The Elephant in the Room: By MICHAEL MARCHANT

Friday September 03, 2004

In an effort to “put people first”, Gov. Schwarzenegger recently convened the California Performance Review (CPR). The CPR undertook a “total review” of state government and issued a voluminous report recommending hundreds of cost cutting measures. While Schwarzenegger supports the CPR’s recommendations on the grounds that they will rid the state government of fraud and inefficiency, he does not mention that when it comes to defrauding ordinary Californians, the real harm often takes place beyond the corridors of state government and in the boardrooms of the private sector. And there is no better example of this defrauding, and of Schwarzenegger’s unwillingness to address it, than the $9 billion rip-off of Californians executed by Enron et al during California’s energy crisis. 

The electricity crisis erupted in the spring of 2000 when power supplies grew tight and California’s energy suppliers artificially manipulated the market in order to send prices through the roof. California had previously deregulated its power market, thereby making it much easier for these abuses to take place. It is estimated that Californians were overcharged $9 billion by energy suppliers, including the infamous Enron. Although there are still those who insist that the energy giants are not guilty of any criminal activity, they are slowly drowning in a sea of incriminating evidence. The evidence includes tapes which show energy traders figuring out ways to create artificial congestion on California electric transmission lines to drive prices up; which demonstrate that Enron manipulated the market in nine of 10 days during the crunch; and tapes in which Enron traders boasted of bilking “Grandma Millie.”  

Grandma Millie may be relieved to know that there are public officials and others in California who are fighting on her behalf. In March of 2003, a coalition of government agencies and the state’s two largest utilities submitted compelling evidence to federal regulators on behalf of California’s consumers. The state’s attorney general has sued both the energy companies and the federal government, and the state’s two U.S. senators have blasted the federal regulators for their handling of the charges against the energy companies. But there is one voice that is conspicuously missing from the chorus: the voice of “the people’s governor.”  

While Arnold boasts about terminating the waste and inefficiency in state government, he can only muster a whimper when it comes to making the energy companies pay back what they stole from California’s ratepayers. Schwarzenegger has refused to be interviewed on the subject and, unlike other state officials who have taken strong stands against the energy giants, Schwarzenegger has been remarkably conciliatory in correspondence with federal regulators. In a June letter to the Federal Energy Regulatory Commission (FERC), which many argue has been soft on the energy companies, the governor refers to the reclaiming of the money stolen from Californians as “a difficult process” and mentions no specific numbers. As journalist Thomas Elias commented: “[The governor] is the only state official willing to accept without question FERC’s judgment about what’s fair.” 

Although Arnold appears content sticking Californians with the $9 billion overpayment, to his credit, the governor did take measures to address the energy crisis in 2001 when it was in full swing. At that time, he was working hard to protect ordinary Californians from the likes of Enron Corp by meeting privately with none other than the company’s CEO, Kenneth Lay. Though Arnold initially denied attending the meeting, records now demonstrate that he was there. This should not come as any surprise to those who have had to stomach Arnold’s references to Milton Friedman, the world’s leading advocate on regulation-free markets, as “the king,” or his demands for even greater deregulation of California’s energy markets in order to avert another energy crisis. 

What should come as a surprise, however, is that Californians are not standing up to Arnold’s attempt to frame state government as an enemy of the people, while obfuscating his alliances with corporate elites whose interests are in marked contrast to the public interest. This deception should be resisted at every level. Californians should demand that the governor go after the billions that are owed to them by the energy companies that clearly put profits first while putting people last. 


Michael Marchant is a City of Berkeley employee.