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Perot Says Company Didn't Profit From State Power Market

Utilities: He denies that firm used inside knowledge to exploit weaknesses in system.

July 12, 2002|NANCY VOGEL | TIMES STAFF WRITER

SACRAMENTO — Billionaire Texan H. Ross Perot defended his company Thursday against charges that it tried to profit from inside knowledge of California's electricity market.

Flanked by lawyers and faced with a clot of cameras unusual for a Capitol hearing, the former presidential candidate caused a stir with his appearance but not his testimony before a state Senate committee.

"He doesn't seem to have any more knowledge now than he did a month ago," said Sen. Joe Dunn (D-Santa Ana), chairman of the panel that for more than a year has been investigating the collapse of California's electricity market.

Perot agreed last month to come to Sacramento after Dunn's committee discovered that Perot Systems Corp., of which Perot is founder and chairman, offered to teach energy companies how to take advantage of loopholes in California's deregulated market.

In his trademark twang, the 72-year-old technology tycoon testified that after five weeks of investigating, he has concluded that the company did nothing wrong. Perot Systems, based in Plano, Texas, did not gain confidential information as a consultant on a $57-million contract to help set up California's power market, he said, and had nothing to do with the soaring prices and blackouts that plagued that market in 2000 and 2001.

Perot cautioned senators against giving a nefarious taint to the company's sales pitch on "gaming" the California market.

"Any time you're trading," said Perot, "if it's horses, cattle, corn, cotton, you name it, stocks, cellular phone frequencies and now electrical power, you have buyers and sellers who are engaged in the trading process, and they all used advanced computer technology to do that."

"If there's something inherently wrong with discussing gaming theory, then several Nobel prizes need to be returned," he added.

Perot argued that Perot Systems employees never possessed confidential information about the rules governing operation of the California Independent System Operator, which manages most of the state's transmission grid, and the Power Exchange, the now-defunct electricity marketplace. Starting in March 1997, Perot Systems was hired to set up and test software for Cal-ISO and the Power Exchange.

At the same time, Perot Systems employee Paul Gribik teamed up with George Backus and his Colorado-based company, Policy Assessment Corp., and made pitches to several companies about helping them maximize profits in the California market.

None of the companies approached--including Southern California Edison, Pacific Gas & Electric and Enron Corp.--hired Perot Systems for such help.

In October 1997, Cal-ISO officials raised concerns about Perot Systems trying to profit from knowledge of the market's potential weaknesses. Cal-ISO Executive Director Jeffrey D. Tranen called Perot Systems' behavior "a flagrant violation of basic norms of business ethics and indicative of bad-faith dealing," but Cal-ISO did not terminate the company's contract.

In the hearing Thursday, Senate special counsel Laurence Drivon used Perot Systems' own documents to argue that the company marketed itself as having privileged information.

He quoted a July 1997 letter to the unregulated trading arm of PG&E in which Backus wrote: "Our combined efforts with the Perot Systems' (PSC) staff working on the ISO ... have shown a large number of additional gaming opportunities that their unique experience with the [power system] interface allow."

In the same letter, Backus wrote: "Gaming may be a dirty word to [federal regulators] and the California commission, but the sooner the market clears out the distortions, the better it works for everyone.... There may be ethical issues related to 'the end justifying the means' but there is a large region of opportunities between what is ethically viable (profitable) and ethically dangerous (illegal)."

"It would appear that Perot has exhibited itself to various market participants as having inside capabilities, knowledge and expertise," Sen. Bill Morrow (R-Oceanside) said to Perot. "Was that mere puffing?"

"The only way either you or I can get to the bottom of that question is to talk to the people who wrote those memos," said Perot, who emphasized that Backus did not work for Perot Systems.

Backus did not appear Thursday because he said he could not afford an airplane flight to California. The Senate and Perot Systems refused to pay his fare.

During the hearing, Sen. Debra Bowen (D-Marina del Rey) jokingly passed to fellow lawmakers a can marked "George Backus Airline Ticket Collection."

Gribik, who left Perot Systems in January 2001, testified that he never advised anyone on how to illegally or unethically exploit California's electricity market. In fact, he said, he pointed out potential problems that Cal-ISO and the Power Exchange fixed before the market opened.

Gribik said he considered Backus something of a blowhard who "overstated things frequently."

"I, too, am a California resident and have paid more for my electricity and suffered the same inconveniences that other California residents have encountered," Gribik said.

Shares of Perot Systems closed Thursday at $10.58, up 35 cents. But the stock had been trading close to $20 before disclosures by Dunn's committee.

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