FYI, the only people who knew who we invited to the meeting (but did not 
attend) were Dick Riordan and Kevin Sharer...


Saturday, May 26, 2001 (SF Chronicle)
Enron's secret bid to save deregulation/PRIVATE MEETING: Chairman pitches his 
plan to prominent Californians
Christian Berthelsen, Scott Winokur, Chronicle Staff Writers


   Energy executive Kenneth Lay, head of powerful Enron Corp., quietly
courted Arnold Schwarzenegger, Richard Riordan, Michael Milken and other
luminaries this week in Beverly Hills to drum up support for his solution
to California's energy crisis.
   His prescription called for more rate increases, an end to state and
federal investigations and less rather than more regulation.
   Lay, a close friend of President Bush and one of his largest campaign
contributors, hosted a private 90-minute meeting in a conference room at
the Peninsula Hotel in Beverly Hills on Thursday.
   Among the participants were Milken, the former head of the Drexel Burnham
Lambert investment banking firm who pleaded guilty to fraud charges in
1990 and who now runs a think tank based in Santa Monica; movie star
Schwarzenegger;
   and Riordan, the mayor of Los Angeles. Schwarzenegger and Riordan have
been courted recently as GOP gubernatorial candidates.
   One participant, who agreed to speak on the condition he not be
identified, said the meeting appeared to be geared toward getting
participants to support Lay's vision and then champion it to officials who
are trying to solve the state's energy mess.
   PLAN TO RESCUE DEREGULATION
   The source said the timing and tone of the meeting suggested Lay is
concerned that California will abandon its disastrous experiment with
power markets by either re-regulating the system or creating a government
authority to provide electricity. Gov. Gray Davis signed legislation last
week to create and fund a state power authority that would build, buy and
run power plants in California.
   "They're trying to rescue deregulation," the source said of Enron
executives. "They think the whole state power authority is a bad idea."
   At the meeting, Enron representatives circulated a four-page position
paper titled "Comprehensive Solution for California," which was obtained
by The Chronicle. It said ratepayers should bear responsibility for the
billions in debt incurred by the state's public utilities and that
investigations of power price manipulation and political rhetoric are
making matters worse.
   The paper made no mention of the possibility that much of the runaway
electricity costs in California is due to market manipulation by power
generators and traders -- a possibility given credibility in studies by
regulators and economists.
   One of the talking points read: "Get deregulation right this time --
California needs a real electricity market, not government takeovers."
Another point suggested giving consumers monetary rebates for conserving
electricity.
   INVOLVED IN EARLY DAYS
   Lay has been an aggressive champion of deregulated electricity markets and
was an early advocate in persuading California to begin its experiment
with a competitive power market system.
   Lay has created a new kind of company in the process, one that essentially
produces nothing but makes money as a middle-man, buying electricity from
generators and selling it to consumers. During the first quarter of this
year, Enron's revenues increased 281 percent to $50.1 billion.
   Asked about the purpose of the meeting, Karen Denne, a spokeswoman for
Enron, said she would "look into that" and then did not return repeated
telephone calls seeking comment. One participant said Denne was present at
the meeting.
   D.C. CONNECTIONS
   Meanwhile, Lay's power in Washington is reported to have reached
unprecedented heights. According to a story in yesterday's New York Times,
Lay supplied the Bush administration with a list of candidates for jobs
regulating the power industry and even interviewed one of them. The story
also said Lay essentially threatened to seek the removal of the chairman
of the Federal Energy Regulatory Commission, Curt Hebert, if he does not
support Lay's desire to further deregulate the nation's electricity
system. Lay denied the allegation.
   Also in attendance at this week's meeting were 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.
   Among those who were invited but did not attend were former Los Angeles
Lakers star Earvin "Magic" Johnson; supermarket magnate and Bill Clinton
supporter Ron Burkle; and Dennis Tito, recently returned from the world's
first civilian space trip.
   Milken, through a spokesman, confirmed that he attended the meeting, but
declined to be interviewed. Schwarzenegger could not be reached for
comment through a publicist, and Sharer did not return a call yesterday
afternoon.
   A spokesman for Riordan, Peter Hidalgo, said the Los Angeles mayor
attended,
   but was "not intending to formulate any kind of policy position on this
issue.
   His intent is to listen to all sides."
   Attached to the Enron handout was a two-page open letter, addressed to
Davis and the state Legislature, apparently prepared for those who support
Lay's position and would be willing to sign their names to it. The source
who participated in the meeting said those assembled appeared noncommittal
and asked a number of questions of Lay, but did not agree to champion his
agenda.
   E-mail the writers at cberthelsen@sfchronicle.com and Scott Winokur at
swinokur@sfchronicle.com.
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Copyright 2001 SF Chronicle