And this piece from August 4, 2001:
Posted at 10:38 a.m. PDT Saturday, Aug. 4, 2001
siliconvalley.com
Firings standards vary for consultants
BY CHRIS O'BRIEN, ERIC NALDER AND BRANDON BAILEY
Mercury News
While the Davis administration moved swiftly in recent weeks to dismiss a
handful of low-level energy contractors who had apparent conflicts of
interest, a group of powerful consultants to the administration has enjoyed
far more lenient treatment.
These consultants earned $50 to $300 an hour for negotiating long-term
electricity contracts, mapping energy needs and providing financial and
legal advice. Of about 50 people involved in this work, only about half were
required to fill out statements disclosing their personal financial
interests. And of the five who did report energy investments, only one was
dismissed.
By contrast, the state dismissed four people last week who worked in a
cramped energy trading room at the California Department of Water Resources;
their pay averaged $30 to $45 an hour. These people purchased power on the
open market, but they had far less influence than others over how much the
state pays for power.
While the administration is giving the appearance of cleaning house, it is
not holding all of its key employees and advisers to a rigorous ethical
standard. And the firings have left a sour taste in the mouths of several
traders who once considered themselves heroes for helping the state out in a
time of crisis.
``I am pretty much just a pawn,'' said Constantine Louie, 28, while packing
his bags at a Sacramento-area motel where he'd been staying for most of the
five months he worked for the state. ``It is just political. Somebody has to
be the scapegoat.''
A spokesman for Gov. Gray Davis disputed that. Press secretary Steve
Maviglio said the people who were dismissed had stock in one energy company,
San Jose-based Calpine, at a time when they were ``committing state
resources.'' But there are conflicting reports on whether they had actually
bought power from Calpine.
Maviglio said higher-ranking consultants and other staffers who owned energy
stocks -- including himself at one point -- either weren't in a position to
buy from the power suppliers or had disposed of their holdings before they
got into that position.
The governor's staff has said other top advisers, including Wall Street
experts Joseph Fichera and Michael Hoffman, weren't required to file
disclosure statements. Late Friday, however, Fichera released a letter
saying he had no energy investments. Hoffman also disclosed that he had no
holdings except for options in an Oklahoma energy trader, the Williams Cos.,
which he sold at a loss in March.
Problems arise
Fueled in part by criticism from one of Davis' political rivals, Republican
Secretary of State Bill Jones, the issue is only the latest fallout from an
unprecedented energy-buying effort. That program was thrown together in just
a few days in January, when the state's major private utilities were
teetering on the verge of bankruptcy.
With few experienced officials on the payroll, the governor's office and
state Department of Water Resources turned to a handful of private
consulting firms and about 20 individuals who were hired on short-term
contracts.
At the top of the heap are a handful of consulting firms, primarily Navigant
Consulting and Electric Power Group. Employees from these two groups analyze
energy demands, negotiate long-term power deals and manage the energy
contracts.
Energy-trading experts say these roles are the most critical to determining
the price the state pays for power.
``If you make mistakes on these long-term deals or the analysis, then those
mistakes multiply down the road,'' said Steve McAleavy, a director for
Search Consultants International, a Houston-based job placement firm that
works with energy companies.
At the same time, the Department of Water Resources has been forced to fill
some of the state's needs by buying power on the spot market, and that's
where the lower-level traders come in. Experts say there is little these
traders can do to affect the price they pay for power.
Scott Spiewack, a secretary for the Power Marketers Association, said
traders at this point call a handful of other traders to see what price
they're offering, then pick the best offer.
Yet, despite having less responsibility and influence on power prices, it's
this second group that has received the most scrutiny -- and felt the
biggest repercussions -- during the recent controversy about conflicts of
interest.
Of the 26 people in this group, 20 were required to fill out disclosure
forms, but not until roughly four months after they were hired. Five of
those people owned stock in Calpine -- Constantine Louie, William Mead,
Elaine Griffin, Peggy Cheng and Herman Leung.
After complying with orders to sell their stock, four were dismissed anyway.
The fifth, Griffin, resigned to take a new job. The state also terminated
its contract with one long-term negotiator, retired Sacramento municipal
utility executive Richard Ferreira, who had purchased Calpine stock the
previous year.
One other trader, Bernard Barretto, reported owning Enron stock but was not
terminated because the state wasn't buying from Enron on the spot market,
Maviglio said.
``We had reason to believe from our review that the five who were asked not
to return had violated the Political Reform Act or were close to it,''
Maviglio said.
Department of Water Resources spokesman Oscar Hidalgo went further, saying
the department terminated contracts with those traders who appeared to have
been involved in official transactions with Calpine. But he also said the
state was still reviewing all its transactions.
Three of the six former contractors insist they had no official dealings
with Calpine; others couldn't be reached for comment.
Mead and Griffin both said Calpine wasn't selling power into the spot
markets, where they operated. A Calpine spokesman said spot sales were rare,
but they occasionally occurred.
Ferreira says he didn't negotiate any contracts with Calpine.
Except for Ferreira, the governor has been far more forgiving of revelations
about possible conflicts involving top aides, state energy officials or
consultants who perform more critical energy-trading tasks.
This past week, Maviglio disclosed that he owned stock in Calpine, which he
subsequently sold. In addition, William Keese, chairman of the California
Energy Commission, acknowledged owning stock in companies that had sought
plant licenses from his agency. Bruce Willison, a Davis appointee to the
California Electricity Oversight Board, owns Enron stock. And Arthur
Rosenfield, a member of the California Energy Commission, held 380 shares of
Enron stock.
None have been asked to resign by Davis.
Still working for state
Four other Department of Water Resources consultants reported energy
investments; they also remain with the state.
Vikram Budhraja, the president of Electric Power Group, reported buying two
blocks of Edison International stock, each worth $10,000 to $100,000, on
Jan. 17 and Jan. 22 of this year. A few days earlier, on Jan. 11, he also
bought stock worth $10,000 to $100,000 in Dynegy, a Texas power supplier
that is one of the companies the governor has accused of profiteering. He
said he sold all his stock a few days after going to work for the state.
Mark Skowronski, a contract negotiator with Budhraja's firm, made several
purchases of Edison stock in January and February. He also held stock in
Reliant Energy, another major Texas power supplier, but sold that stock in
March when he became the state's lead negotiator with Reliant. After first
insisting there was no conflict in holding Edison stock, because he doesn't
deal with Edison, Skowronski reported selling that stock in July.
Ronald Nichols, head of the Navigant Consulting group in Sacramento,
disclosed that he bought $10,000 to $100,000 worth of stock in Enron, the
giant Texas power marketer, in April. A Department of Water Resources
spokesman said Nichols sold that stock last month.
Sumner White, a member of Nichols' firm also working for the state,
reported one-third ownership of SRW Group, an independent power developer,
and said he received $10,000 to $100,000 in income from AES, which owns
several California power plants.
Skowronski, Nichols and White couldn't be reached for comment. But Maviglio
reiterated that they weren't dealing with the companies in which they had
invested.
``That's the big difference,'' he said.
Budhraja, in particular, has been targeted for criticism from Jones, the
secretary of state. While Budhraja said he sold his energy stocks Jan. 29, a
few days after he went to work for the state, Jones says it appears that
Budhraja's second Edison purchase was made three days after he went to work
for the state -- just as California was beginning to buy power on the
utility's behalf.
The state's $6.2 million contract with the Electric Power Group indicates
that the consulting firm was to begin work Jan. 19. But Budhraja says he
didn't start working for the state until Jan. 25 -- after he bought the
Edison stock -- and adds that he sold all his energy stock as soon as
possible.
In an interview, Budhraja rejected any suggestion that he knew he'd be
working for the state when he made the investments.
``That's absolutely wrong,'' he said. ``I was sitting in my office the
morning of Jan. 25 when a call came'' without warning. ``I basically got in
my car and went to the airport to go help out the state.''
Louie, the young trader who moved from Southern California to Sacramento,
learned he'd been fired by checking his e-mail during a hiking trip in Peru,
and he said he feels he was treated unfairly.
``Perhaps it's like a peace offering'' to Davis' critics, Louie said. ``Like
they are actually addressing the issue by terminating four of us . . . that
might appease some critics, I don't know.''
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Dion Nissenbaum contributed to this report.
Contact Brandon Bailey at bbailey@sjmercury.com or (408) 920-5022. |
