Simon Has Stock in Alleged Profiteer

Republican gubernatorial candidate William E. Simon Jr. owns stock in a natural gas company accused of taking advantage of California’s energy woes by creating an artificial supply shortage that sent prices soaring.

Simon, a Los Angeles investment banker, owns about $16,750 of stock in El Paso Natural Gas Co., according to campaign aides and economic disclosure forms filed by his campaign. Simon and his family’s investment company have owned the stock since 1988, Simon’s brother and campaign manager said.

El Paso Natural Gas, a subsidiary of Houston-based energy giant El Paso Corp., was accused last year of withholding natural gas from the Southern California market to create an artificial shortage that would boost gas prices.

Company officials vehemently deny the charges, which are the subject of a pending complaint before the Federal Energy Regulatory Commission. Simon, son of former Treasury secretary and investor William E. Simon, was unavailable for comment on his investment, his spokesman said.

Sal Russo, Simon’s campaign consultant, said the candidate was not aware of his financial interest in El Paso Natural Gas until he reviewed his disclosure statement late last year. Russo added that Simon, upon learning of the investment, did not perceive any conflict of interest and has no plans to divest the stock.

Russo and another campaign official noted that Simon’s stock in the company represents a “relatively small amount” of money compared with the candidate’s overall net worth. Simon is a multimillionaire.

“If you’re ultimately asking if he would do something detrimental to the taxpayers of California to make himself $10,000, obviously the answer to that is no,” said Jeff Flint, a campaign spokesman.

As he has campaigned for governor, Simon has repeatedly criticized Davis for his handling of the state energy crisis.

“His refusing to act last year when this terrible crisis could have been limited to a manageable problem is something that even Bill Clinton would have trouble pardoning,” Simon said May 10 in a speech at a birthday dinner for state Sen. Jim Brulte (R-Rancho Cucamonga). “Davis’ vision of California is shivering in the winter, sweating in the summer, and reading by candlelight.”

Responding to the Simon investment in El Paso, aides to Davis questioned their rival’s statements.

“It would be unfortunate if, at the same time the governor was trying to keep the lights on, other candidates were profiting from California’s energy problem,” said Roger Salazar, a spokesman for the Davis campaign. “It leaves their motives open to question.”

Simon’s financial interest in El Paso, Salazar said, “certainly doesn’t lend him any additional credibility on the issue.”

Garry South, Davis’ chief strategist, called Simon a hypocrite.

Sean Walsh, deputy campaign manager for GOP candidate Bill Jones, said he was not surprised that Simon’s vast portfolio contained an investment in a firm doing business with the state.

“When you come into the ring a very wealthy candidate with no political experience, there’s a lot of baggage that comes with you,” Walsh said. “Charitably speaking, this is a substantial public relations and political problem. Were he to become governor, it would be a legal problem.”

Bob Stern, one of the authors of the California political reform act, said that although elected officials are required to disclose potential financial conflicts, state law does not provide for any penalty for a governor who uses his position to advance his financial interests.

Stock Was Bought in 1988

A spokeswoman for former Los Angeles Mayor Richard Riordan, who was a wealthy venture capitalist before becoming mayor in 1993 and is now a Republican candidate for governor, declined to comment on Simon’s investment. The stock in El Paso Natural Gas is owned by Alham Inc., a Simon family investment company, in which William Simon is a partner.

His brother and business partner, J. Peter Simon, said the stock was purchased in 1988. As of last March, Peter Simon said, Alham owned 3,300 shares worth about $134,000. William Simon’s personal share is about one-eighth of that, or $16,750, Peter Simon said. The Simons have no role in the management of El Paso Corp. or El Paso Natural Gas Co.

“It’s a very long-term investment with very steep tax implications” if the stock were to be sold, Peter Simon said.

He said he had not discussed the holding in El Paso Natural Gas with his brother William since he declared his candidacy for governor last year.

“Billy hasn’t been very involved [in the family business] over the past six months,” the younger Simon said.

At the center of the allegations against El Paso Corp. is a deal in which one El Paso subsidiary won the right to ship 1.2 billion cubic feet of natural gas a day to Southern California through an interstate pipeline operated by another subsidiary, El Paso Natural Gas Co.

California natural gas prices skyrocketed during the months the contract was in effect last year, then dropped dramatically after it expired May 31. The California Public Utilities Commission and state electric utilities alleged that the two El Paso subsidiaries withheld shipping capacity on the pipeline during part of 2000, creating an artificial shortage that boosted prices.

In October, an administrative law judge found that El Paso Natural Gas and El Paso Merchant engaged in “blatant collusion” that violated federal rules when they negotiated the gas deal. He also determined that El Paso Corp. had gained enough market share to have the ability to manipulate California prices.

The judge, however, found that the evidence was “not clear at all” as to whether El Paso abused its position by driving up prices. He dismissed that allegation.

The judge, Curtis L. Wagner Jr., has since been directed to review a portion of his decision by the Federal Energy Regulatory Commission, which has the final say in the matter.