Californians Ponder Power Officials’ Ethics During Energy Crisis

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San Jose Mercury News

Californians who suspect they have been victimized by profiteering energy companies have something new to ponder. Did officials, entrusted with doing the public’s business, profit as a result of state negotiations to purchase electricity from energy companies?

No one has alleged criminal wrongdoing, and some say the concerns are overblown.

Yet public cynicism can only be fed by revelations that four state energy buyers and a consultant, along with a pair of top power-regulators and Gov. Gray Davis‘ own spokesman, all owned or bought energy stocks as the state sought to solve the electricity shortage. That a number of these individuals had investments in the very companies with which they were negotiating across the table on behalf of the state has professional ethicists scratching their heads.

“You would expect a greater degree of sophistication,” said Michael Josephson, president of the Josephson Institute of Ethics in Marina del Rey. “Either they had to be totally unprincipled or totally stupid. I opt for stupidity.”

Plato wrote that philosopher kings should own no property. If modern office holders would only heed the Greek’s advice, the seeming conflicts of interest that covered the front pages in recent days might never have happened. But this is an age when market forces reach into every life and every individual seems to invest in something. Temptation rules, and common sense sometimes goes out the window.

The revelations involve Steve Maviglio, the governor’s press secretary, who in June purchased $ 12,000 worth of stock in Calpine, which has lucrative contracts to sell power to California. The governor — who has often praised Calpine — dismissed four state energy buyers and a consultant when it was revealed that they, too, owned Calpine stock. If that wasn’t enough, William Keese, chairman of the California Energy Commission, has acknowledged owning stock in energy companies that his agency oversees. Bruce Willison, appointed by Davis last year to the California Electricity Oversight Board, reportedly owns about $ 1 million worth of stock in Enron Corp., one of California’s major power producers.

Mea culpas have been flying. Keese has said he keeps poor track of his finances and wasn’t even aware of his energy investments. Willison, the dean of the Anderson Graduate Business School at the University of California-Los Angeles, said he excused himself from any decisions that might have affected his Enron holdings. Maviglio, who sold his Calpine stock this week, said the investment was not suspect because he is only the governor’s spokesman, and not in a position to influence state energy policy.

One political analyst said that while some of the conflict-of-interest allegations are serious, the criticisms of Maviglio are inappropriate. The press secretary has no decision-making power and is simply charged with spinning the media, which he can do “just as well bribed or un-bribed,” said Bruce Cain, director of the Institute of Governmental Studies at the University of California-Berkeley.

Were laws bent or broken by anyone? “We don’t know what people knew,” said Doug Heller, consumer advocate for the Foundation for Taxpayer and Consumer Rights. But the very possibility that state officials might “negotiate multi-billion-dollar deals” and benefit personally “should sicken any taxpayer, any rate payer,” Heller said. “The public begins to lose faith in the officials we depend upon. And that, in and of itself, is devastating.”

It’s often said that in public life, the mere appearance of impropriety is as damaging as impropriety itself. In this case, the public officials may not have broken the letter of the law. But by thinking narrowly about legal specifics, critics said, the office holders failed to think broadly about the public trust.

Their actions have raised a number of questions:

Why was the governor apparently unaware that people in such sensitive positions had energy investments? Has Davis failed to set clear expectations regarding potential conflicts? To be sure, conflict-of-interest rules are complex, at times confusing, and can be applied differently from one situation to the next. But why did some of the energy experts fail to fill out conflict-disclosure forms that are routine for other state employees?

“People have to understand the reality of these economic disclosures,” Josephson said. “The reality is most people file them late or incomplete. There’s no agency that monitors these disclosure reports in a timely fashion. They’re only looked at when there’s a problem. And so it becomes an empty protection that allows you to punish a person after the fact.”

Josephson said he has “not seen any evidence that anyone sold the public interest down the river” as a result of energy investments. “But these people have damaged public trust. And that is serious.”

The governor’s defenders have said the energy crisis demanded fast action and that, if mistakes were made, they were made innocently.

It has also been argued that if the state is to negotiate effectively with power companies, it makes sense to hire industry insiders because they understand the complexities that arise at the bargaining table. Some of the fired energy buyers had backgrounds in private industry.

“There’s some kind of notion out there that only those folks who are up close and snugly with the industry can do the job right, ” said Nettie Hoge, executive director of the consumer group TURN, The Utility Reform Network. “Well, if you hire the devil’s helpers, you better put them through a re-education program. Because they know how to make money out of opportunity, which is what we are seeing.”

David Perry, director of ethics programs at Santa Clara University’s Markulla Center for Applied Ethics, described the situation as “pretty outrageous.”

“In a corporate setting, you can imagine the manager of a purchasing department who is in charge of evaluating all kinds of bids from companies who want to sell their services,” Perry said. “Her bosses would be rightly upset if they found out that the purchasing manager had a financial stake in one of the companies doing the bidding.”

He suggested that state energy buyers and officials should distance themselves from investments by putting them in a blind trust — or selling them off, which is what Vice President Dick Cheney did with most of his stocks before taking office. Cheney headed Halliburton, the Dallas-based oil services company, until stepping down to become George W. Bush’s running mate.

“But how far removed do you have to be from investments to be clean?” asked Joshua Halberstam, a Columbia University philosopher and author of a book called “Everyday Ethics.” Cheney “was the CEO of an energy company. He’s still got lots of friends in the industry. That shouldn’t preclude him from office. But you can’t help but be a little cynical about his meeting in a room with energy chiefs about energy policy.”

More and more, conflicts of interest are “a systemwide issue,” Halberstam said. “It’s not just energy. As corporations grow and become entangled, it’s hard for people to stay pure. I have a friend whose law firm represents the company that does advertising for Phillip Morris. He tells me it’s immoral to make cigarettes, but he doesn’t think it’s immoral to represent the cigarette manufacturer’s advertiser. His firm also represents Kraft, which is a subsidiary of Phillip Morris. Is that a problem? It gets tricky.”

The choices faced by California’s energy officials were not so tricky, in Halberstam’s estimation: “Sometimes people forget the words ‘public servants.’ These guys have to be reminded that they work for the public,” he said. “Some things aren’t so complicated.”

Consumer Watchdog
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