HOME
DV NEWS
SERVICE ARCHIVE SUBMISSIONS/CONTACT ABOUT DV
Ahnuld,
Ken Lay, George Bush, Dick Cheney and Gray Davis
by
Jason Leopold
Arnold
Schwarzenegger isn’t talking. The Hollywood action film star and California’s
GOP gubernatorial candidate in the state’s recall election has been unusually
silent about his plans for running the Golden State. He hasn’t yet offered up a
solution for the state’s $38 billion budget deficit, an issue that largely got
more than one million people to sign a petition to recall Gov. Gray Davis.
More
important, however, Schwarzenegger still won’t respond to questions about why
he was at the Peninsula Hotel in Beverly Hills two years ago where he, former
Los Angeles Mayor Richard Riordan and junk bond king Michael Milken, met
secretly with former Enron Chairman Kenneth Lay who was touting a plan for
solving the state’s energy crisis. Other luminaries who were invited but didn’t
attend the May 24, 2001 meeting included former Los Angeles Laker Earvin
“Magic” Johnson and supermarket magnate Ron Burkle.
While
Schwarzenegger, Riordan and Milken listened to Lay’s pitch, Gov. Davis pleaded
with President George Bush to enact much needed price controls on electricity
sold in the state, which skyrocketed to more than $200 per megawatt-hour. Davis
said that Texas-based energy companies were manipulating California’s power
market, charging obscene prices for power and holding consumers hostage. Bush
agreed to meet with Davis at the Century Plaza Hotel in West Los Angeles on May
29, 2001, five days after Lay met with Schwarzenegger, to discuss the
California power crisis.
At
the meeting, Davis asked Bush for federal assistance, such as imposing
federally mandated price caps, to rein in soaring energy prices. But Bush
refused saying California legislators designed an electricity market that left
too many regulatory restrictions in place and that’s what caused electricity
prices in the state to skyrocket. It was up to the governor to fix the problem,
Bush said. However, Bush’s response appears to be part of a coordinated effort
launched by Lay to have Davis shoulder the blame for the crisis. It worked.
According to recent polls, a majority of voters grew increasingly frustrated
with the way Davis handled the power crisis. Schwarzenegger has used the energy
crisis and missteps by Davis to bolster his standing with potential voters.
While Davis took a beating in the press (some energy companies ran attack ads
against the governor), Lay used his political clout to gather support for
deregulation.
A
couple of weeks before Lay met with Schwarzenegger in May 2001, the PBS news
program “Frontline” interviewed Vice President Dick Cheney, whom Lay met with
privately a month earlier. Cheney was asked by a correspondent from Frontline
whether energy companies were acting like a cartel and using manipulative
tactics to cause electricity prices to spike in California.
“No,”
Cheney said during the Frontline interview. “The problem you had in California
was caused by a combination of things--an unwise regulatory scheme, because
they didn't really deregulate. Now they’re trapped from unwise regulatory
schemes, plus not having addressed the supply side of the issue. They've
obviously created major problems for themselves and bankrupted PG&E in the
process.”
A
month before the Frontline interview and Bush’s meeting with Davis, Cheney, who
chairs Bush’s energy task force, met with Lay to discuss Bush’s National Energy
Policy. Lay, whose company was the largest contributor to Bush’s presidential
campaign, made some recommendations that would financially benefit his company.
Lay gave Cheney a memo that included eight recommendations for the energy
policy. Of the eight, seven were included in the final draft. The energy policy
was released in late May 2001, after Schwarzenegger, Riordan and Milken met
with Lay and after the meeting between Bush and Davis and Cheney’s Frontline
interview.
The
policy made only scant references to California's energy crisis, which Enron
was accused of igniting, and did not indicate what should be done to provide
the state some relief. Cheney said the policy focused on long-term solutions to
the country's energy needs, such as opening up drilling in the Arctic National
Wildlife Refuge and freeing up transmission lines. That's why California was
ignored in the report, Cheney said.
What’s
unknown to many of the voters who will decide Davis’s fate on Oct. 7, the day
of the recall election, is that while Cheney dismissed Davis’s accusations that
power companies were withholding electricity supplies from the state, one
company engaged in exactly the type of behavior that Davis described. But Davis
would never be told about the manipulative tactics the energy company engaged
in.
In
a confidential settlement with the Federal Energy Regulatory Commission, whose
chairman was appointed by Bush a year earlier, Tulsa, Okla., based-Williams
Companies agreed to refund California $8 million in profits it reaped by
deliberately shutting down one of its power plants in the state in the spring of
2000 to drive up the wholesale price of electricity in California.
The
evidence, a transcript of a tape-recorded telephone conversation between an
employee at Williams and an employee at a Southern California power plant
operated by Williams, shows how the two conspired to jack up power prices and
create an artificial electricity shortage by keeping the power plant out of
service for two weeks.
Details
of the settlement had been under seal by FERC for more than a year and were
released in November after the Wall Street Journal sued the commission to
obtain the full copy of its report. Similarly, FERC also found that Reliant
engaged in identical behavior around the same time as Williams and in February
the commission ordered Reliant to pay California a $13.8 million settlement.
Had
the evidence been released in 2001 when Davis accused energy companies of fraud
it would have helped California’s case and voters may have viewed the governor
more positively. But if FERC were to publicly release the details of the
Williams settlement it wouldn't have jibed with Bush's energy policy, which was
made public instead in May 2001. It's highly unlikely that Bush, Cheney and
members of the energy task force were kept in the dark about the Williams scam,
especially since the findings of the investigation by FERC took place around
the same time the policy was being drafted.
But
Davis was still causing problems for Lay. California’s power woes had a ripple
effect, forcing other states to cancel plans to open up their electricity
markets to competition fearing deregulation would lead to widespread blackouts
and price gouging. For Enron, a company that generated most of its revenue from
buying and selling power and natural gas on the open market, such a move would
paralyze the company.
Fearing
that Davis would take steps to re-regulate California’s power market that Lay
spent years lobbying California lawmakers to open up to competition, Lay
recruited Schwarzenegger, Riordan, Milken, and other powerful business leaders
like Bruce Karatz, chief executive of home builder Kaufman & Broad; Ray
Irani, chief executive of Occidental Petroleum; and Kevin Sharer, chief
executive of biotech giant Amgen. other high-profile celebrities and financial
executives to champion his cause.
The
90-minute secret meeting Lay convened took place inside a conference room at
the Peninsula Hotel. Lay, and other Enron representatives at the meeting,
handed out a four-page document to Schwarzenegger, Riordan and Milken titled
“Comprehensive Solution for California,” which called for an end to federal and
state investigations into Enron’s role in the California energy crisis and said
consumers should pay for the state’s disastrous experiment with deregulation
through multibillion rate increases. Another bullet point in the four-page
document said “Get deregulation right this time -- California needs a real
electricity market, not government takeovers.”
The
irony of that statement is that California’s flawed power market design helped
Enron earn more than $500 million in one year, a tenfold increase in profits
from a previous year and it’s coordinated effort in manipulating the price of
electricity in California, which other power companies mimicked, cost the state
close to $70 billion and led to the beginning of what is now the state’s $38
billion budget deficit. The power crisis forced dozens of businesses to close
down or move to other states, where cheaper electricity was in abundant supply,
and greatly reduced the revenue California relied heavily upon.
Lay
asked the participants to support his plan and lobby the state Legislature to
make it a law. It’s unclear whether Schwarzenegger held a stake in Enron at the
time or if he followed through on Lay’s request. His spokesman, Rob Stutzman,
hasn’t returned numerous calls for comment about the meeting. For
Schwarzenegger and the others who attended the meeting, associating with Enron,
particularly Ken Lay, the disgraced chairman of the high-flying energy company,
during the peak of California’s power crisis in May 2001 could be compared to
meeting with Osama bin Laden after 9-11 to understand why terrorism isn’t
necessarily such a heinous act.
A
person who attended the meeting at the Peninsula, which this reporter wrote
about two years ago, said Lay invited Schwarzenegger and Riordan because the
two were being courted in 2001 as GOP gubernatorial candidates. A week before
the meeting, Davis signed legislation to create a state power authority that
would buy, operate and build power plants in lieu of out-of-state energy
companies, such as Enron, that the governor alleged was ripping off the state.
For
Enron’s Lay, the timing of the meeting was crucial. His company was just five
months away from disintegrating and he was doing everything in his power to
keep his company afloat and the profits rolling in.
It
wasn’t until Enron collapsed in October 2001 and evidence of the company’s
manipulative trading tactics emerged that FERC began to take a look at the
company’s role in California’s electricity crisis. Since then, memos written by
former Enron traders were uncovered, with colorful names like “Fat Boy” and
“Death Star,” that contained the blueprint for ripping off California.
Enron’s
top trader on the West Coast, Timothy Belden, the mastermind behind the scheme,
pleaded guilty in December to conspiracy to commit wire fraud and has agreed to
cooperate with federal investigators who are still trying to get to the bottom
of the crisis.
California
is still demanding that FERC order the energy companies to refund the state
$8.9 billion for overcharging the state for electricity during its yearlong
energy crisis. But FERC says California is due no more than $1.2 billion in
refunds because the state still owes the energy companies $1.8 billion in
unpaid power bills.
Davis,
who refused to cave in to the demands of companies like Enron even while
Democrats, Republicans and the public criticized him, was right all along.
Maybe Californians ought to cut Davis some slack.
Jason Leopold, formerly the bureau chief of Dow Jones Newswires, is a
freelance journalist based in California. He is currently finishing a book on
the California energy crisis. He can be contacted at jasonleopold@hotmail.com.
* Wolfowitz:
Iraq Was Not Involved In 9-11 Terrorist Attacks, No Ties To Al-Qaeda
* White House
Said In January It Used Info From Iraqi Exiles In Bush’s State of the Union
Speech
* CIA
Probe Finds Secret Pentagon Group Manipulated Intelligence on Iraqi Threat
* Tenet
Tells Senators Wolfowitz Committee Gave White House Dubious Intelligence
* Wolfowitz
Committee Told White House to Hype Dubious Uranium Claims
* “The Road to
Hell is Paved With Good Intentions”
* CIA
Warned White House Last Oct. That Iraq/Uranium Claims Based On Forged Documents
* Wolfowitz
Aimed to Undermine Blix So US Could Strike Iraq
* White
House Silenced Experts Who Questioned Iraq Intel Info Six Months Before War
* Powell Denies
Intelligence Failure
* The Iraq War Was
Always Based On Shaky Evidence and Bad Intel
* Wolfowitz
Admits Iraq War Was Planned Two Days After 9/11
* Despite Thin
Intelligence Reports, US Plans To Overthrow Iranian Regime
* Cheney’s
Old Company Continues To Break Laws While Profiting From Terror
* FERC and Wall Street:
Conversations May Have Violated Federal Law