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Sac Bee, Mon, 7/30: Dan Walters: Who will pay for power -- and how much --= =20 back on front burner Sac Bee, Mon, 7/30: Power grab: Before you sign, get facts (Editorial) Sac Bee, Mon, 7/30: Huge PG&E bankruptcy case creates many conflicts of=20 interest SD Union, Mon, 7/30: Customers' huge 'debt' to SDG&E called sham=20 SD Union, Mon, 7/30: State refund may be under $4 billion SD Union, Sun, 7/29: Energy crisis has workers shedding coats, ties=20 SD Union, Sat, 7/28: Five state energy consultants fired for conflicts of= =20 interest=20 SD Union, Sat, 7/28: Deals with private firms spark growth of Mexico's ener= gy=20 empire=20 LA Times, Sun, 7/29: Huge Fees, Many Conflicts In PG&E Case LA Times, Sat, 7/28: 'Invention' Fueling Only Cries of Fraud SF Chron, Mon, 7/30: Federal energy order leaves California with $4 billion= =20 less in power refunds=20 SF Chron, Mon, 7/30: Texas inches toward power deregulation as pilot progra= m=20 goes into effect Tuesday=20 SF Chron, Sun, 7/29: Energy crisis gives juice to new trend: power plants o= n=20 American Indian reservations=20 SF Chron, Sun, 7/29: Federal order limits potential state refunds by $3=20 billion=20 SF Chron, Sun, 7/29: Gas suppliers accuse El Paso pipeline firm of=20 constricting flow to drive up prices=20 SF Chron, Sun, 7/29: News briefs on the California power crisis=20 SF Chron, Sun, 7/29: Power consultant firings called 'tip of iceberg'=20 Secretary of state says disclosure list should be expanded=20 Mercury News, Mon, 7/30: Federal order limits potential California refunds = by=20 $3 billion=20 Mercury News, Mon, 7/30: Huge PG&E bankruptcy case creates many conflicts o= f=20 interest=20 Mercury News, Mon, 7/30: PG&E and Santa Cruz couple in power struggle=20 LA Times, Mon, 7/30: Business; Financial Desk=20 Sempra Unit Pulls in Profit, and Scrutiny Energy: The trading arm, which ha= s=20 come under increasing criticism, raked in $310 million in the last 18 month= s WSJ, Mon, 7/30: State of California Lets Go 5 Consultants Tied to Energy Fi= rms ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ------------------------- Dan Walters: Who will pay for power -- and how much -- back on front burner (Published July 30, 2001)=20 From its onset a year ago, California's energy crisis has always encompasse= d=20 two aspects -- price and supply.=20 In the real world of energy distribution, the two are intimately connected.= =20 Prices will rise when supplies are constricted and fall during periods of= =20 abundance. Rising prices, meanwhile, will have a major effect on demand,=20 which directly relates to supply.=20 California's politicians, from Gov. Gray Davis downward, have tended to tre= at=20 the two as distinct factors. The question that's hovered over the crisis,= =20 although rarely voiced publicly, is whether the rate-paying and voting publ= ic=20 would be less tolerant of price spikes or power interruptions.=20 When the crisis first surfaced in San Diego last summer, Davis and the=20 Legislature saw it almost purely as a matter of price. San Diegans' power= =20 bills were spiking as their local utility adjusted rates to meet its=20 wholesale power costs, and the Capitol responded with an expedient scheme= =20 that rolled back retail prices, but did nothing about the wholesale costs.= =20 The utility began amassing debts to cover the rate-cost gap and within a fe= w=20 weeks, other utilities -- their rates frozen by law -- began running up eve= n=20 larger debts that eventually surpassed $13 billion.=20 By early this year, however, the threat of power blackouts assumed a greate= r=20 political importance, and when the utilities had their credit cut off becau= se=20 of their huge debts, Davis and the Legislature began running up their own= =20 multibillion-dollar debts to keep the lights burning. For most of this year= ,=20 supply was the chief political focus, but so far, the threat of blackouts= =20 appears to have eased. Conservation awareness, higher power bills and=20 unusually cool weather in much of the state have kept demand below supply= =20 limits, although August and September could still pose a threat.=20 With supply worries muted, price is once again becoming the chief political= =20 focus in several interwoven fronts. Who will pay for the $20 billion-plus i= n=20 debts run up by the utilities and the state? Who'll cover the costs of the= =20 state's $43 billion (at least) in contracts for future supplies? Will the= =20 rate increases already approved by the state Public Utilities Commission th= is=20 year be sufficient to cover all needs for revenue? Or is someone playing a= =20 game of "hide the pea"?=20 There are multiple claimants for the revenue stream, and each faction is=20 claiming, in effect, that its share of the money can be covered under=20 existing rates, implicitly pointing the finger at some other claimant if, i= n=20 fact, rates must be raised.=20 One example of the complex conflict over money surfaced last week, when the= =20 Davis administration declared its "revenue requirement" for past and future= =20 power purchases can be covered without another rate increase. But when the= =20 details were released a day later, the numbers had been changed -- a change= =20 the administration says does not alter its conclusions -- and critics=20 emerged.=20 The chief naysayer is Pacific Gas and Electric Co., the state's largest=20 utility, which took itself into bankruptcy court last spring. PG&E issued a= =20 blistering analysis of the state's report, citing "missing data,=20 discrepancies and conflicting claims." And the utility demanded a full=20 hearing on both the state's numbers and its intent that all future costs be= =20 passed on to ratepayers automatically, without PUC review.=20 PG&E officials are talking about challenging the state's revenue report not= =20 only before the PUC, but before the Office of Administrative Law, which=20 governs regulations issued by state agencies, and perhaps in the courts. If= =20 unresolved, the conflict could hold up the sale of the state's long-stalled= ,=20 $13.4 billion bond issue to cover its power-purchase debts and thus create = a=20 state cash-flow squeeze.=20 Underlying the confrontation is PG&E's suspicion that the state, by skimmin= g=20 its share off the top of the revenue stream, is insulating Davis from=20 political fallout and setting up utilities to take the blame for future rat= e=20 increases.=20 Could crass politics be driving the state's power-pricing strategy? Heaven= =20 forbid.=20 The Bee's Dan Walters can be reached at (916) 321-1195 or dwalters@sacbee.c= om=20 <mailto:dwalters@sacbee.com<.=20 Power grab: Before you sign, get facts By Robert A. Masullo=20 Bee Time & Money Writer (Published July 30, 2001)=20 The large newspaper advertisement sounded enticing: "Last year natural gas= =20 rates soared 350%. This year you can lock in a rate that will soar 0% ...= =20 With guaranteed pricing from the NewPower Co., Californians can avoid such= =20 increases this winter."=20 Exactly what is NewPower, a recently formed gas and electric supplier based= =20 in Purchase, N.Y., offering?=20 Two deals, says company spokeswoman Terri Cohen.=20 In the first, a customer agrees to buy natural gas from NewPower for two=20 years and the company will guarantee a monthly price of 80 cents a therm, t= he=20 unit used for measuring natural gas for billing purposes.=20 In the second, a customer agrees to buy natural gas from NewPower for two= =20 years and the company guarantees a therm rate of 40 cents from June through= =20 August and 83 cents from September through May.=20 In both cases, a monthly service charge of $2.99 is tacked on, and customer= s=20 will pay a $50 penalty if they break the contract before two years is up.= =20 Are the NewPower offers good deals? Perhaps. It depends on what happens in= =20 the natural gas market.=20 Last winter, nationwide shortages in the natural gas supply caused prices t= o=20 shoot up to around $2 a therm. When consumers opened their winter heating= =20 bills, they were shocked.=20 But prices have been dropping considerably since then. Per therm rates were= =20 78 cents in May, 60 cents in early July, and 40 cents just a few days ago.= =20 During the course of a year, the highest prices for natural gas are always = in=20 winter, when usage is great, and lowest in summer, when usage is minimal.= =20 According to Pacific Gas & Electric, the traditional supplier of natural ga= s=20 in the area, natural gas prices usually average around 70 cents a therm in= =20 winter and 30 cents a therm in summer.=20 So if natural gas rates go back to what they were last winter, then=20 NewPower's offers may be excellent deals. But if rates go down, they may be= =20 poor choices.=20 It's up to the consumer, then, to make an educated guess about which way=20 rates will go. But new drilling for natural gas could indicate that supply= =20 will be plentiful in the coming years.=20 Dan Jacobson is the legislative advocate for the California Public Interest= =20 Research Group, a consumer organization. He's skeptical of NewPower's offer= s.=20 "It sounds to me like (NewPower's) main aim is to get consumers to commit t= o=20 a long-term contract," he says. "That's something I would always advise=20 caution on. Long-term contracts -- for natural gas or anything else -- are= =20 fraught with danger.=20 "It's possible, of course, that natural gas prices will go back to what the= y=20 were last winter. But that seems highly unlikely. What I've been hearing,= =20 instead, is that there will be a glut of natural gas next year. Then prices= =20 would be lower and NewPower's deal would be a very bad one, indeed."=20 Claudia Chandler, assistant executive director of the California Energy=20 Comission, the state's primary energy policy and planning agency, said much= =20 the same. "Storage is up," she says, "and we believe there will ample=20 supplies of natural gas this fall and winter."=20 Unlike NewPower, PG&E sets its natural gas prices according to market price= s,=20 which fluctuate daily. PG&E spokeswoman Staci Homrig says PG&E encourages= =20 people "to shop around for the for the best price."=20 NewPower is able to make these offers because of deregulation of the energy= =20 industry. Deregulation allows NewPower -- and other companies -- to compete= =20 with firms that own the natural gas delivery systems, such as PG&E. Prior t= o=20 deregulation, delivery system companies were the only suppliers of natural= =20 gas.=20 Of course, deregulation in California is a controversial issue, with many= =20 blaming it for the current electricity crisis. As far as natural gas goes,= =20 deregulation permits the old gas-and-electric companies, such as PG&E, to= =20 continue as the sole owner of the delivery systems -- pipes, meters and=20 related hardware. But now they have competition supplying the gas.=20 NewPower is closely allied with Enron Corp., the Texas energy giant, which= =20 owns about 40 percent of the company, according Cohen, the NewPower=20 spokeswoman.=20 Currently, only three companies -- PG&E, NewPower, and ACN Energy Inc. of= =20 Farmington Hills, Mich., which offers natural gas at market rates -- are=20 supplying natural gas to this area. More companies, however, can be expecte= d=20 to follow.=20 The Bee's Robert A. Masullo can be reached at (916) 321-1118 or=20 bmasullo@sacbee.com <mailto:bmasullo@sacbee.com<.=20 Huge PG&E bankruptcy case creates many conflicts of interest SAN FRANCISCO (AP) -- The third largest bankruptcy in U.S. history is also= =20 becoming the most complex. As Pacific Gas and Electric Co. wades through it= s=20 pile of debts, many of the legal and financial teams representing the utili= ty=20 and its creditors often run into conflicts of interest.=20 Since PG&E is so large and far reaching, it may be difficult to find firms= =20 and businesses that are not somehow associated with the utility. In additio= n,=20 many large accounting and legal agencies are getting involved because of=20 their expertise in bankruptcy cases.=20 "Very few people have the expertise for high-profile, high-stakes=20 bankruptcies, so you have a small pool from which to draw representation, a= nd=20 that's where . . . potential conflicts come up," Nancy B. Rapoport, a=20 University of Houston law professor who's a bankruptcy ethics expert, told= =20 the Los Angeles Times.=20 Since the utility filed for Chapter 11 protection in April, its lead counse= l,=20 Howard, Rice, Nemerovski, Canady, Falk & Rabkin already has racked up $2.65= =20 million in the first two months of the case. Last year, that same firm=20 reported earning $1.9 million from PG&E.=20 The total court-approved amount in the filing could reach at least $470=20 million, said Lynn LoPucki, UCLA law professor and expert on bankruptcy=20 practice.=20 "The bigger the case, the bigger the fees," LoPucki told the Times, calling= =20 the bankruptcy "one of the most complex cases ever."=20 PG&E's bankruptcy ranks third behind Texaco Inc. and Financial Corp. of=20 America when comparing assets -- PG&E reportedly has $31.5 billion in asset= s.=20 And about a dozen companies are in line for contracts to work for PG&E or t= he=20 committee representing the company's creditors. Experts say the potential f= or=20 ethical dilemmas to occur already exists based on the firms approved by the= =20 case's Judge Dennis Montali.=20 For example, the utility's primary law firm also represents banking interes= ts=20 linked to nearly $1 billion in debts. PG&E's accounting firm also has worke= d=20 for more than 80 companies involved in the bankruptcy case, including some= =20 creditors.=20 Experts say the multitude of conflicts surrounding the case could allow=20 professional firms to alter outcomes to benefit certain companies while=20 hurting PG&E.=20 "By traditional conflict standards, the large firms could not participate i= n=20 the cases," LoPucki said. "There has been a huge shift in what is acceptabl= e.=20 It is more lenient. A firm is allowed to represent clients today where they= =20 would not have been allowed 20 years ago."=20 Some firms have submitted disclaimers describing the ties and in some cases= =20 have said there are so many connections with various involved companies, th= ey=20 may not even be aware of them all. While other have created "ethical walls"= =20 within their companies or have asked clients to sign waivers releasing the= =20 professionals from conflicts of interest.=20 Accounting firm PricewaterhouseCoopers, which works for PG&E and its parent= =20 corporation PG&E Corp., agreed to build an "ethical wall" in order to also= =20 serve as accountant and financial adviser for the committee representing=20 PG&E's creditors. Judge Montali approved the hiring of the accounting firm= =20 despite objections from Linda Ekstrom Stanley, the U.S. trustee assigned to= =20 guard against abuses and money-making schemes that can occur during=20 bankruptcy proceedings.=20 Her office has involved itself several times, objecting to everything from= =20 excessive fees to conflicts.=20 But some say it would be impossible for PG&E's bankruptcy proceedings to mo= ve=20 forward if every conflict were closely examined.=20 "It would be horrendous," said Daniel Bogart, a law professor at Chapman=20 University. "There are conflicts that matter and those that don't. The=20 parties have to reach a level of comfort quickly."=20 Customers' huge 'debt' to SDG&E called sham =20 \ objattph=20 By Craig D. Rose UNION-TRIBUNE STAFF WRITER July 30, 2001 San Diego's=20 largest consumer group says the dreaded "balancing account" -- a debt of $7= 50=20 million that ratepayers allegedly owe SDG&E -- is a bookkeeping illusion=20 bordering on fraud, and in reality the utility owes its customers money. I= n=20 a filing late last week with state regulators, the Utility Consumers' Actio= n=20 Network joined other consumer advocates in arguing that San Diego Gas &=20 Electric Co. and parent company Sempra Energy created a bogus debt by not= =20 reporting key profits and by withholding an assortment of overcharges that= =20 should be rebated to consumers. When the profits, overcharges and penaltie= s=20 are appropriately applied against the $750 million claim, UCAN says,=20 consumers would owe less than $50 million. And much or all of that would be= =20 offset by SDG&E's share of refunds expected to be ordered by federal=20 regulators.=20 The consumer group said the balancing account is "fiction, if not a fraud,"= =20 that the state appears to have accepted. UCAN was joined in the filing by= =20 The Utility Reform Network and Aglet Consumer Alliance, which are based in= =20 Northern California. The groups made the allegations in opposition to a pla= n=20 proposed last month by Sempra and Gov. Gray Davis that purports to clear th= e=20 alleged $750 million debt. SDG&E disagreed with the consumer groups'=20 position. A company official said the agreement between Sempra and Davis is= =20 balanced, and the alternative could be a lengthy court fight. The matter i= s=20 scheduled to go before the California Public Utilities Commission, perhaps = as=20 early as Thursday. UCAN argues that SDG&E's claim of making a $319 million= =20 contribution toward resolving the debt is "misleading and fallacious."=20 Instead of making any contributions, UCAN says, SDG&E and Sempra stand to= =20 reap billions in profits from the proposal to clear the debt, and from=20 agreements to sell power lines and electricity to the state. Fears of a=20 balancing account and potential balloon payment have hung over local utilit= y=20 ratepayers since last fall, when SDG&E said it began to incur losses by=20 paying more for electricity than it was allowed to collect from customers= =20 under a state-imposed cap. Electricity customers could have faced payment = of=20 the debt as early as next year. Last month, Davis, flanked by state Sens.= =20 Steve Peace and Dede Alpert, as well as Sempra officials, announced an=20 agreement he said would eliminate the debt without raising rates. At the sa= me=20 time, the governor and the company announced a plan for the state to purcha= se=20 SDG&E's power lines for $1.2 billion but said that was a separate proposal,= =20 unrelated to the debt plan. UCAN claims there is a relationship, saying th= e=20 purchase is another excessive payment to the utility. The consumer group is= =20 urging the Public Utilities Commission to consider the proposed settlement= =20 with Sempra in the context of both the transmission line deal and a contrac= t=20 under which Sempra will sell 1,900 megawatts of electricity to California= =20 over the next decade. UCAN also is concerned that SDG&E's profit from the= =20 power line sale would not be shared with customers. The utility, which the= =20 state continues to regulate, has shared past gains with its customers. At= =20 the heart of the groups' filing, however, is the allegation that SDG&E has= =20 not accounted for what UCAN estimates is $450 million in profits the utilit= y=20 will earn from two key electricity purchase contracts. Those gains alone=20 would offset 60 percent of the losses SDG&E claims to have suffered from=20 buying electricity. The Public Utilities Commission ruled this year that= =20 profits from these contracts belong to the utility's customers, not its=20 shareholders. For months during the power crisis, SDG&E described itself a= s=20 a middleman and said it earned nothing from the sale of electricity to=20 customers. Under the state's deregulation plan that went into effect in 199= 8,=20 the company's profit-making business was supposed to be restricted to the= =20 delivery of electricity, not the purchase and sale of the commodity. =20 Nonetheless, SDG&E has gone to court seeking to overturn the PUC decision a= nd=20 take possession of the profits earned from selling electricity. As part of= =20 the settlement with the state, SDG&E would be awarded ownership of the powe= r=20 contracts but would agree to refund $219 million. But SDG&E would earn $12= 0=20 million by selling power to the state from these deals during the second ha= lf=20 of this year. So UCAN argues that SDG&E's $219 million concession is=20 effectively reduced to less than half that sum. Sempra also has a separate= =20 long-term contract to sell electricity to the state. UCAN says that deal al= so=20 is overpriced. SDG&E defended its agreement with the state and said the=20 prospect of lengthy litigation over the profits from power contracts should= =20 be considered in assessing the overall agreement. "We have a strong case i= n=20 court," said Edwin Guiles, chairman of SDG&E. "And this overall balanced=20 solution is a better way to deal with it rather than fight it out in court.= " =20 Guiles also said SDG&E is forgoing $100 million by agreeing to a complex=20 provision to provide power at regulated rates from the San Onofre Nuclear= =20 Generation Station, instead of whatever rates the market would allow. SDG&E= =20 is a part owner of the nuclear plant. The consumer group says SDG&E has no= t=20 refunded to customers an assortment of overcharges and overcollections=20 totaling $154 million. UCAN added that under the governor's plan $133=20 million of the debt claimed by Sempra is not eliminated but would be paid o= ff=20 by consumers through their monthly bills.=20 State refund may be under $4 billion =20 \ objattph=20 By Karen Gaudette ASSOCIATED PRESS July 30, 2001 CALIFORNIA'S POWER=20 CRISIS SAN FRANCISCO -- A closer reading of last week's order from federa= l=20 energy regulators shows California will receive refunds for overpriced=20 electricity, but the amount could be slashed to just under $4 billion -- le= ss=20 than half of what the state requested. Gov. Gray Davis plans to appeal the= =20 Federal Energy Regulatory Commission decision today, state officials said= =20 yesterday afternoon. Refunds could help prevent the state from raising=20 electric rates to cover its power-buying costs, which are now beyond $8=20 billion. "We found a number of disturbing things that lead us to believe= =20 FERC may not be so pro-refund as they want Californians to believe," said= =20 Nancy McFadden, an adviser to Davis. For months, Davis and other state=20 officials have asked the FERC to find electricity prices charged since May= =20 2000 to be unjust and unreasonable -- prices which climbed 10 times higher= =20 than past years. The state stands to lose a portion of the billions it has= =20 spent buying electricity for Pacific Gas and Electric Co. customers and two= =20 other financially ailing utilities. Power companies maintain they did not= =20 work together to drive up power prices to unreasonable levels. FERC's=20 40-page decision confirms the commission will only order refunds for power= =20 bought since October 2000, rather than May 2000. That means $2 billion less= =20 than the state, utilities and others could receive, McFadden said. State=20 officials had hoped to receive as much as $9 billion in refunds. FERC also= =20 said it will not issue refunds for power the state Department of Water=20 Resources bought directly from power companies. FERC only will recognize=20 purchases through the state's now-defunct power market or from the manager = of=20 the state's power grid. But the DWR bought most of its megawatts directly= =20 from power companies after a FERC ruling in December abolished the Power=20 Exchange, the state's key entity that bought and sold power. The Independe= nt=20 System Operator, keeper of the state's grid, then began adding a surcharge = on=20 big purchases, McFadden said. That stripped $3 billion more off the potenti= al=20 refund amount. All told, the most the state could expect to get back would= =20 be roughly $3.9 billion, said Barry Goode, a legal secretary to Davis. And= =20 despite the overcharges, some of that money has to pay power companies for= =20 past power deliveries at a price FERC determines is just and reasonable. A= =20 call to FERC for comment was not immediately returned yesterday afternoon. = =20 FERC has ordered an evidentiary hearing, to be completed within 60 days, to= =20 determine the size of the refund from providers of wholesale power.=20 Energy crisis has workers shedding coats, ties =20 \ objattph=20 By Jeff McDonald UNION-TRIBUNE STAFF WRITER July 29, 2001 With summer=20 temperatures in full swing and office thermostats stuck in the high 70s,=20 something had to give. And the clear losers this fashion season are necktie= s,=20 sport coats and the dread of career women everywhere: pantyhose. Stodgy=20 bankers, stiff politicians and even utility company executives have rewritt= en=20 their dress codes in recent weeks to make employees more comfortable while= =20 the bean counters shave expenses by turning off the air conditioning. "We= =20 have definitely taken more of a business-casual attitude because of the=20 increased temperatures in the office," said Joanne Licausi of Wells Fargo= =20 Bank, which last month extended "dress-down Fridays" through the workweek.= =20 Like their counterparts at hundreds of big companies, from San Francisco to= =20 San Diego, Wells Fargo officials have taken numerous steps to lower electri= c=20 bills. They've installed motion sensors in buildings so lights shut off=20 automatically when no one is using an office. Computers, printers and copy= =20 machines also are turned off when not in use. Yet the most dramatic shift = in=20 the hunt for energy savings came by hiking thermostats to 76 degrees -- a= =20 couple of points below temperatures in offices at Sempra Energy and San Die= go=20 City Hall, among others, but still on the warm side. While the summer weath= er=20 has not been stifling so far, it's the temperature inside that matters when= =20 you're counting kilowatts. "You still see a number of individuals in a coa= t=20 and tie, but at least now they have the option," Licausi said. The folks w= ho=20 deliver electricity to 1.2 million San Diego area homes and businesses also= =20 uncoiled their collars as their indoor climates were pushed to 78 degrees. = =20 "We try to practice what we preach, so we've cut consumption by 20 percent = in=20 all of our buildings," said Laura Farmer, a spokeswoman for San Diego Gas a= nd=20 Electric Co.'s parent company, Sempra Energy. "But, boy, does it get hot." = =20 Even though they approve of the relaxed dress standard, not all higher-ups= =20 have embraced the policy firsthand. Sempra media director "Doug Kline stil= l=20 wears a suit every day, but you see many more golf shirts, short-sleeve=20 shirts," according to Farmer. "It's not as buttoned up as it used to be." = =20 Things are nearly as loose at San Diego City Hall, where politicians last= =20 month adopted a four-page Summer Energy Action Plan intended to slow reelin= g=20 electric meters and save taxpayer money. Thousands of workers there are=20 invited "to wear cooler, casual attire throughout the week" as thermostats= =20 were ratcheted up to 78 -- frequently hotter than the temperature outdoors.= =20 "The women here, we tend to dress a little less formally," said Elena=20 Cristiano, press secretary to Mayor Dick Murphy. "Our shoulders will show;= =20 it's still dressy but it's considered to be relaxed." In Chula Vista,=20 officials have been on the conservation bandwagon since 1993, upgrading the= =20 heating and cooling systems and retrofitting lights, among other measures. = =20 The temperature inside City Hall is set at a relatively mild 74 degrees, bu= t=20 workers are nonetheless encouraged to ditch the formal business wear. "If = I=20 tried 78 in my work area, it would be unbearable," said Willie Gater, the= =20 Chula Vista environmental resource manager. "I have a plate glass window at= =20 my desk." Steven Bucky has been monitoring business fashion trends for=20 years. Director of professional training at the California School of=20 Professional Psychology in Mira Mesa, Bucky said energy-conservation measur= es=20 have prompted employers to be more sensitive to the needs of workers. "We= =20 understand it's warmer, less comfortable, so we need to be more flexible," = he=20 said. "If people are trying to save money, obviously something has to go wi= th=20 the dress." Besides, Bucky added, consumers these days are more likely to= =20 favor substance over style. "I don't want to go to an attorney because he o= r=20 she is wearing a three-piece suit; I want to go to the best lawyer I can=20 find." Pamela Shank, an Escondido personal shopper who makes her living=20 advising people on what to wear, has noticed leanings toward casual work=20 clothes among clients for several years, what with more firms observing=20 dress-down Fridays and the 1990s run of Internet startups, which helped set= a=20 new standard in informal wear. "Companies are trying to give more of a=20 benefit to people," she said. "It gets so boring to have to wear a suit and= =20 tie or a proper dress every day." For men seeking that subtle but=20 well-groomed look, Shank suggests Izod and Polo cotton shirts with open=20 necks, Dockers-style khakis with leather belts and, perhaps, tassled loafer= s.=20 She also likes the blue jeans-and-Oxford shirt look with a sport coat=20 accompaniment, but cautions that denim remains taboo at many workplaces. = =20 Women have more choices in how to dress to impress while maintaining maximu= m=20 comfort in heated environs, said Shank, who counts dress slacks, skirts and= =20 light pantsuits among her collection of comfort clothes. "We can dress=20 casual so easily," she said. "We can put anything together." Very few=20 workers at the California Department of Transportation office in Old Town= =20 employ the services of a personal shopper. Yet most are pleased with the ne= w,=20 less-rigid dress code in their corner of the state bureaucracy, which is=20 under governor's orders to reduce power consumption. "Everybody's been ver= y=20 supportive, thankful for a little leniency to try and stay comfortable and= =20 productive," said Tom Nipper, a Caltrans spokesman who now saves his neckti= es=20 for special occasions. "I'm not wearing one today, but I do have one," he= =20 said of the traditional neckwear. "If I do a TV interview, I put it on."=20 Five state energy consultants fired for conflicts of interest =20 \ objattph=20 ASSOCIATED PRESS July 28, 2001 LOS ANGELES =01) Five state energy consult= ants=20 were fired for conflicts of interest because they helped California buy pow= er=20 from a company in which they owned stock, officials said. The consultants= =20 owned shares of Calpine Corp., a San Jose-based power generator that has be= en=20 awarded about $13 billion in state contracts to supply electricity for up t= o=20 20 years. The state bought more than $14 million worth of electricity from= =20 Calpine in the first quarter of this year, records showed. The consultants= =20 owned anywhere from a few thousand dollars to more than $100,000 worth of= =20 Calpine stock, according to records cited Saturday by the Los Angeles Times= . =20 "We did not want them making governmental decisions and holding these=20 stocks," Barry Goode, legal affairs secretary to Gov. Gray Davis, said=20 Friday. Consultant William F. Mead, who was fired on Thursday, said he=20 bought most of his Calpine shares 2 years ago for $12,000. The value has=20 soared because of stock splits. "I came up here, away from home, living in= a=20 hotel room, trying to keep the lights on, trying to get the state through a= =20 crisis and now I get a finger pointed at me as if I'm some sort of criminal= ,"=20 he told the Times. "I guess it's just politics and we're the pawns." The= =20 Davis administration hired more than 50 consultants and advisers this year = as=20 it struggles to deal with the state's electricity crunch. On July 18, the= =20 administration told consultants buying energy for the state to sell their= =20 stock holdings in energy companies immediately or quit their jobs. Nine=20 divested. Another consultant quit four days earlier after disclosing she h= ad=20 purchased Calpine stock in February. Another person, a state lawyer, was= =20 shifted to a non-energy related job, said Davis spokesman Steve Maviglio. = =20 Davis is looking for more cases of conflict of interest among his=20 energy-buying staff after Saturday's firings, his aide told the Orange Coun= ty=20 Register. The governor has begun an internal review focusing on whether=20 state-hired energy buyers made deals with companies in which they had a=20 significant financial interest. Bill Wood, the chief counsel for Secretary= =20 of State Bill Jones, said other potential conflicts could affect at least= =20 some of the $43 billion worth of power contracts that have been signed by t= he=20 state in the past six months with private power generators. Under pressure= =20 from Jones, a Republican who hopes to challenge Democrat Davis for=20 re-election next year, the administration has moved to obtain statements of= =20 economic interest from most of the energy consultants. Last week, Jones=20 called for a federal Securities and Exchange Commission investigation of=20 stock purchases by state energy consultants.=20 Deals with private firms spark growth of Mexico's energy empire =20 \ objattph=20 By Diane Lindquist UNION-TRIBUNE STAFF WRITER July 28, 2001 ROSARITO BEA= CH=20 -- At the modern new power plant next to the Pacific Ocean here, it takes= =20 just two operators at sleek computer consoles to run a facility that can se= nd=20 electricity throughout Baja California, into Sonora and -- in energy=20 emergencies -- into Southern California. The plant, part of the Presidente= =20 Ju?rez complex at this resort city 15 miles south of the U.S. border, has= =20 been operating since July 5. Alstom Power, a Swiss global energy firm, bui= lt=20 the project in an arrangement that allows private companies to take part in= =20 an energy sector previously restricted to the Mexican Federal Electricity= =20 Commission, or CFE. Mexican President Vicente Fox says he would like more= =20 development firms involved in the country's energy endeavors, but he needs= =20 the national Congress' approval. For now, the current arrangement is=20 Mexico's best solution to meeting the cash-strapped nation's growing power= =20 needs. Most of the 3,246 megawatts being added this year to the national=20 electricity system result from similar private construction arrangements. = =20 "This new plant marks an advance in the scheme of financing CFE projects,"= =20 Jos, Miguel Olea, the agency's deputy construction di rector for the plant,= =20 said during a tour Thursday. "It puts us in a position to better serve our= =20 clients and maintain a reasonable margin of reserve to keep up with the=20 constant growth the border area has experienced in recent years," he said. = =20 Under Alstom's contract, the company built the Rosarito plant and will leas= e=20 it for 15 years, then transfer it to the government. CFE is the sole=20 operator, however, whether the facility's ownership is under Alstom or the= =20 agency. As a result, the new plant, called Rosarito III, is among the most= =20 modern in Mexico. The combined-cycle facility is fired by natural gas, maki= ng=20 it cleaner, more efficient and less costly to operate than plants of previo= us=20 generations. Only the tops of the plant's two red-banded chimneys are=20 visible from the main highway through Rosarito Beach. The plant is made up= =20 of two units, each of which produces 244 megawatts. A megawatt is enough to= =20 power 750 to 1,000 homes in the United States. Turbines and condensers are= =20 in separate buildings. The electricity moves through pipes that penetrate t= he=20 top of each building and extend to a tower, where the power is sent out on= =20 transmission lines. Outside each main building is a structure of stainless= =20 steel pipes and tanks that uses ocean water to cool the operation. While t= he=20 Swiss company was building the plant, the electricity agency converted the= =20 fuel source of its two existing facilities -- Rosarito I built in 1963, and= =20 Rosarito II built in 1991 -- so that now all are fired by natural gas. The= =20 conversion has transformed one of the state's worst sources of air pollutio= n.=20 With the use of natural gas, sulfur dioxide emissions have been eliminated= =20 and nitrogen oxide emissions have been lowered. Sempra Energy Internationa= l,=20 a subsidiary of San Diego-based Sempra Energy, built the natural gas pipeli= ne=20 to Presidente Ju?rez under a government contract with terms similar to thos= e=20 under which Alstom built the plant. InterGen, another global power=20 generation firm, plans to construct two plants near Mexicali under the same= =20 build-lease-transfer system. In contrast, Sempra will own a plant it is=20 building near Mexicali outright because the electricity will be exported=20 north of the border. There are no limits on the number of similar plants= =20 that can be developed in Baja California for the export market, Mexican=20 Energy Secretary Ernesto Martens has said. The Rosarito III plant adds 488= =20 megawatts to the amount Presidente Ju?rez produces, increasing the total to= =20 1,328. That's a 24.7 percent boost to Baja California's overall capacity,= =20 Olea said. About 652,000 homes and 78,000 businesses and industries in=20 Tijuana, Mexicali, Ensenada, Tecate and Rosarito Beach in Baja California a= nd=20 San Luis R?o Colorado in Sonora will receive electricity from the President= e=20 Ju?rez complex. "The new plant should cover the region's current demand an= d=20 high future growth with a adequate reserve through 2004," Olea said. =20 InterGen and Sempra are expected to start operating their plants in 2003. = =20 The Rosarito plant will supply California consumers when needed, said Ram?n= =20 Fern?ndez, the agency's resident manager of projects, but Baja California a= nd=20 Sonora needs must be met first. "CFE has always considered opportunities t= o=20 export to and support California as part of the Baja California regional=20 market," he said. Prices charged to California consumers will be set by=20 market conditions, he said. Exports are limited by the 408-megawatt capaci= ty=20 of the two cross-border transmission lines, Fern?ndez said, but the agency= =20 expects the capacity to be expanded to 2,400 megawatts by next year. Diane= =20 Lindquist's e-mail address is diane.lindquist@uniontrib.com=20 <MAILTO:diane.lindquist@uniontrib.com<. Her voice mail is (619) 542-4579.= =20 Huge Fees, Many Conflicts In PG&E Case Bankruptcy: The sheer size of the professional firms involved and the vast= =20 reach of the utility make entanglements almost inevitable. By TIM REITERMAN TIMES STAFF WRITER July 29 2001 SAN FRANCISCO -- When a big bankruptcy case comes along, so does the=20 bankruptcy gang. After PG&E Corp.'s Pacific Gas & Electric Co. filed for protection from=20 creditors in April, major law firms and other high-priced professionals=20 queued up and began billing. PG&E's lead counsel already has charged $2.65 million in the first two mont= hs=20 of a case that some experts say could stretch into years. A financial advis= or=20 asked for as much as $350,000 a month and once considered seeking a "succes= s=20 fee" of $20 million if the company's reorganization panned out. A financial= =20 consultant of the PG&E creditors committee has proposed a $1.5-million fee= =20 for six months' work. The PG&E case offers an extraordinary view of an arca= ne=20 field usually outside the limelight. Total court-approved fees in the bankruptcy filing--the third-largest in U.= S.=20 history--could amount to at least $470 million, said UCLA law professor Lyn= n=20 LoPucki, a leading expert on bankruptcy practice. "The bigger the case, the bigger the fees," he said. But even that figure,= =20 LoPucki said, could go higher because of the regulatory and public policy= =20 issues involved in the case, which he described as "one of the most complex= =20 cases ever." Along with those huge fees come complex potential conflicts. Ethical proble= ms=20 have long haunted the bankruptcy field, despite repeated efforts at reforms= =20 that have followed scandals involving prominent firms. Though the PG&E=20 bankruptcy case is in its earliest stages, entanglements that experts say= =20 could present ethical issues already have arisen as several prominent firms= =20 were approved by the bankruptcy judge: * PG&E's main law firm also represents banking interests that are tied to o= ne=20 of the utility's biggest debts, a nearly $1-billion credit arrangement. * PG&E's accounting firm has done unrelated work for more than 80 companies= =20 involved in the PG&E bankruptcy case, including some of the utility's=20 creditors. * The law firm for the official committee of PG&E creditors represents a=20 $400-million Arizona power project being developed by an arm of PG&E's pare= nt=20 company. * The accounting firm for the committee does work for PG&E and its parent= =20 company, a corporate relationship being examined by the state's utility=20 regulator. For shareholders or creditors of a company in bankruptcy proceedings,=20 conflicts can create serious problems. The complex legal and accounting=20 issues that arise in a bankruptcy case provide numerous opportunities for= =20 professional firms to alter outcomes in ways that benefit a favored company= =20 and harm the client relying on their advice. Experts say the sheer size of today's professional firms and the vast reach= =20 of PG&E, whose business activities touch virtually every sector of=20 California, make conflicts almost inevitable. "Very few people have the expertise for high-profile, high-stakes=20 bankruptcies, so you have a small pool from which to draw representation, a= nd=20 that's where . . . potential conflicts come up," said Nancy B. Rapoport, a= =20 University of Houston law professor and a leading bankruptcy ethics expert. "Today," LoPucki said, "it's not a question of whether there's a conflict,= =20 it's how big it is." Dozens of Firms Vying for Contracts The bankruptcy case of PG&E, with a reported $31.5 billion in assets, is bi= g,=20 indeed. Only two cases from the late 1980s, Texaco Inc. and Financial Corp.= =20 of America, surpass it when measured by the dollar value of the assets at= =20 stake. Records show that about a dozen firms are in line for lucrative contracts= =20 with either PG&E or the official committee representing thousands of the=20 utility's unsecured creditors. So are dozens of other firms that have=20 continuing legal work for the company. All will be paid from the PG&E bankruptcy estate, if Judge Dennis Montali= =20 approves their employment. To become eligible for legal, accounting and consulting work, each firm mus= t=20 convince the judge that it is qualified to do the job and does not have=20 unmanageable conflicts of interest. Many firms in the PG&E case have worked with one another or represent parti= es=20 with a financial interest in the outcome, such as lenders and creditors, in= =20 matters outside the case. With the limited number of bankruptcy specialists, "naturally you have=20 lawyers and others working both sides of the fence," said Mary Josephine=20 Newborn Wiggins, professor at the University of San Diego School of Law.=20 "There are bound to be some situations where it gets sticky." Time and again, firms acknowledged in disclaimers filed with Bankruptcy Cou= rt=20 that they have so many ties to other companies that they may not have=20 unearthed all connections and potential conflicts. Some addressed potential= =20 conflicts by erecting "ethical walls" within their own firms or having=20 clients sign waivers that absolve the professionals of conflicts of interes= t. Experts say ethical walls amount to honor systems with no outside monitorin= g=20 and that waivers sometimes are granted without the client's full=20 understanding of the potential conflicts. They also point out that not all connections between adversarial interests= =20 constitute conflicts, and not all conflicts are serious enough to disqualif= y=20 a firm from a case. The fact that so many issues arise in cases of this magnitude has meant tha= t=20 the bankruptcy system is forced to make accommodations for big firms with= =20 overlapping clients. "By traditional conflict standards, the large firms could not participate i= n=20 the cases," LoPucki said. "There has been a huge shift in what is acceptabl= e.=20 It is more lenient. A firm is allowed to represent [clients] today where th= ey=20 would not have been allowed 20 years ago." 'Ethical Walls' Used to Avoid Conflicts The complexity of the entanglements--and the manner in which the system has= =20 adapted to them--can be seen in the roles played in the PG&E case by two of= =20 the nation's largest accounting firms, Deloitte & Touche and=20 PricewaterhouseCoopers, and one of its most prominent law firms, Milbank,= =20 Tweed, Hadley & McCloy. When PG&E proposed hiring Deloitte & Touche for a base fee of $855,000 and = an=20 hourly rate of $450 to $650 for partners, the U.S. trustee in the case, Lin= da=20 Ekstrom Stanley, objected. The U.S. trustees office is an arm of the Department of Justice that Congre= ss=20 created in 1978 to help combat what critics derisively dubbed bankruptcy=20 rings. The trustees administer bankruptcy cases and are instructed to guard= =20 against abuses and profiteering by professionals. So far in the PG&E case, Stanley's office has weighed in against the=20 appointments of several major companies, voicing objections ranging from=20 excessive fees to conflicts. Her office succeeded in preventing the credito= rs=20 committee from hiring a public relations firm, and it won a tentative rulin= g=20 that would prevent PG&E from indemnifying a financial consulting firm again= st=20 negligence claims arising from its work. The investment banking firm, Dresdener, Kleinwort & Wasserstein, has stoppe= d=20 working for PG&E because of the lack of indemnification. PG&E is hunting fo= r=20 a new financial consultant. In the case of Deloitte & Touche, Stanley's office seized on the company's= =20 disclosure that it had worked not only for PG&E but also for its parent=20 company and for another subsidiary, PG&E National Energy Group. The=20 accounting firm had performed $14.4 million in work last year for the three= =20 PG&E entities. The trustee said that work posed a potential conflict because the Californi= a=20 Public Utilities Commission was reviewing PG&E's controversial transfers of= =20 funds to its parent company. Deloitte & Touche argued successfully that its relationships with three PG&= E=20 entities did not compromise the company's ability to fairly represent PG&E = in=20 the bankruptcy. In the interest of full disclosure, Deloitte & Touche reported it formerly= =20 employed a daughter of Judge Montali. The firm also said it employs the wif= e=20 of another bankruptcy judge in San Francisco. She logged fewer than 50 hour= s=20 of tax consulting work last year for PG&E's parent, the firm said. Ethics experts said such personal connections generally would not be enough= =20 to prompt a judge to disqualify a firm. "It's obviously an interesting=20 relationship," Rapoport said. "It comes down to . . . how much of an=20 appearance of too much closeness he wants to put up with." Issues involving the second accounting firm, PricewaterhouseCoopers, arose= =20 when the committee representing PG&E's creditors proposed hiring the firm a= s=20 its accountant and financial advisor. Stanley's office objected that the=20 firm, like Deloitte & Touche, works for PG&E and its parent. "Professionals . . . must have no conflict of interest . . . and owe=20 undivided loyalty to the creditors committee," the trustees office said. "It is not beyond imagining that [PG&E and its parent] could influence=20 [PricewaterhouseCoopers] through these continuing relationships, the promis= e=20 of future engagements and other intangibles," the trustee said in one filin= g. PricewaterhouseCoopers said it would build an ethical wall within the firm = to=20 avoid problems or other dicey situations in which PG&E, its parent or=20 affiliates are adversaries. The judge approved the hiring. Rapoport said such ethical walls do not necessarily prevent improper=20 communications within firms. "I don't think you can rely on an honor system= =20 or an internalized moral compass. That is why we have rules in the first=20 place," she said. As its legal counsel, the PG&E creditors committee received permission to= =20 hire Milbank. The law firm disclosed that it represented some of PG&E's=20 creditors in matters unrelated to the bankruptcy. The firm also represents = a=20 $400-million Arizona power plant project being developed by a subsidiary of= =20 PG&E Corp.'s National Energy Group. Some bankruptcy experts said there was a potential for conflict, but the fi= rm=20 said the connection was tangential. In addition, the firm worked for the California Power Exchange, the=20 now-bankrupt entity that under California's deregulation plan served as the= =20 state's energy marketplace. Milbank resigned that post several weeks before= =20 the Power Exchange filed its own bankruptcy petition in March. The=20 resignation, Milbank said, was "due to certain potential conflicts with=20 creditors" of the exchange. One of Milbank's clients is Enron Corp., which, using other counsel, sued t= he=20 Power Exchange, trying to get back collateral held by the exchange to ensur= e=20 power deliveries. Enron now sits on the PG&E creditors committee represented by Milbank.=20 Another of PG&E's creditors is the Power Exchange, which is seeking nearly = $2=20 billion for energy companies that sold electricity to the utility but were= =20 not paid. Records show Milbank has filed a claim of about $373,000 against= =20 the exchange for legal work. George Sladoje, president and chief executive of the Power Exchange, said h= e=20 was shocked when Milbank, its longtime counsel, quit. "It was very difficul= t=20 to find [new] counsel," he said. "There were conflicts all over the place"= =20 among law firms because so many did legal work for PG&E and Southern=20 California Edison. Ed Feo, managing partner of Milbank's Los Angeles office, said the company= =20 did its best to avoid conflicts in both bankruptcy cases--by dropping=20 representation of a client in one and fully disclosing its connections in t= he=20 other. As for Milbank's role in the PG&E case, Rapoport said that representing=20 creditors and a creditors committee is "OK as long as their interests do no= t=20 diverge." However, she said, "Bankruptcy is like the Chinese game of Go. Moves have= =20 ramifications 20 steps later." Disclosure Often Is Safest Legal Course As a practical matter, the safest course legally in a bankruptcy case is to= =20 try to disclose every connection and let the judge decide whether to allow = a=20 firm to participate. "Disclosure cures a multitude of ills," said Lawrence Gottesman, chairman o= f=20 the bankruptcy practice at Brown, Raysman, Millstein, Felder & Steiner in N= ew=20 York City. By contrast, he said, "the penalty for working with an undisclos= ed=20 conflict can be severe." Milbank learned that three years ago, when John G. Gellene, once a lawyer= =20 with the firm, was sentenced to 15 months in prison and fined $15,000 for= =20 failing to disclose during a bankruptcy case that he also was working for a= =20 creditor in separate litigation. Before the sentencing, the firm had return= ed=20 $1.9 million in legal fees and fired Gellene. To ferret out potential conflicts, firms rely heavily on the computer. Thos= e=20 involved in the PG&E case, for example, usually checked their computerized= =20 client lists against the biggest 100 PG&E creditors and other players, such= =20 as other professional firms, the trustee's staff and the judge. Even then, there are limits. The computerized checks did not touch tens of= =20 thousands of smaller PG&E creditors. And the firms themselves commonly issu= e=20 disclaimers, saying they might not have turned up all their potential=20 conflicts. If a law firm finds it has a troubling conflict, it also can seek a conflic= t=20 waiver from its existing client, which essentially gives the firm permissio= n=20 to pursue dual representation. PG&E's lead counsel, Howard, Rice, Nemerovski, Canady, Falk & Rabkin,=20 reported receiving $1.9 million from the company in the year before the=20 Chapter 11 filing and it billed $2.65 million in fees and expenses for the= =20 two months after that. Among the firm's potential conflicts was its representation of an affiliate= =20 of Bank of America Corp. The bank participates in a revolving credit=20 agreement that allows PG&E to borrow up to $1 billion. PG&E listed Bank of= =20 America as the agent for a $938-million claim. The law firm said its relationship with the Bank of America affiliate was= =20 "sufficiently attenuated" that it did not need a conflict of interest waive= r=20 from its client. But the firm sought and received conflict waivers from a= =20 second bank and the affiliate of a third bank involved in the credit=20 agreement. There was no objection by the trustees office, and the judge approved hirin= g=20 the firm. "We see if [a firm has] a disqualifying connection and, if not, w= e=20 let it go," said Stanley, the U.S. trustee. Indeed, if every potential conflict were examined closely, some say, the=20 bankruptcy system would grind to a halt. "It would be horrendous," said Daniel Bogart, a law professor at Chapman=20 University. "There are conflicts that matter and those that don't. The=20 parties have to reach a level of comfort quickly."=20 Copyright 2001, Los Angeles Times <http://www.latimes.com<;=20 'Invention' Fueling Only Cries of Fraud Energy: Tribe promised riches from power plant using secret technology=20 suspects it's been had. Firm's founder, a felon, denies allegations. By BETTINA BOXALL TIMES STAFF WRITER July 28 2001 BISHOP, Calif. -- It would be difficult to write a better spoof of the ener= gy=20 frenzy than the tale that has been unfolding here on a small Indian=20 reservation. There is the pony-tailed convicted felon who came to this remote Eastern=20 Sierra town with bodyguards, secrecy agreements and plans for a power plant= =20 that would reap millions in annual profits for the local tribe, require no= =20 fuel and produce no pollution. There was the prototype: two boxes connected to a car chassis suspended off= =20 the ground. When a switch was flipped, the tires turned. There were the=20 company code names for employees: Falcon, Caesar, Cleopatra. But it's not a spoof. It's the story of QSFG Research and Development Inc. = of=20 North Las Vegas and founder Michael J. Marshall, who has left a trail of=20 angry investors, laid-off employees and allegations of fraud from Nevada to= =20 Hawaii. Marshall is a silver-haired 47-year-old who boasts, in language grandiose t= o=20 the point of parody, that he has invented a new technology that will power= =20 everything from cars to electricity plants and transform the energy industr= y. Centuries from now, he declared at a groundbreaking here, "They will be=20 looking back at us, this day right here. We are initiating the start. We ar= e=20 lighting the match." He sold company shares at $25,000 a pop, signed a contract to build a=20 250-megawatt power station on the Bishop Paiute reservation and promised=20 investors an energy empire. In a brief telephone interview Friday, Marshall dismissed all the doubts an= d=20 allegations. "I don't care what you write because the truth is the truth. I'm only two= =20 weeks away from having a prototype showing I can run power stations. It doe= s=20 work. It does run," insisted Marshall. "Where the Past Ends and the World's Future Begins," proclaims the brightly= =20 lettered sign on his now-closed office-warehouse in a North Las Vegas=20 industrial park. It is a phrase he used before, in New York state, where Marshall spent 2 1/= 2=20 years in prison for fraud and larceny. According to Cortland County files,= =20 the case involved $25,000 he took from an elderly man to patent an=20 invention--apparently a "fuel-less generator" for cars. After his release from prison in 1998, Marshall wound up in Las Vegas, wher= e=20 he incorporated QSFG last year. He started off with plans to outfit cars an= d=20 trucks with his technology. When California's energy crisis hit, he switche= d=20 to power plants, becoming one of many offering unusual solutions to the=20 state's electricity problem. "We're certainly hearing a lot more schemes. Not all of them are=20 unreasonable," said Rich Ferguson, research director at the nonprofit Cente= r=20 for Energy Efficiency and Renewable Technologies in Sacramento. "This=20 particular thing sounds like a violation of fundamental physical law, so it= 's=20 a little hard to take seriously." Site at Reservation Has Legal Advantages Last spring, QSFG sent letters to Las Vegas casinos and Native American=20 tribes in California and Nevada, pitching "a groundbreaking advanced=20 electromagnetic technology" with which the firm could build new energy plan= ts=20 and retrofit existing ones. Marshall, who wears a long braid or ponytail, said he was part Cherokee. Bu= t=20 his interest in tribal land extended beyond any Native American ties. The= =20 reservations are self-governing, QSFG representatives noted, potentially=20 eliminating local and state red tape and speeding up the approval process. A few tribes responded, including Bishop and nearby Benton. Marshall and hi= s=20 entourage paid them a visit in May. "He reminded me of a used-car salesman," recalled Joseph Saulque, vice=20 chairman of the Benton Paiute tribe. "He talked real fast. He sounded quite= =20 intelligent and up on what he was talking about. But he refused to let=20 anybody see what he was talking about. He refused to let us see his alleged= =20 engine." The Benton tribe didn't pursue the matter. But the larger Bishop reservatio= n=20 found Marshall's story too tempting to resist: the tribe could make as much= =20 as $15 million a year in exchange for letting QSFG build a nonpolluting pow= er=20 plant on three acres of their land. QSFG signed a contract with the Bishop tribe May 31; the groundbreaking was= =20 in early June. Shaded from the high desert sun by a large blue-and-white=20 tent, Marshall and a parade of his employees took the microphone like=20 evangelists. This was the technology of the new millennium, they told a small gathering.= =20 It was an historic moment akin to the Wright brothers and their first fligh= t. "There's what you call closet inventors--I'm one of them," Marshall said. None of the speakers detailed exactly how the energy plant would work. Ther= e=20 was mention of rotary power, north polarity and an electromagnetic engine. All along, Marshall insisted his invention was a carefully guarded secret--= so=20 valuable that he required bodyguards. Pressed, he would show people his prototype: a car chassis with a steering= =20 column and four wheels. In place of the engine were two boxes that he refus= ed=20 to open. He would jack the chassis off the ground, flip a switch and the=20 wheels would turn. It wasn't much. But apparently it was enough to convince those who wanted t= o=20 believe Marshall's engine could be the next big thing, as well as their=20 ticket to millions. "This man is a very good and fast talker . . . you believe him," said Juani= ta=20 Ikeda, a former accountant for QSFG. "He was able to get everyone's greed t= o=20 work against them." Ikeda, who quit the company in June, says she is the one who discovered=20 Marshall's New York conviction and made sure the Bishop tribe heard about i= t=20 after the groundbreaking. Calling the episode "a very embarrassing learning experience," Bishop triba= l=20 council chairman Monty Bengochia said the tribal development corporation=20 "doesn't anticipate following through with the QSFG agreement." Marshall laid off his staff early this month. According to the Nevada labor= =20 commissioner's office, 16 claims for back wages totaling more than $100,000= =20 have been filed against QSFG by former workers. In Hawaii, the state Department of Commerce and Consumer Affairs is=20 investigating a fraud complaint against Marshall and QSFG by investor Micha= el=20 H. Wong Sr. A government engineer who lives in Hawaii, Wong bought a $25,000 share in= =20 QSFG after hearing about the company from a friend in Las Vegas. Marshall's invention sounded plausible to Wong. "If this guy has it and wan= ts=20 to bring it out to the world I was all for it," he said. But after Marshall canceled several public debuts of his technology, failed= =20 to pay any dividends and showed Wong nothing more than a car chassis, he=20 doesn't believe he has an invention. "He does not have anything at all," Wo= ng=20 said. His Las Vegas friend, Michael Kauffman, is similarly disenchanted. "This wa= s=20 my first investment. It was very stupid," lamented Kauffman. "It's a wash.= =20 I'm not getting my money back." Kauffman says he has complained to the Las Vegas office of the FBI, which= =20 declined to comment on whether it is investigating. Former Employees Tell of Ploys Marshall insists that Wong is furious at him because he won't reveal his=20 technology secrets. "The money went into the corporation, not into my=20 pocket," he said. "As far as me scamming--that is not true." Many of QSFG's employees and some of the investors knew each other before= =20 their involvement with the company. They fell into line with Marshall like= =20 dominoes. Kauffman heard about Marshall from his roommate, Alesa Beck, who worked in = a=20 video store Marshall patronized. Marshall gave her an office job in the=20 company. When he was looking for "spokesmodels" to promote QSFG, she referr= ed=20 him to friends who worked in Vegas as strippers. He hired them. Kauffman told his sister, Teresa Romero of San Diego, about Marshall's=20 invention and she bought $25,000 in stock. Wong told his son about the=20 company and his son went to work for Marshall. A network of acquaintances= =20 followed, including a Southern Nevada community college professor of crimin= al=20 justice who was hired as head of security and later made CEO. Sitting in the restaurant of a downtown Las Vegas casino recently, Kauffman= =20 and five ex-employees described an operation sustained by alluring promises= . Marshall hired them at handsome salaries, paid them in the beginning and th= en=20 erratically. He once insisted a solar flare had interrupted the computer=20 transfer of payroll funds. He told them if they would hang on, they'd make = a=20 fortune. He assigned code names to the staff--he was Caesar and a young woman he=20 identified as his wife was Cleopatra. He made them sign nondisclosure=20 agreements and claimed he had been nominated for the Nobel Prize. Ikeda and others say Marshall wanted to create the impression of a healthy= =20 business when members of the Bishop tribe visited the QSFG offices. But the=
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