5 State Energy Advisors Fired Over Conflicts


The Davis administration, stung by charges of excessive secrecy, disclosed late Friday that it has fired five energy consultants because of conflicts of interest involving their official duties and personal finances.

A sixth consultant hired to help California purchase electricity has quit, according to state records.

All were involved in purchasing electricity for the state from a generator whose stock they owned.


In addition, the top lawyer for the agency buying the power was removed from her position because of concern about the way the issue of potential conflicts was handled.

Top advisors to Gov. Gray Davis told The Times that they learned of the conflicts in the last week, after belatedly asking the consultants to file required economic disclosure statements. A review of those documents, which included stock holdings, showed that some of the consultants “may have crossed the line,” said the governor’s senior advisor, Nancy McFadden.

State law prohibits officials from participating in decisions involving their personal financial interests.

Although portraying himself as seriously concerned that such conflicts could undermine public confidence, the governor has not required some of his most influential private-sector advisors to file the kind of disclosure statements that led to the firings.

Among them are two Wall Street veterans who have been most influential in promoting the governor’s energy rescue plan, which includes the largest state bond sale in U.S. history.

The New York firms that employ executives Joseph Fichera and Michael Hoffman have been paid $275,000 a month to, among other things, help pitch the $12.5-billion bond issue to Wall Street analysts and state lawmakers. The companies stand to make an additional $14 million if the state goes through with the purchase of utility transmission lines.


Davis contends that Fichera, Hoffman and their associates fall into a separate category of advisor, beyond the reach of the state’s political reform laws. Critics question the distinction.

“The governor’s approach may be convenient for him,” said Jim Knox, executive director of the watchdog group California Common Cause, “but it ignores the law.”

Disclosure is crucial because the public needs to know that “decisions are not being made by people who have a conflict of interest,” Knox said. “Trying to evade the law with a creative use of semantics is not what they ought to be doing.”

The firings disclosed Friday are unlikely to diminish criticism surrounding the more than 50 consultants and advisors hastily hired by the administration as it rushed into the power trading business this year.

More than $25 million is being spent by the state on consultants, according to state records.

In the process, seemingly little attention was paid to routine government ethics laws.

It took six months for state officials to direct the consultants to file even basic disclosures of their personal finances, including investments. The state Political Reform Act normally requires such forms to be filed publicly within 30 days of starting work for state agencies.


Even with the hastily ordered disclosures made public thus far, the circumstances of most of the stock transactions remain a mystery because key information was omitted. Most of the consultants, for example, failed to state when they bought the energy stocks.

One of those pressing hardest for an investigation of possible conflict of interest violations and insider trading is Secretary of State Bill Jones, a Republican who hopes to challenge Davis next year. Jones has accused the governor of “a conscious policy of secrecy” in enforcing compliance with public disclosure laws. This week Jones called for a federal Securities and Exchange Commission probe of stock purchases by state energy consultants.

4 Traders Owned Shares of Calpine

The four traders removed this week all owned shares of Calpine Corp., a San Jose-based power generator that has landed the largest share of the $43 billion in long-term state power contracts. Their investments ranged from several thousand dollars to more than $100,000, records show.

While working for the state Department of Water Resources, officials said they bought undetermined amounts of Calpine power on the state’s behalf. More than $14 million worth of electricity was purchased from the state by Calpine in the first quarter of this year, according to the most recent records available.

“We did not want them making governmental decisions and holding these stocks,” the governor’s legal affairs secretary, Barry Goode, said in an interview.

The highest-ranking consultant removed, Richard Ferreira, was hired on a $500,000 contract in January to assist in obtaining bids for long-term power and negotiating contracts, records show.


A former assistant general manager with the Sacramento Municipal Utility District, Ferreira was paid $200 an hour by the state. After he disclosed owning as much as $10,000 in Calpine stock, officials discovered he had participated in a review of one of the company’s contracts. Ferreira could not be reached for comment.

The governor’s office identified the other four as traders William F. Mead, Herman Leung, Constantine Louie and Peggy Cheng, most of whom could not be reached Friday by The Times.

All of them formerly worked as energy schedulers at the Power Exchange, a now-defunct energy market similar to a stock exchange created in the early days of California’s electricity deregulation.

Hired by the state in February and March, the four signed temporary contracts calling for maximum payments of between $15,000 and $21,000 a month, including living expenses in Sacramento and flights home to Southern California.

Mead, 55, a former Edison engineer, said state officials never warned him that owning energy stock was a problem until they demanded that he sell the stock a week ago.

He said he bought nearly all of his shares 2 1/2 years ago for $12,000 and saw its value skyrocket as the stock split three times, doubling in value each time.


Mead said he was called by the head of the state’s energy buying team Thursday and fired.

“I asked very directly, ‘Is this because of the stock?’ and they wouldn’t give me an answer,” Mead said. “[He] just said your services are terminated.

“I came up here, away from home, living in a hotel room, trying to keep the lights on, trying to get the state through a crisis and now I get a finger pointed at me as if I’m some sort of criminal. I guess it’s just politics and we’re the pawns.”

Administration officials said they also are examining the actions of other traders, including one who bought Calpine stock just before beginning work for the state. That trader, Elaine Griffin, who also came from the Power Exchange, left the state power buying operation July 14, three days after disclosing her energy industry investment. Griffin, who the governor’s office said had obtained another job, could not be reached for comment.

Griffin reported purchasing $10,000 to $100,000 of Calpine stock on Feb. 1, in her final days working at the electricity exchange.

A few days later, Calpine signed and announced a $4.6-billion, 10-year deal to sell power to the Department of Water Resources.

On Feb. 20, Griffin joined the state power buying agency, just as the state and Calpine were finalizing an additional $8.3 billion in power contracts. One of those, a 20-year deal signed Feb. 27, was the longest.


The state has awarded Calpine about $13 billion in contracts to supply power for up to 20 years.

In addition to the state consultants who bought Calpine stock, two others reported owning stock in Texas-based power marketing giant Enron Corp. And two more bought stock in Southern California Edison, the faltering utility that Davis has committed himself to saving from bankruptcy.

Another consultant bought stock in Reliant Energy of Houston, a large power plant operator that bought several California plants from utilities after deregulation.

Bernard Barretto, an energy trader, who buys energy on the daily spot market, said in an interview that he bought about $2,000 in Enron stock shortly before he began work for the state Feb. 28.

Purchase of Enron Stock Defended

“I don’t see a conflict,” he said. “At the time, we weren’t really dealing with Enron. I [still] haven’t bought from Enron.”

Barretto said he never considered his Enron ownership a possible conflict until he received notice July 18 that he had to sell the stocks by noon or lose his job.


That notice came from Goode, the governor’s lawyer.

“We expect and have always expected the state’s consultants to uphold the highest ethical standards,” he wrote. “That standard is not met by those who hold a financial interest in one or more energy companies while trading on behalf of the state on energy related matters.”

“Therefore each consultant who holds an interest in an energy company must divest himself or herself of that interest by noon today. If he or she refuses, the state will sever its contract with that person.”

However, the governor’s office has taken a distinctly different stance with his closest financial advisors, Fichera and Hoffman.

Davis aides cite an opinion sought last week from attorney Raquelle de la Rocha, a former member of the Los Angeles Ethics Commission and the state Fair Political Practices Commission. She concluded that the advisors do not have to file disclosure statements because they are contractors, not consultants, and will be working for less than a year on a limited range of projects.

Fichera is Davis’ point man on the governor’s energy rescue plan--including the unprecedented bond sale. He has pitched the plan to lawmakers, reporters and the Wall Street financial community. Fichera refused to comment on the record.

Fichera and Hoffman’s companies, Saber Partners and Blackstone Group, prepared a controversial analysis that helped underpin legislative approval of the bond measure, intended to pay for past and future power buying.


Pact Specifies Financial Advice

The state’s contract with the Fichera and Hoffman firms calls for them to provide “financial advisory services” to the state.

The decision not to require public disclosure of their financial holdings stands in sharp contrast to the approach taken with Montague DeRose and Associates. That consulting firm was hired on a $1.8-million contract. Like the other two firms, it too was hired to provide “financial advisory services” to the state.

That firm’s top advisor, Douglas S. Montague, was required by the administration to fill out a disclosure statement. He reported no power company interests.

The governor’s legal advisors said the difference is that Montague is on a longer contract.