It's not what Arnold Schwarzenegger did to the girls a decade back that should raise an eyebrow. According to a series of memoranda our office obtained today, it's his dalliance with the boys in a hotel room just two years ago that's the real scandal.

The wannabe governor has yet to deny that on May 17, 2001, at the Peninsula Hotel in Los Angeles, he had consensual political intercourse with Enron chieftain Kenneth Lay. Also frolicking with Arnold and Ken was convicted stock swindler Mike Milken.

Now, thirty-four pages of internal Enron memoranda have just come through this reporter's fax machine tell all about the tryst between Maria's husband and the corporate con men. It turns out that Schwarzenegger knowingly joined the hush-hush encounter as part of a campaign to sabotage a Davis-Bustamante plan to make Enron and other power pirates then ravaging California pay back the $9 billion in illicit profits they carried off.

Here's the story Arnold doesn't want you to hear. The biggest single threat to Ken Lay and the electricity lords is a private lawsuit filed last year under California's unique Civil Code provision 17200, the "Unfair Business Practices Act." This litigation, heading to trial now in Los Angeles, would make the power companies return the $9 billion they filched from California electricity and gas customers.

It takes real cojones to bring such a suit. Who's the plaintiff taking on the bad guys? Cruz Bustamante, Lieutenant Governor and reluctant leading candidate against Schwarzenegger.

Now follow the action. One month after Cruz brings suit, Enron's Lay calls an emergency secret meeting in L.A. of his political buck-buddies, including Arnold. Their plan, to undercut Davis (according to Enron memos) and "solve" the energy crisis -- that is, make the Bustamante legal threat go away.

How can that be done? Follow the trail with me.

While Bustamante's kicking Enron butt in court, the Davis Administration is simultaneously demanding that George Bush's energy regulators order the $9 billion refund. Don't hold your breath: Bush's Federal Energy Regulatory Commission is headed by a guy proposed by … Ken Lay.

But Bush's boys on the commission have a problem. The evidence against the electricity barons is rock solid: fraudulent reporting of sales transactions, megawatt "laundering," fake power delivery scheduling and straight out conspiracy (including meetings in hotel rooms).

So the Bush commissioners cook up a terrific scheme: charge the companies with conspiracy but offer them, behind closed doors, deals in which they have to pay only two cents on each dollar they filched.

Problem: the slap-on-the-wrist refunds won't sail if the Governor of California won't play along. Solution: Re-call the Governor.

New Problem: the guy most likely to replace Davis is not Mr. Musclehead, but Cruz Bustamante, even a bigger threat to the power companies than Davis. Solution: smear Cruz because -- heaven forbid! -- he took donations from Injuns (instead of Ken Lay).

The pay-off? Once Arnold is Governor, he blesses the sweetheart settlements with the power companies. When that happens, Bustamante's court cases are probably lost. There aren't many judges who will let a case go to trial to protect a state if that a governor has already allowed the matter to be "settled" by a regulatory agency.

So think about this. The state of California is in the hole by $8 billion for the coming year. That's chump change next to the $8 TRILLION in deficits and surplus losses planned and incurred by George Bush. Nevertheless, the $8 billion deficit is the hanging rope California's right wing is using to lynch Governor Davis.

Yet only Davis and Bustamante are taking direct action to get back the $9 billion that was vacuumed out of the state by Enron, Reliant, Dynegy, Williams Company and the other Texas bandits who squeezed the state by the bulbs.

But if Arnold is selected, it's 'hasta la vista' to the $9 billion. When the electricity emperors whistle, Arnold comes -- to the Peninsula Hotel or the Governor's mansion. The he-man turns pussycat and curls up in their lap.

I asked Mr. Muscle's PR people to comment on the new Enron memos -- and his strange silence on Bustamante's suit or Davis' petition. But Arnold was too busy shaving off his Hitlerian mustache to respond.

The Enron memos were discovered by the Foundation for Taxpayer and Consumer Rights, Los Angeles,
www.ConsumerWatchdog.org

Greg Palast is author of the New York Times bestseller, "The Best Democracy Money Can Buy" as well as "Regulation and Democracy" (with Theo MacGregor and Jerrold Oppenheim), the United Nations guide to utility deregulation. Read Palast's commentaries at www.GregPalast.com. Reprints permitted. Contact: media@gregpalast.com. The Enron memos were discovered by the Foundation for Taxpayer and Consumer Rights, Los Angeles, www.ConsumerWatchdog.org.

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