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Energy advisors helped fund governor's campaign
by Jason Leopold
May 13, 2004

One of the many missteps that led to the unraveling of Gray Davis' decades long political career was the way in which the former governor of California handled the state's energy crisis. Sure, Davis may have publicly vilified energy companies such as Enron for ripping off the state and manipulating the market, but he operated under a veil of secrecy behind the scenes, refusing to allow anyone outside his administration to scrutinize his so-called solutions to the crisis.

When Davis and his team of energy advisers negotiated more than $40 billion in long-term energy contracts for the state as a way of putting the brakes on soaring wholesale power prices, he refused to publicly release the details of those contracts. It wasn't until Davis was sued by a handful of newspapers forcing him to disclose the terms of the long-term contracts that the state was able to see just how bad of a deal he made for consumers. Moreover, many of the people Davis hired to negotiate the contracts had a conflict-of-interest because they held financial stakes in the same companies they were negotiating with on behalf of California. Many of those long-term contracts have since been renegotiated but a bulk of the deals still left in place means California will pay the highest price for electricity in the country for the next decade.

Now, after promising not to repeat the same mistakes as his predecessor, Arnold Schwarzenegger, the Hollywood action star who unseated Davis during a contentious recall election last year, is on track to make an already bad situation worse. Late last month Schwarzenegger released the blueprints of his long-awaited energy plan, which calls for the state to return to a fully, competitive deregulated electricity market. That's a hot-button issue because, according to Attorney General Bill Lockyer, the market is still ripe for manipulation and there are no safeguards in place to protect consumers should another energy crisis hit. Furthermore, California's grid operator says in the event of a heatwave this summer the state's power supplies could be dangerously low creating the potential for blackouts and that could send power prices through the roof again. It was just two weeks ago that California's grid operator was forced to ask a state utility to cut power to some of its large business customers because high heat caused a spike in demand for power and overloaded one a transmission line.

Instead of confronting the issue with a set of policy directives that benefits consumers and businesses, Schwarzenegger has surrounded himself with a who's who of free-market advocates who put the interests of big business before that of consumers, arguably the ones that were most affected by financially by the energy crisis, when it comes to policy decisions about the future of the state's electricity market. Worse, it's unclear if Schwarzenegger ever bothered to meet with consumer groups before releasing his energy plan.

Like Davis, Schwarzenegger is beginning to operate under a veil of secrecy on policy decisions that affect Californians. Case in point: when an aide to Schwarzenegger was asked April 28 who helped the governor draft his energy policy the aide refused to identify the names of the people involved in the discussions, in what appeared to be a move that was identical to the stonewalling tactics Vice President Dick Cheney has employed over the past three years to keep the names of his energy task force secret. Consumer groups said they were left out of the discussions with the governor because they opposed the governor's energy plan. Dan Skopec, a senior member of Schwarzenegger's administration who handles energy issues, said the governor did consult with consumer groups, but he wouldn't reveal what groups he met with. But after a weekend of discussions, Terri Carbaugh, Governor Schwarzenegger's spokeswoman, agreed to reveal the names of the people who worked on Schwarzenegger's energy policy.

It's now clear why Schwarzenegger's aides wanted to keep the identities of the people they consulted with under wraps. Cronyism. Some of the people advising Schwarzenegger contributed heavily to his campaign last year. One of Schwarzenegger's energy advisers, Dan Emmett, a real estate developer, contributed $21,200 to Schwarzenegger's "Total Recall" campaign. Larry Mendonca, another adviser, works for consulting firm McKinsey & Company, a firm that also contributed to Schwarzenegger's campaign.

On top of that, none of the people on Schwarzenegger's energy team happen to be consumer friendly. What these people are telling the governor are things that will ultimately keep big businesses happy. For consumer groups, that's like deja vu all over again.

The team, according to Carbaugh, is: Ralph Cavanaugh watches the power industry for the National Resources Defense Council and his participation in discussions with the governor are limited to the environment. James Sweeney and Severin Borenstein are free-market advocates who teach energy issues at Stanford University and UC Berkley and helped write Schwarzenegger's energy plan. Sean Randolph is president of the San Francisco-based Bay Area Economic Forum, a group that represents business and government interests. Sunny McPeak is Schwarzenegger's Business, Housing and Transportation secretary. Terry Tamminen is Schwarzenegger's secretary of the California Environmental Protection Agency, or CalEPA.

Still, there's a fundamental disagreement between the state's leading consumer groups, The Foundation for Taxpayer and Consumer Rights, The Utility Reform Network and The Utility Consumers Action Network, on whether or not Schwarzenegger received advice on energy issues from consumer groups.

Schwarzenegger was "dead wrong in terms of consulting consumer groups. They did not consult with any of the three California consumer groups who were most involved in energy matters," said Michael Shames, executive director of San Diego-based UCAN. "So who did he consult with?"

Carbaugh said Dan Skopec, Schwarzenegger's aide on energy issues, "has paper records of input from consumer groups." But Carbaugh said she doesn't know what consumer group provided the advice or what those "paper records" say.

Jason Leopold is the former Los Angeles bureau chief of Dow Jones Newswires where he spent two years covering the energy crisis and the Enron bankruptcy. He just finished writing a book about the crisis, due out in December through Rowman & Littlefield.

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