California Governor, San Jose-Based Energy Company Deny Special Deal

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San Jose Mercury News

With Gray Davis‘ foes heaping criticism on state officials who invested in Calpine, the San Jose company became the focus of questions Tuesday about its warm relationship with the administration during the energy crisis.

For months, the governor has singled out Calpine for praise, making a trip to a Calpine-sponsored festival in San Jose, endorsing the company’s controversial San Jose project and traveling around the state to turn on new Calpine plants. Perhaps most significantly, Calpine has won some of the state’s most lucrative long-term energy contracts.

But Calpine is one of the nation’s most profitable generators, even more so than some of those Davis has denounced. And state records show that in the first three months of the year, its electricity prices were sometimes higher than those charged by out-of-state generators.

The apparent contradictions have fueled grumbling among Calpine’s competitors. But revelations that Davis advisers and his own press secretary bought Calpine stock as the state was negotiating with the company are prompting more pointed questions about Calpine’s seemingly cozy relationship with the state’s chief executive.

Special deal denied

“It might help explain why Calpine got the longest contract, why it has so many of the contracts, why it had so much encouragement in terms of getting new plants online,” said Doug Heller of the Foundation for Taxpayer and Consumer Rights. “What we thought was Davis’ inability to stand up to the hard sell from the companies may turn out to be more unseemly.”

Representatives for Davis and Calpine denied any improper relationship.

“I don’t think we got any special deal,” said Calpine spokesman Bill Highlander. “The governor thinks we’re a good company because we were the first to bring two major power plants online this summer, and there’s no evidence we’ve done any gouging. The deals are very good for the state and for Californians.”

Davis’ office said the controversy is being drummed up by the governor’s enemies, chiefly Republican Secretary of State Bill Jones, who hopes to challenge Davis in 2002.

“This is about a political witch hunt that Bill Jones is trying to instigate in the press corps,” said Davis spokeswoman Hilary McLean.

Jones’ dogged pursuit of the issue prompted Friday’s firing of four state energy buyers and a consultant who owned Calpine stock. And Jones’ complaints led the attorney general, the state Fair Political Practices Commission and the federal Securities and Exchange Commission to investigate.

On Tuesday, Jones urged expansion of those probes to the governor’s staff following the revelation this week that Davis spokesman Steve Maviglio bought $ 12,000 worth of Calpine stock in June. Jones demanded Maviglio’s resignation.

Maviglio said Tuesday that he won’t resign, and McLean said the governor wants him to stay.

“It is time to critically and thoroughly analyze the multibillion-dollar contracts between the governor and Calpine to determine whether those contracts were negotiated at arm’s length,” Jones said.

Davis has not been shy with his praise for Calpine.

“I’m very proud of the relationship we have with Calpine,” Davis said at the opening of Calpine’s Sutter Power Plant a month ago. “They have been the most responsible of the generators.”

Although the governor heaps criticism on out-of-state generators for profiteering, calling some “snakes,” Calpine has run up some of the biggest profits in the industry.

Calpine’s net income soared more than 180 percent in the first six months of this year, a rate of growth 50 percent higher than North Carolina-based Duke Energy, twice as high as Houston-based Dynegy and three times that of Atlanta-based Mirant.

When the state began buying power in January for its financially crippled utilities, Calpine joined generators selling electricity at historically high rates. And the company actually charged more on average for its power through the first three months of the year than Enron or Duke, according to state records.

Exorbitant rates

Calpine’s average price per megawatt-hour of $ 223 was only slightly less than the $ 225 charged by Mirant and the $ 236 charged by Reliant Energy, two companies Davis has singled out for charging exorbitant rates for power.

Calpine then locked up power deals with the state through long-term contracts worth $ 13.9 billion, more than a quarter of the $ 43 billion total. The contracts, with prices up to $ 159 per megawatt-hour, are among several that consumer advocates say will saddle ratepayers with high costs for years.

Davis defended those contracts, saying Calpine offered a “fair price.”

And his spokeswoman credited the company for building numerous plants. Calpine has 30 plants in operation or under development in California.

But Calpine has also worked hard to make friends in the state Capitol, spending about $ 320,000 on lobbying in the first half of this year.

During the first three months, Calpine spent $ 178,000 on lobbying, far more than other energy companies. Enron spent $ 67,000. Reliant and Dynegy each spent less than $ 40,000.

Calpine also looked for help from a lobbyist with strong ties to Davis. For the past seven months, Calpine has been working with a firm run by Darius Anderson, a close associate of the governor who served as finance chairman of his 1998 campaign.

Anderson’s firm, Platinum Advisors, has done more than $ 77,500 worth of business for Calpine this year, state records show. McLean said there was no connection between Anderson’s work and the governor’s relationship with Calpine. And Calpine’s Highlander said the growing instability of the state’s market necessitated having a voice in the Capitol. “As the company continues to grow, what happens in the political arena becomes more important to us,” Highlander said.

But the contracts are among several that consumer advocates say will saddle ratepayers with high costs for years, with prices up to $ 159 per megawatt-hour. With the conflict of interest controversy, Calpine is, at least for now, at the center of the arena.

Financial disclosure statements filed last month showed five of 22 state energy buyers and one of about 40 state energy consultants owned stock in Calpine valued anywhere from $ 2,000 to $ 1 million. One, who acquired stock worth up to $ 100,000 in February, quit July 14. Late Friday, the administration fired four traders and a consultant over their Calpine stock.

One of the traders said it would have been impossible for the state’s traders to manipulate the electricity market to boost the stock price. And another said he had no conflict of interest because he never bought Calpine power as a trader.

Davis spokeswoman McLean said the administration fired employees whose holdings posed an apparent conflict of interest. But she said Maviglio’s role as a spokesman posed no problem.

Department of Water Resources spokesman Oscar Hidalgo said the fired consultant, Richard Ferreira, negotiated Calpine contracts but added the extensive deals between the state and the San Jose generator should not be cause for concern. “We’re comfortable with the contracts,” Hidalgo said.

Consumer Watchdog
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