Let's back up a bit and revisit the California energy crisis of 2000. The energy crisis was precipitated by the deregulation of the state's electricity sector in 1996. By one estimate the flawed deregulation scheme eventually cost the state $50 billion. Under the deregulation plan, California's utilities companies were forbidden to enter into long-term contracts with power companies and forced to buy power at peak prices in the spot market. In addition, the plan barred the utilities from raising their rates and thus passing on the increased costs to consumers. However, the limitations of the initial deregulation scheme were not the only causes of the energy crisis. The crisis was greatly exacerbated by illegal market manipulation on the part of companies such as Enron that provided power to the state's utilities.

Governor Gray Davis insisted that it was the illegal market manipulation of power companies such as Enron that had caused the crisis and repeatedly requested that the federal government step in and impose caps on the prices that the power companies were charging the state's utilities. Davis is a Democrat and so it comes as no surprise that the Bush administration ignored his requests and left him twisting in the wind.

The illicit profits that were generated through the unlawful market manipulation of Enron and others have been pegged at around $9 billion. With no help offered by the federal government, the Davis administration embarked upon the only path available to it to attempt to recoup the state's losses. The state filed suit against the power companies under the Unfair Business Practices Act in order to attempt to get the power companies to disgorge their ill-gotten gains. The state is also suing the Federal Energy Regulatory Commission (FERC), claiming that the regulatory agency had been wrong not to step in and impose price caps and that its inaction contributed to the loss of the $9 billion.

The problem for Enron and company and FERC is that more and more evidence of the fraud that was perpetrated by the power companies keeps coming to light. As British investigative reporter Greg Palast reported on October 3, there is abundant evidence of criminal manipulation on the part of the power companies, such as "fraudulent reporting of sales transactions, megawatt 'laundering', fake power delivery scheduling and straight out conspiracy."

Palast theorises that the desire to place a sympathetic governor in Sacramento was what was behind the push to recall Gray Davis. Under this scenario, the power companies and FERC desperately needed a governor who would either call off the lawsuits or settle with the power companies and FERC for pennies on the dollar.

Interestingly enough, it has been reported that Schwarzenegger met with Enron CEO Ken Lay in early 2001 and, according to the Los Angeles based Foundation for Taxpayer and Consumer Rights, internal memos linking his gubernatorial run to Lay and Enron have recently come to the surface. Schwarzenegger claims not to recall any details of his meeting with Lay and has declined to comment on the internal memos.

So what does this all mean? Is there any validity to the allegation that Schwarzenegger's candidacy was cooked up at least in part as a scheme to get Enron and the other power companies who had defrauded the state off the hook?

On October 10, only three days after his election, Schwarzenegger announced his intention to settle all of the state's pending energy fraud lawsuits. You make the call.

Zafar Sobhan is an Assistant Editor of The Daily Star.