In the News: Recent Developments

Aug 7, 2001

California Power Consultants Accused of Violating Law

Los Angeles,More than 60 energy consultants hired by California Governor Gray Davis’s office broke state law by failing to file financial-disclosure statements, Secretary of State Bill Jones said.

Jones plans to challenge Davis in next year’s governor’s race. He said employees working with Blackstone Group LP and Saber Partners LLC, among others, should have filed documents. In letters to Davis last week, the governor’s primary advisers from the two firms said they don’t own stock in energy companies.

“These individuals stand to make millions of dollars in salaries and bonuses based on their day-to-day work with the power industry,” Jones said at a press conference in Los Angeles. “It is my view that, under state law, they are required to file public disclosure documents.”

California has spent $9.6 billion buying power on behalf of its investor-owned utilities this year. The state entered the power-buying business in January after California’s two largest electric utilities, owned by PG&E Corp. and Edison International, became insolvent buying power at prices higher than they could charge customers.

Saber’s Response

Saber Partners Chief Executive Joseph Fichera, an adviser to Davis, said Davis’s lawyer advised him that as a contractor he isn’t required to file disclosure statements with the state.

“This interpretation has been confirmed to me by legal counsel, Simpson Thacher & Bartlett, and by Barry Goode, secretary of legal affairs for Governor Davis, who separately received confirmation from Raquelle de la Rocha, a former commissioner of the California Fair Political Practices Commission,” Fichera said in an Aug. 3 letter to Davis.

Saber Partners “has no conflicts of interest with regard to any company involved in the California electricity market, and will have none,” Fichera said in an interview today.

Michael Hoffman, senior managing director at Blackstone, said his company had no advisory business with any company that “is in the business of buying and selling power in California.”

“I don’t own any stocks in any companies that make, sell, or trade electricity,” Hoffman said in an interview.

`Just Politics’

Hoffman said Goode gave Blackstone a legal opinion saying it wasn’t required to file economic-interest statements listing their holdings in companies with business in the state.

“This is just politics,” Hoffman said.

Jones, a Republican, has repeatedly criticized Davis, a Democrat. Last month, California fired five energy consultants after they revealed they held shares in energy companies while negotiating power purchases from the companies.

Today, Jones said that more than 60 people required to file statements of economic interests with the state have failed to do so. Among those that haven’t filed are employees of Navigant Consulting Inc. and McKinsey & Co., as well as individual energy traders and consultants.

Hilary McLean, a spokeswoman for Davis, accused Jones of conducting “a witch hunt” and said every person required to file a statement listing economic interests had done so.

Last week, a spokesman for Davis sold 300 shares of power generator Calpine Corp. he purchased in June. Jones criticized Steve Maviglio, the governor’s interim communications director, for owning the shares while the Davis administration was negotiating long-term energy contracts with Calpine and promoting the company’s efforts to build power plants in California.

Also last week, an attorney for Vikram Budhraja, who was hired by California in January to help the state negotiate long-term energy contracts, said the Securities and Exchange Commission is looking into Budhraja’s stock trading.

Republicans and public interest groups criticized Budhraja after he disclosed that he had profited from trading shares of Edison while California was negotiating energy contracts and buying power on behalf of the company’s Southern California Edison utility.

–Daniel Taub in the Los Angeles newsroom, (323) 801-1261 or, with reporting by David Ward, through the San Francisco newsroom (415) 912-2980/dfr/cs

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