Daily News (New York)

On May 17, 2001, after the third in a series of rolling blackouts in California, Los Angeles Mayor Richard Riordan and a small group of top California business executives held a private meeting at the plush Peninsula Hotel in Beverly Hills to discuss a solution to the state’s mounting power problems.

The main guest at the meeting, and the man who asked Riordan to convene it, was Kenneth Lay, then-CEO of Enron Corp. This was five months before the Texas-based energy firm collapsed into the biggest bankruptcy and corporate fraud case in U.S. history at the time.

Also attending that May meeting with Lay was Arnold Schwarzenegger, who this week was elected governor of California.

Other participants included Michael Milken, the former junk bond dealer sentenced to 10 years in prison in the 1980s for insider trading, as well as the heads of several energy, biotech and investment firms.

So what was Schwarzenegger, then just another Hollywood star, doing at a private meeting with Ken Lay and all those high-powered business executives?

Good question.

You’d think Schwarzenegger, who told California voters during the recall election that he was not a politician, would have an answer.

Mum about Lay

Schwarzenegger brushed off attempts by CNN and Arianna Huffington, who subsequently dropped out of the governor’s race, to raise the issue by saying he cannot recall meeting with Lay.

His campaign did not respond yesterday to requests for comment.

“Arnold has a pattern of not recalling,” Huffington told me. “Whatever happened in the meeting, why wouldn’t you recall you were there? It’s a case of Total Amnesia.”

Last Friday a series of internal Enron E-mails, released by the Foundation for Taxpayer & Consumer Rights, a California consumer advocacy group, confirmed that Schwarzenegger attended the meeting and that the gathering was part of an Enron campaign to press California leaders for more electricity deregulation.

Schwarzenegger “participated actively” in the discussions, an executive who attended the meeting said yesterday.

In one of the Enron E-mails, dated May 11, 2001, former company spokeswoman Karen Denne wrote to Lay: “We’re working to set up two meetings – one in Los Angeles and one in Silicon Valley. For the Los Angeles meeting, we’d like you to call Mayor Dick Riordan and ask for his help in pulling together a group of key, influential business leaders. . . . Explain about our comprehensive solution – business support is critical to garner political support.”

“Lay presented a number of ideas, but there was a lot of push back,” said the executive who attended the meeting. “I do remember Arnold was one of the ones who questioned the logic of what Enron was saying.”

The meetings Lay held came at a critical time in the state’s energy crisis, says Doug Heller of the Foundation for Taxpayer & Consumer Rights.

Only a few weeks before the meeting, Lt. Gov. Cruz Bustamante filed a $9 billion civil suit that alleged price gouging by California’s major power companies.

After months of skyrocketing electricity prices and a third rolling blackout, the California Legislature had just passed an emergency measure authorizing a $10 billion bond issue to keep the electricity supply flowing.

Many Californians had reached the conclusion that deregulation and market manipulation were behind the crisis.

And more than anyone else in the country, Ken Lay was the architect of deregulation.

After Enron collapsed that October, internal company documents revealed company traders and other energy firms had fraudulently created artificial shortages to drive up California’s prices.

Enron‘s major trader in the state, Tim Belden, pleaded guilty in December to conspiracy to commit wire fraud and is cooperating with a Justice Department investigation.

New obligation

When Schwarzenegger was only a Hollywood actor, it didn’t matter if he met with Lay. Now, as governor of the biggest state in the union, it does.

Outgoing governor Gray Davis requested that the Federal Energy Regulatory Commission force the big power companies, including Enron, to return $9 billion stolen from California customers.

Gov.-elect Schwarzenegger must decide what to do about that demand. A few days ago, he released a 10-point program for solving California’s huge budget deficit. Nowhere does it mention the state’s energy crisis or the return of $9 billion to Californians.

Let’s hope the star of “Total Recall” hasn’t forgotten that too.
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