free market is a recipe for disaster. They fear that a heat wave will force electricity prices through the roof in a competitive market and that there aren’t enough safeguards in place to protect consumers from another round of manipulation.

Attorney General Bill Lockyer agrees.

In April 2004, Lockyer published a 96-page report saying that California’s power market is still ripe for manipulation. Schwarzenegger, meanwhile, won’t heed the warnings. He’s surrounded himself with a who’s who of special interests that are advising him on energy policy.

But Schwarzenegger’s aides won’t reveal the identity of the people advising the governor on his energy plan. In a page pulled straight out of President Bush and Dick Cheney’s playbook on government secrecy, Schwarzenegger’s aides have refused to disclose the names of the individuals who helped write the governor’s energy plan, the one that was sent to the state’s Public Utilities Commission in April 2004.

The aides claim that the governor met with consumer groups before drafting the state’s energy policy, but the state’s three leading consumer groups, all of which have been at the forefront of the energy debate since 1999 have never spoken with Schwarzenegger or his staff. The governor’s aides won’t say which consumer groups he met with or how many meetings he had. Not surprisingly, the consumer groups oppose the governor’s energy policy because it benefits big business at the expense of consumers and puts the state in a vulnerable position again.

For more information on this topic, the following websites are extremely useful.
Consumer groups that have been on top of the energy story:The Foundation for Taxpayer and Consumer Rights,http://www.ftcr.org; The Utility Reform Network, http://www.turn.org; The Utility Consumers Action Network,http://www.ucan.org. These government agencies publish the most up to date news on the state’s energy issues: The California Public Utilities Commission, http://www.cpuc.ca.gov; The California Independent System Operator,http://www.caiso.com. To monitor the state’s refund issue: The Federal Energy Regulatory Commission,http://www.ferc.fed.us.