Pluggging the Latest Conspiracy Theory 

Internet buzzes about the recall schemes of Arnold and Enron

Thursday, Oct 9 2003

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.

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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 résumé 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)."

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