Fired Calif DWR Traders Had Access To ISO's Control Room  Updated: Tuesday, August 21, 2001 05:34 PM ET 
By Bryan Lee 
OF DOW JONES NEWSWIRES 
WASHINGTON (Dow Jones)--Four of the five California Department of Water Resources power traders fired last month for conflict of interest reasons had access to the state electricity grid operator's control room. 
That revelation was contained in a recent letter to the House Government Reform Committee from Terry Winter, the California Independent System Operator's president and chief executive. 
The letter responded to House lawmakers' concerns, voiced during an Aug. 2 hearing, about DWR power traders having access to the ISO's control room floor and the wealth of market-sensitive information available there. 
Rep. Doug Ose, R-Calif., who chairs the committee's energy policy panel, said access to the ISO's control room allowed DWR traders to "cherrypick" power purchases, and led federal regulators to exclude DWR purchases from consideration in a recent landmark refund order. 
The five fired DWR traders owned stock in Calpine Corp. (CPN </investments/quotes/?symbol=CPN>, news </investments/news/?symbol=CPN>, msgs </investments/discuss/?symbol=CPN>), a major power provider in California. 
The four fired DWR employees with access to the ISO control room were William Mead, Herman Leung, Constantine Louie and Peggy Chung. The fifth, Richard Ferreiro, wasn't among those Winter listed as having control-room access. Neither did Elaine Griffin, who resigned after it was learned she owned Calpine stock. 
They were among 14 DWR employees who had their control-room access privileges terminated by the ISO over the past two months. The others had their badges deactivated because they either hadn't filed necessary confidentiality statements or hadn't been using their badges to access the ISO control room, said Stephanie McCorkle, an ISO spokeswoman. 
Nine DWR power traders still enjoy access to the ISO control room, according to Winter's letter to Ose. Among them is Bernard Barretto, who reportedly owns stock in Enron Corp. (ENE </investments/quotes/?symbol=ENE>, news </investments/news/?symbol=ENE>, msgs </investments/discuss/?symbol=ENE>). 
Steve Maviglio, a spokesman for California Gov. Gray Davis who recently sold Calpine stock after conflict-of-interest concerns were raised, said earlier this month that Barretto's investment met state ethics rules because Enron wasn't making sales in the spot market, where the DWR employee was involved in making power purchases. 
DWR employees' investments are "thoroughly reviewed" to make sure there are no conflicts, DWR spokesman Oscar Hidalgo said. Employees must either divest their stock or recuse themselves from deals that involve their financial interests, Hidalgo said. 
An Ose spokesman, Yier Shi, said the congressman believes the arrangement has worked against the interests of California consumers. 
"It's pretty obvious that it isn't in the interest of California consumers, the DWR or the ISO to have that conflict of interest in the power-purchasing process," Shi said. 
"Why is DWR getting preferential access? That's the core issue," Shi added. 
Allowing DWR power traders into the ISO control room is "a real conflict because DWR is the major buyer in the state," said Lynne Church, president of the Electric Power Supply Association, whose members include many of the companies that own power plants in California. 
"Having access to the control room gives them intelligence on what sellers into shorter-term markets are charging, (including) what's being sold and to whom," Church said. 
"Any kind of buyer or seller would give their eye teeth for that kind of access," she said, noting that no other grid operator in the country allows that sort of access. "It's just unconscionable for them to have that kind of access to market intelligence." 
During the Aug. 2 hearing that Ose chaired, Winter agreed that having DWR employees in the control room was a problem. The ISO is "working very hard to get them out," he said. 
The access was provided back in January, after the DWR was forced to begin purchasing what since then has amounted to about $10 billion in power on behalf of the state's bankrupt and near-bankrupt investor-owned utilities, Pacific Gas & Electric Co. (PCG </investments/quotes/?symbol=PCG>, news </investments/news/?symbol=PCG>, msgs </investments/discuss/?symbol=PCG>) and Southern California Edison Co. (EIX </investments/quotes/?symbol=EIX>, news </investments/news/?symbol=EIX>, msgs </investments/discuss/?symbol=EIX>). 
Power providers were balking at continuing to sell power to California unless they were assured of creditworthy buyers. And the DWR refused to take on the responsibility unless the ISO granted the agency access to the control room, Winter told Ose's subcommittee. 
The arrangement was necessary to avert imminent blackouts, he said. 
The DWR will withdraw its employees from the ISO control room effective Sept. 1, Pete Garris, who oversees power purchases for the DWR, announced over the weekend. 
"It wasn't our intent to be there on a permanent basis," said Hidalgo, the DWR spokesman, who described the privilege as "a temporary move to keep the lights on." 
Now that the state's electricity crisis has lessened, the DWR's "goal" is to have the traders out of the ISO control room by Sept. 1, Hidalgo said. 
"We're pleased to see that the DWR is working toward resolving its conflict of interest problems with the ISO," said Shi, the Ose aide. "We hope this change of policy isn't too little too late for California consumers to win refunds." 
-By Bryan Lee, Dow Jones Newswires; 202-862-6647; Bryan.Lee@dowjones.com <mailto:Bryan.Lee@dowjones.com> 


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