5 State Energy Advisors Fired Over Conflicts Ethics: The consultants were 
involved in buying electricity for California from a generator whose stock 
they owned, setting up a clash of official duties, personal interests.
JEFFREY L. RABIN; DARYL KELLEY; RICH CONNELL
TIMES STAFF WRITERS

07/28/2001
Los Angeles Times
Home Edition
A-1
Copyright 2001 / The Times Mirror Company

The Davis administration, stung by charges of excessive secrecy, disclosed 
late Friday that it has fired five energy consultants because of conflicts of 
interest involving their official duties and personal finances. 
A sixth consultant hired to help California purchase electricity has quit, 
according to state records.
All were involved in purchasing electricity for the state from a generator 
whose stock they owned. 
In addition, the top lawyer for the agency buying the power was removed from 
her position because of concern about the way the issue of potential 
conflicts was handled. 
Top advisors to Gov. Gray Davis told The Times that they learned of the 
conflicts in the last week, after belatedly asking the consultants to file 
required economic disclosure statements. A review of those documents, which 
included stock holdings, showed that some of the consultants "may have 
crossed the line," said the governor's senior advisor, Nancy McFadden. 
State law prohibits officials from participating in decisions involving their 
personal financial interests. 
Although portraying himself as seriously concerned that such conflicts could 
undermine public confidence, the governor has not required some of his most 
influential private-sector advisors to file the kind of disclosure statements 
that led to the firings. 
Among them are two Wall Street veterans who have been most influential in 
promoting the governor's energy rescue plan, which includes the largest state 
bond sale in U.S. history. 
The New York firms that employ executives Joseph Fichera and Michael Hoffman 
have been paid $275,000 a month to, among other things, help pitch the 
$12.5-billion bond issue to Wall Street analysts and state lawmakers. The 
companies stand to make an additional $14 million if the state goes through 
with the purchase of utility transmission lines. 
Davis contends that Fichera, Hoffman and their associates fall into a 
separate category of advisor, beyond the reach of the state's political 
reform laws. Critics question the distinction. 
"The governor's approach may be convenient for him," said Jim Knox, executive 
director of the watchdog group California Common Cause, "but it ignores the 
law." 
Disclosure is crucial because the public needs to know that "decisions are 
not being made by people who have a conflict of interest," Knox said. "Trying 
to evade the law with a creative use of semantics is not what they ought to 
be doing." 
The firings disclosed Friday are unlikely to diminish criticism surrounding 
the more than 50 consultants and advisors hastily hired by the administration 
as it rushed into the power trading business this year. 
More than $25 million is being spent by the state on consultants, according 
to state records. 
In the process, seemingly little attention was paid to routine government 
ethics laws. 
It took six months for state officials to direct the consultants to file even 
basic disclosures of their personal finances, including investments. The 
state Political Reform Act normally requires such forms to be filed publicly 
within 30 days of starting work for state agencies. 
Even with the hastily ordered disclosures made public thus far, the 
circumstances of most of the stock transactions remain a mystery because key 
information was omitted. Most of the consultants, for example, failed to 
state when they bought the energy stocks. 
One of those pressing hardest for an investigation of possible conflict of 
interest violations and insider trading is Secretary of State Bill Jones, a 
Republican who hopes to challenge Davis next year. Jones has accused the 
governor of "a conscious policy of secrecy" in enforcing compliance with 
public disclosure laws. This week Jones called for a federal Securities and 
Exchange Commission probe of stock purchases by state energy consultants. 
4 Traders Owned Shares of Calpine 
The four traders removed this week all owned shares of Calpine Corp., a San 
Jose-based power generator that has landed the largest share of the $43 
billion in long-term state power contracts. Their investments ranged from 
several thousand dollars to more than $100,000, records show. 
While working for the state Department of Water Resources, officials said 
they bought undetermined amounts of Calpine power on the state's behalf. More 
than $14 million worth of electricity was purchased from the state by Calpine 
in the first quarter of this year, according to the most recent records 
available. 
"We did not want them making governmental decisions and holding these 
stocks," the governor's legal affairs secretary, Barry Goode, said in an 
interview. 
The highest-ranking consultant removed, Richard Ferreira, was hired on a 
$500,000 contract in January to assist in obtaining bids for long-term power 
and negotiating contracts, records show. 
A former assistant general manager with the Sacramento Municipal Utility 
District, Ferreira was paid $200 an hour by the state. After he disclosed 
owning as much as $10,000 in Calpine stock, officials discovered he had 
participated in a review of one of the company's contracts. Ferreira could 
not be reached for comment. 
The governor's office identified the other four as traders William F. Mead, 
Herman Leung, Constantine Louie and Peggy Cheng, most of whom could not be 
reached Friday by The Times. 
All of them formerly worked as energy schedulers at the Power Exchange, a 
now-defunct energy market similar to a stock exchange created in the early 
days of California's electricity deregulation. 
Hired by the state in February and March, the four signed temporary contracts 
calling for maximum payments of between $15,000 and $21,000 a month, 
including living expenses in Sacramento and flights home to Southern 
California. 
Mead, 55, a former Edison engineer, said state officials never warned him 
that owning energy stock was a problem until they demanded that he sell the 
stock a week ago. 
He said he bought nearly all of his shares 2 1/2 years ago for $12,000 and 
saw its value skyrocket as the stock split three times, doubling in value 
each time. 
Mead said he was called by the head of the state's energy buying team 
Thursday and fired. 
"I asked very directly, 'Is this because of the stock?' and they wouldn't 
give me an answer," Mead said. "[He] just said your services are terminated. 
"I came up here, away from home, living in a hotel room, trying to keep the 
lights on, trying to get the state through a crisis and now I get a finger 
pointed at me as if I'm some sort of criminal. I guess it's just politics and 
we're the pawns." 
Administration officials said they also are examining the actions of other 
traders, including one who bought Calpine stock just before beginning work 
for the state. That trader, Elaine Griffin, who also came from the Power 
Exchange, left the state power buying operation July 14, three days after 
disclosing her energy industry investment. Griffin, who the governor's office 
said had obtained another job, could not be reached for comment. 
Griffin reported purchasing $10,000 to $100,000 of Calpine stock on Feb. 1, 
in her final days working at the electricity exchange. 
A few days later, Calpine signed and announced a $4.6-billion, 10-year deal 
to sell power to the Department of Water Resources. 
On Feb. 20, Griffin joined the state power buying agency, just as the state 
and Calpine were finalizing an additional $8.3 billion in power contracts. 
One of those, a 20-year deal signed Feb. 27, was the longest. 
The state has awarded Calpine about $13 billion in contracts to supply power 
for up to 20 years. 
In addition to the state consultants who bought Calpine stock, two others 
reported owning stock in Texas-based power marketing giant Enron Corp. And 
two more bought stock in Southern California Edison, the faltering utility 
that Davis has committed himself to saving from bankruptcy. 
Another consultant bought stock in Reliant Energy of Houston, a large power 
plant operator that bought several California plants from utilities after 
deregulation. 
Bernard Barretto, an energy trader, who buys energy on the daily spot market, 
said in an interview that he bought about $2,000 in Enron stock shortly 
before he began work for the state Feb. 28. 
Purchase of Enron Stock Defended 
"I don't see a conflict," he said. "At the time, we weren't really dealing 
with Enron. I [still] haven't bought from Enron." 
Barretto said he never considered his Enron ownership a possible conflict 
until he received notice July 18 that he had to sell the stocks by noon or 
lose his job. 
That notice came from Goode, the governor's lawyer. 
"We expect and have always expected the state's consultants to uphold the 
highest ethical standards," he 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." 
"Therefore each consultant who holds an interest in an energy company must 
divest himself or herself of that interest by noon today. If he or she 
refuses, the state will sever its contract with that person." 
However, the governor's office has taken a distinctly different stance with 
his closest financial advisors, Fichera and Hoffman. 
Davis aides cite an opinion sought last week from attorney Raquelle de la 
Rocha, a former member of the Los Angeles Ethics Commission and the state 
Fair Political Practices Commission. She concluded that the advisors do not 
have to file disclosure statements because they are contractors, not 
consultants, and will be working for less than a year on a limited range of 
projects. 
Fichera is Davis' point man on the governor's energy rescue plan--including 
the unprecedented bond sale. He has pitched the plan to lawmakers, reporters 
and the Wall Street financial community. Fichera refused to comment on the 
record. 
Fichera and Hoffman's companies, Saber Partners and Blackstone Group, 
prepared a controversial analysis that helped underpin legislative approval 
of the bond measure, intended to pay for past and future power buying. 
Pact Specifies Financial Advice 
The state's contract with the Fichera and Hoffman firms calls for them to 
provide "financial advisory services" to the state. 
The decision not to require public disclosure of their financial holdings 
stands in sharp contrast to the approach taken with Montague DeRose and 
Associates. That consulting firm was hired on a $1.8-million contract. Like 
the other two firms, it too was hired to provide "financial advisory 
services" to the state. 
That firm's top advisor, Douglas S. Montague, was required by the 
administration to fill out a disclosure statement. He reported no power 
company interests. 
The governor's legal advisors said the difference is that Montague is on a 
longer contract.

PHOTO: Barry Goode, above, governor's legal affairs secretary.; 
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