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Attorney General Lockyer Closes Investigation into Energy Consultants for Conflicts of Interest

Thursday, May 9, 2002
Contact: (415) 703-5837

(SACRAMENTO) – Attorney General Bill Lockyer today announced closure of the California Department of Justice investigation into energy consultants who arranged long-term electricity contracts for the state Department of Water Resources, finding no evidence of criminal conflict-of-interest violations in the contracts they made.

"After an exhaustive review of documents and extensive interviews, no evidence was found that the energy consultants or department employees arranging the power contracts for California were serving two masters in violation of Government Code section 1090," Lockyer said. "If there had been evidence found, I would not have hesitated to file criminal charges for violations of the conflict-of-interest rules for government contracting."

The investigation was launched after receiving complaints that energy consultants hired by the state in response to last year's energy crisis had violated Government Code section 1090 because of prohibited financial interests in the energy contracts that they arranged. The Attorney General's criminal investigation focused on potential criminal violations of Government Code section 1090 for which he is the primary enforcement officer. Allegations of conflicts of interest under the Political Reform Act were referred earlier for review to the Fair Political Practices Commission, which has primary enforcement responsibility under the Act.

While unusual to publicly review a criminal enforcement case, the Attorney General decided the importance of the matter warranted a public statement.

"Our investigation focused on the 56 long-term electricity contracts entered into by the Department of Water Resources during California's recent energy crisis," Lockyer said. "My criminal investigative team poured over 11,000 pages of documents and interviewed more than 50 people in four states looking into whether there were violations of state law prohibiting public officials and employees from having a financial interest in any contract made by them in their official capacity."

Government Code section 1090 prohibits state officers and public employees from negotiating or arranging a government contract in which they have a financial interest. A financial interest includes income or an investment in a company that is a party to the contract. Energy consultants for the state are subject to these conflict-of-interest rules.

A prohibited financial interest excludes stock ownership if less than three percent of the shares of a for-profit corporation was held and dividends and other payments from the company total less than five percent of the official's total annual income. The "making" of a contract includes the solicitation of bids, preliminary discussions, negotiations, compromises, reasoning, planning and drawing of plans and specifications. Violations could result in misdemeanor or felony penalties and the voiding of the contracts.

The investigation began looking at more than 100 consultants and employees at the Department of Water Resources who may have had a role in the long-term energy contracts. It was determined after evaluating the contracts and numerous interviews that 16 consultants were involved in the making of the state energy agreements through negotiations or recommendations.

"We probed whether each consultant involved in making a long-term energy contract had any past or present connection to the energy company which was a party to that contract," Lockyer said. "The investigation found in each instance that one or more of the required elements for a conflict of interest under Government Code section 1090 was missing."

For example, the Department of Water Resources has a long-term contract with Edison Mission Energy, referred to as "Sunrise contract." From 2001 to the present, Vikram Budhraja has provided consulting services to the state department through his company, Electric Power Group, while having a disclosed retainer to be a consultant for Edison International.

A review of documents and interviews in the investigation established that Budhraja recused himself from involvement in that Edison-related contract and none of the employees from his consulting company was involved in the making of the Sunrise contract. Whether his participation in the making of the other long-term contracts would benefit Edison International was considered to be too speculative for a violation of Government Code section 1090.

Lockyer said that considerable time was spent determining who "made" each contract and what consultants were linked in any way to each contract. A consultant was removed from the list of individuals making the contract only after thorough investigation. The investigative staff also looked at potential conflicts of interest in the making of the contracts by Department of Water Resources employees. No evidence was found that any Department of Water Resources employee involved in making the long-term contracts violated Government Code section 1090. There also was no evidence found that Michael Peevy, an advisor to the governor on energy issues and former Edison executive, was involved in the making of any of the long-term energy contracts.

The investigation also looked into the five consultants involved in making short-term energy purchases who were terminated or left after the Department of Water Resources learned they owned energy company stocks. No evidence of a violation of Government Code section 1090 was found in these cases.

ENERGY CONSULTANTS MAKING
LONG-TERM CONTRACTS (16) ENERGY CONSULTANTS
MAKING SHORT-TERM CONTRACTS
Vikram Budhraja Jaime Medina Wiliam Mead
James Dyer Fred Mobasheri Herman Leung
Chaterine Elder Ronald Nichols Constantine Louie
Richard Ferreira Tara Nolan Peggy Cheng
S. David Freeman Lloyd Rowe Elaine Griffen
Timothy Haines Mark Skowronski
Randall Hardy Tom Skupnjak
Joe Judge Sumner White

LONG-TERM CONTRACTS REVIEWED (56)
Allegheny/MerrillLynch Dynegy - Off Peak 2
Allegheny/MerrillLynch - Peak El Paso 1
Allegheny/MerrillLynch - Base El Paso 2
Alliance GWF Phase I, II, III
Bonneville Power Authority High Desert PP/Constellation
Bonneville Power Authority Intercom
Cal Peak NP SSum Peak Mirant
Cal Peak SP SSum Peak Morgan Stanley
Cal Peak NP Blnc Mos PacifiCorp
Cal Peak SP Blnc Mos PG&E Wind
Calpine 1 Pinnacle West (2001)
Calpine 2 Pinnacle West - APS
Calpine 3 Primary Power
Calpine - San Jose Santa Cruz Landfill
Capitol Power Sempra Peak
Clearwood Sempra Base
Comision Federal de Electricidad Soledad
Constellation Sunrise - Combustion Turbine
Coral 1 Sunrise - Combined Cycle
Coral 2 Wellhead - Fresno
Coral 3 Wellhead - Gates
Coral 4 Wellhead - Panoche
County of Santa Cruz (Buena Vista Whitewater Hill
Landfill Project) Whitewater Cabazon
Dynegy - Peak 1 Williams 1
Dynegy - Off Peak 1 Williams 2
Dynegy - Base Williams 3
Dynegy - Peak 2 Williams Prod B3
Dynegy - Peak 3

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