Political Storm Stems From Obscure Contract Dispute

The political powder keg that blew up in the face of top mayoral aide Michael Keeley late last week had its origins in an obscure contract dispute over city-leased lands in Inyo County.

More than a decade ago, the city Department of Water and Power, looking to develop new sources of energy, leased about 6,800 acres of federal Bureau of Land Management holdings. The plan was to develop a geothermal power project to tap into the underground reservoir of hot water and steam in part of what is formally dubbed the Coso Known Geothermal Resource. But the DWP never got the project off the ground and in 1991 sought to sublease the tract.

The contract for use of the land for energy development and steam sales was awarded to Calpine Corp. of San Jose. The dispute arose over changes the city made in the contract after it was awarded. Omaha-based California Energy Co. claimed that the changes were so significant that the contract should be rebid.

The city attorney’s office disagreed and has been trying to get Cal Energy’s attorneys, the firm of Morrison & Foerster, thrown off the case. The office argued that Morrison & Foerster had a conflict of interest because it was representing the city in disputes involving the Department of Airports.

In September, Keeley surreptitiously sent a city attorney strategy memo to Morrison & Foerster. When his action was exposed last week, Keeley said he had been trying to dissuade Cal Energy’s attorneys from filing suit.

Keeley’s strategy did not work--in January, Morrison & Foerster sued in Los Angeles Superior Court. The city attorney’s office lost its first bid to have the firm thrown off the case but has appealed the decision.