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Aides Told to Sell Stock

Ethics: Consultants hired for power crisis must dispose of shares in generating firms.

July 19, 2001|ERIC BAILEY and JEFFREY L. RABIN | TIMES STAFF WRITERS

SACRAMENTO — Facing criticism over possible conflicts of interest, Davis administration officials on Wednesday ordered consultants steering California through the energy crisis to sell off stock they own in power firms--or lose their jobs.

A top legal aide to Gov. Gray Davis said private consultants who were hanging on to power company stock had failed to uphold the state's highest ethical standards.

Nine consultants under contract with the state have reported holding stock in power companies, including Calpine and Enron, that have reaped huge profits during California's energy crunch.

Political foes of the governor, most notably Secretary of State Bill Jones, have raised questions in recent weeks about potential conflicts involving the consultants, who helped buy power and negotiate long-term contracts that critics say will saddle consumers with artificially high electricity costs for years to come.

The administration's tough stance Thursday with the consultants punctuates a startling change of tactics.

For months, Davis' aides had not required the consultants to file financial disclosure forms to report their personal stock holdings. By law, the disclosure documents must be filed within 30 days of going on the state payroll. The reports were filed after Jones began putting pressure on the governor last week.

Barry Goode, the governor's legal affairs secretary, dispatched a letter early Wednesday demanding that the consultants sell the stock by noon that day or face termination of their state contracts.

"It is imperative that you give this instruction, immediately, to each of the consultants," Goode said in his letter to the state Department of Water Resources, which has taken over from California's beleaguered private utilities the job of buying power.

"We expect, and have always expected, the state's consultants to uphold the highest ethical standards," Goode 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."

Goode's admonishment was conveyed by Tom Hannigan, water resources director, to 34 consultants who are on contract with the department, among them the nine contract employees who reported holding shares in generating firms.

Steve Maviglio, the governor's spokesman, said all the consultants holding stock had agreed to sell it by the noon deadline.

But the stock sales did not satisfy Jones, who plans to challenge Davis in next year's election.

He characterized the administration's action Wednesday as "way too little and too late."

Although the energy crisis and the hiring of numerous consultants on short notice represents an unusual situation, the governor's staff should have been aware of the conflict-of-interest issue, said Bob Stern, president of the Center for Government Studies in Los Angeles and an author of the state's Political Reform Act.

"Somebody," he said, "was asleep at the switch in the governor's office."

"We are talking here about major amounts of money," Stern said. "You don't get involved with decisions that affect your financial interest."

Of the consultants who filed disclosure reports last week, six reported that they own stock in Calpine Corp. One reported holding stock in Enron Corp. One of those seven resigned her state consultant's job a few days ago.

The latest conflict-of-interest statements, filed earlier this week, reveal that three other consultants own energy company stock.

Mark Skowronski, who works for the Electric Power group, owned $10,000 to $100,000 in stock in power producer Reliant Energy Inc. when he went to work for the state.

In a note attached to his disclosure form, Skowronski said he sold his shares in Reliant on March 20 after he was given the assignment as the lead state negotiator with the company. He continues to own four blocks of Edison stock, each valued at $10,000 to $100,000, which he bought in January and February. "I have had no dealings with Edison and have not had a conflict of interest," Skowronski said in his attached note.

Ronald O. Nichols, another consultant, reported that in April that he bought $10,000 to $100,000 worth of stock in Enron and General Electric.

In a statement filed Monday, consultant Sumner W. White reported that he owns $2,000 to $10,000 in stock in TXU Corp., a Dallas-based energy holding company.

White also reported that he had income of $10,000 to $100,000 as a part-owner, executive vice president and director of SRW Group, a Texas independent power developer.

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