In the News: Recent Developments

Dec 16, 2004

Texas Panel Defers Adviser’s Hiring to Avoid Conflict

By Darrell Preston

The Texas Public Utility Commission delegated the hiring of a new financial adviser to its staff after a Bear Stearns & Co. consultant joined the board while the securities firm sought to be hired as the adviser.

Executive Director W. Lane Lanford, 58, will choose a new financial adviser to assist the state in guaranteeing $3 billion of bonds for CenterPoint Energy Inc. and two other utilities to recover money spent on power plants before deregulation. The commission began a second financial adviser search Dec. 6 after canceling the first search on June 21.

The commission added 214 words to the bid specifications, including a requirement that firms identify their lobbyists and that all disclosure documents be approved by top management, according to the commission’s Dec. 6 request for proposals.

“The request for proposals has been made stronger and allows us to cast a wider net,” said Terry Hadley, spokesman for the commission, in a phone interview. “It’s an improvement in the process.”

The adviser, who may reap as much as $6.15 million in fees based on industry averages, would oversee the setting of bond yields that would decide how much interest customers in Houston and other areas would pay for as long as 14 years. Houston customers would see an average charge of $3.54 a month added to electric bills to repay $1.5 billion of debt, CenterPoint said in a commission filing.

The deadline for submitting bids is 5 p.m. Dec. 21 in Austin. Lanford is scheduled to choose an adviser in January.

First Search

Lanford canceled a similar search two months after former Bear Stearns consultant Barry Smitherman was appointed to the commission. Bear Stearns paid Smitherman’s company, Smitherman & Associates, $33,750 until April 21, the day Governor Rick Perry appointed him to the board, Municipal Securities Rulemaking Board documents show.

Smitherman said today he would not be involved in the decision on choosing a financial adviser.

“I hope a lot of people apply because the more people who apply, the better off we will be,” said Smitherman, 47, in a telephone interview from Austin.

New York-based Saber Partners LLC, the commission’s adviser on its first $2.7 billion of bonds for electric utilities, Bear Stearns and Dallas-based First Southwest Co. sought the job in the first search. Lanford canceled the search after deciding “that it is in the best interest of the state,” commission documents show.

Bear Stearns spokesman Russell Sherman declined to say whether Bear Stearns would apply again. Saber’s chief executive, Joseph Fichera, also declined to comment. Southwest chairman Hill Feinberg has not returned three telephone calls placed over the past two weeks, including a message today.

Investment Banker

Even with the commission’s delegation of the selection to Lanford, Smitherman would have to remove himself from discussions to avoid a conflict of interest, said William K. Black, assistant professor at the LBJ School of Public Affairs at the University of Texas in Austin.

Boards often have conflicts when people are chosen for their expertise, said Black, in a telephone interview. Staying out of decision-making could be a challenge for Smitherman because he was appointed by Perry in part because of his investment banking experience.

“A recusal isn’t a recusal unless you stay out of the discussion,” said Black. “By being part of the discussion a member can be more influential than by voting.”

Smitherman, in his application asking Perry to appoint him in February, touted 16 years of experience as an investment banker for Banc One Capital Markets Inc., J.P. Morgan Securities Inc. and other underwriters. Perry mentioned Smitherman’s experience in appointing him to the board.

Weighing In

The governor’s spokesman, Robert Black, said in interviews that Smitherman is expected to remove himself from decisions about what company is hired as an adviser.

At a June 3 hearing in Austin, Smitherman said that because he was a former investment banker, he “couldn’t help but weigh in” on financing issues, according to a transcript. “The governor’s office was mindful of that when they put me into this position,” Smitherman said.

At a Nov. 10 hearing, Smitherman said the commission should move as quickly as possible to approve bond sales before interest rates rise. CenterPoint has warned that rising interest rates may increase the amount customers have to pay.

“There is still some uncertainty about whether they will be able to complete the securitization by next year and get the needed cash in the door,” said Standard & Poor’s analyst Scott Taylor during a telephone interview from his office in New York.

–Editor: Pittman.

To contact the reporter on this story:
Darrell Preston in Dallas at (1)(214) 954-9454 or

To contact the editor responsible for this story:
Mark Pittman in New York at (1) (212) 893-3767 or at

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