Voices from the Past
by Douglas A. Pinnow
August 1, 2007All supporting research material obtained from the files of Chris Hyland, former Directory of EVMWD District 3
Action you can take to help stop LEAPS
Why LEAPS is not economically viable
What credible persons and agencies say
Lies, Inaccuracies, and Misleading Statements
ABSTRACT
EVMWD’s Board of Directors’ meeting held on September 26, 2002 significantly changed the direction of the LEAPS Project. This article sets the stage for the meeting, reports on just what was said using tape recorded transcripts (i.e. the “voices from the past”) and concludes with critical analysis of why the results of this meeting are still relevant today.
INTRODUCTION
By mid-2002, Enron Corporation had completely withdrawn from the LEAPS Project due to overwhelming corporate problems that led to its bankruptcy. That left only EVMWD and Nevada Hydro to move the LEAPS Project forward.
This posed a serious problem because EVMWD’s position, as expressed in the 1997 Development Agreement (pdf) with Nevada Hydro, was that:
District [EVMWD] supports the continued development of the Project as in the public interest but does not wish to spend the remaining funds required to obtain the FERC License and to construct and operate the Project.
Further:
Company [Nevada Hydro] will provide all necessary funding and will pay all expenses and costs to complete and submit the FERC License application to obtain the FERC License and to obtain Related Entitlements.
The problem was that Nevada Hydro did not have sufficient funds to fulfill it’s contractual commitment. That’s one of the principal reasons why Nevada Hydro had previously worked to find an organization like Enron, with deep pockets, to participate in the LEAPS Project. In fact, Enron was indeed “paying the bills” before they abandoned the project and went bankrupt.
NEVADA HYDRO’S PROPOSALThe absence of Enron left Nevada Hydro in a very serious situation. And by mid-2002 there was a very large anticipated expenditure (several hundred thousand dollars to retain Washington lobbyists) that was considered necessary to move the LEAPS Project forward. While there’s much more that will be said about this expenditure later, the pressing problem that will be addressed at this point is “Where was the money to come from?”
Nevada Hydro’s answer to this question was that EVMWD should make the payment and that Nevada Hydro would “guarantee” repayment. Specifically, Nevada Hydro’s President, Peter Lewandowski, proposed to Ron Young, General Manager of EVMWD, in a letter dated July 31, 2002 that:
District [EVMWD] costs incurred to retain Washington lobbyists addressing the issue of multiple use of public lands [specifically the Cleveland National Forest for both recreation and for a power line right-of-way] would, therefore constitute a legitimate reimbursable expenditure in accordance with our agreement. THNC [The Nevada Hydro Company] commits to reimburse the District for 100 percent of those costs. [Underlined for emphasis]
The problem here for EVMWD was that Nevada Hydro did not plan to back their “commitment” with any collateral. If EVMWD accepted there terms and made the payment, it would be in the form of an unsecured loan to Nevada Hydro. In effect, EVMWD’s unsuspecting rate-payers would be assuming the financial risk for the LEAPS Project while Nevada Hydro would gain the principal financial benefits if the Project were successful.
THE SEPTEMBER 26, 2006 BOARD MEETING
This set the stage for the September 26, 2002 EVMWD Board of Directors meeting. Action on the Nevada Hydro proposal to finance the payments to the Washington lobbyists was the main topic on the agenda. Four of the five directors were present; Phil Williams, President, Kristine Anderson, Vice President, Gary Kelley, and George Alongi. Also present was Ronald Young, General Manager of EVMWD. By the time of the meeting, all of these individuals, except Director Alongi, were inclined to accept Nevada Hydro’s proposal. As you’ll see, there was a spirited and very informative debate at this meeting. But, did it have any effect on the outcome?
The following is an audio transcription of the discussion that was made from a tape recording that is retained by EVMWD. These are the actual Voices from the Past:
YOUNG – The staff is recommending approval of two agreements with lobby and consulting firms regarding LEAPS. The cost of these contracts will be fully reimbursed by NHC [Nevada Hydro Company], so no financial impact on the District. The work they are going to be involved in is the legislative work in the bill that is being moved through. It has been introduced in ( to) Congress, and we will be moving ahead. Our Congressman, Darrell Issa, has introduced that. That’s really what this is all about and being able to function inside the beltway, if you will, with the Congress, with the various committees; the Energy Committee, the Natural Resources Committee, and the Public Works - and all that to be able to navigate the labyrinth of approvals.
…………… .WILLIAMS - …. . Now we have time for comments.
ALONGI – We are right back where we were before, when this wasn’t supposed to cost the District any money. We have a developer [Nevada Hydro] out there that doesn’t have financing in place. We have a representative [Director Phil Williams] who has now changed his mind and wants to put the power lines through the [Cleveland] National Forest, which he didn’t commit himself before. So, now we have someone in Congress [Darrell Issa] changing his mind. But here we sit on the Board, and we’re going to agree to pay $10,000 a month to a consultant to do the work that the Hydro Company people should be doing, not us. We’re supposed to be riding free here. We are supposed to be the guys who are supposed to reap the benefits. They pay, we reap the benefits. And still, there is no money, there’s no bonds, there’s no guarantees, there’s nothing out there except their word that they’re going to reimburse us. That means absolutely nothing. I could tell you that I am going to reimburse you for a million dollars. It doesn’t mean that you’re going to get it. And here we are. We’re going to spend another $10,000 a month to do some more studies on this hydro deal through legislative. Even the agreements [the terms in the 1997 Agreement with Nevada Hydro] don’t mention him [the person responsible at Nevada Hydro]. It’s all on us. I just can’t believe you people [the other Directors] continue to do this. We’re spending a bunch of money now on a topo map that’s going to benefit them [Nevada Hydro] if they move forward with their project. It just goes on and on and on. We just spent $30,000 for the study to find out what benefits we’re going to get out of it. I mean, how much more money do you people want to spend on this thing. Where are these people’s dollars? Where are they? Where’s the banks? Where’s any kind of commitment from the people saying; ”Here, I have a guarantee for $500,000 to do this project. You have to get it approved for me.” We don’t have any of that and yet we keep spending money. That’s it. Thank you.
WILLIAMS – Let me ask this real quick. Have we heard from the Hydro Company? Have they come close to a finance group yet?
YOUNG – They continue to work on that. I believe that they are very close but, of course, their discussions are their business deals and their contracts, so I’m not, if you will, privy to the details. I have met with the various potential investors and every different entity that has come to the District to look at our facilities. And our involvement to the projects has been very positive about their interest. I guess I can only report that things look very positive and we are moving ahead. We have a meeting in the near future to meet with the fire service about these issues. So, things are continuing ahead at a regular pace, an anticipated pace. The developer is continuing to make their progress reports or quota reports to the FERC. So, we can publish those reports. So, they are on schedule and everything looks like it is moving ahead at this point in time.
ALONGI – There is still no, in all due respect to our managers, there is nothing in writing from any investor, any investor. If they [Nevada Hydro] would send me a letter from an investor saying they’re interested in the project, I might relax a little bit. But they don’t even have any type of commitment to that effect. It’s all word to mouth. He said this - they said that. We met with them - they told us this. There’s no written commitment. We wouldn’t move on a project if we didn’t have a written commitment from the developer. What’s he going to do? How is he going to pay his fees to us? We wouldn’t move forward. Why are we moving forward on something that’s in the millions and we don’t know what’s happening? We haven’t a clue as to what these people are doing out there. Not a clue. And, I think before we move ahead and spend any more of the District’s money, we should at least try to get a commitment from them, a letter from them, from some person or some agency saying “Yes, we are very interested in it, in this investment, and we are negotiating it.” But we have nothing. I mean – please.
WILLIAMS – Well, the concern that I have, and maybe you can answer this Mr. Young, I’ve been reading the papers and that our project [LEAPS], or our proposed project, has now become a potential alternative to SDG&E, in which it would be SDG&E’s line. And the concern that Director Anderson has had along, and the concern that previous directors have always said that if we don’t put this line in, then potentially someone else will put the line in. And if they put it in, then our District and our community receives nothing – as opposed to if we take the bull by the horns and actually lead the charge. And it’s my assumption by hiring these consultants, I understand that Washington DC can’t come out and say that this is the Elsinore Valley line. I understand some of the legal maneuvering and the political maneuvering that‘s going on. These people are there to protect our rights if the project does go forward. Or if the project goes forward, is that what they are there to lobby for - and also the successful routing?
YOUNG – I think that’s absolutely correct. And the implication here, I think is very strong. When EVMWD enters these contracts, then it is EVMWD that is the proponent of this line, is the proponent of the LEAPS project. When this initially started out, I agreed with congress needing to have a generic description of the facilities. But the recent newspaper articles make it very clear, as does the actions here, and actions speak louder than words. Our action here is to say that this is our project. This is our project that we are lobbying for. We are moving ahead, not just with the transmission lines, but with the LEAPS Pump Storage project.
We’ve seen the talking points that very clearly describe (outline) everything that has been described in the applications to the FERC that this is a project that will benefit 250,000 people by providing peak power during - when the time power is going to be short. There would be potential brown-outs. We see this as a green power project with using gravity as our fuel source instead of using hydrocarbons and coal and other things that put pollutants in the air when you produce this power. So, you see all the positive aspects. This is our action to move ahead. I think the corrections we made to the agreement [to make a minor change to the termination date], the modifications are very good ones. I think we should continue. And as potential investors become available, if any one of the directors would like to meet with these investors, shake their hands, see their presentations, understand what questions they’re asking, we would be more that happy to make those arrangements so that we could move ahead and get a better look at the project.
Right now, we have a committee [an ad hoc committee] of the Board that we’re keeping apprised at the highest level.[The ad hoc committee lasted for five years and succeeded in keeping knowledge of the LEAPS Project out of reach of the public.] But if other directors are interested, we could do that.
WILLIAMS – Are they [Nevada Hydro] at the point were they are willing to do that?
YOUNG – We should probably make that schedule available to the other directors.
At this point the vote to approve the staff recommendation to retain the Washington lobbyists was taken. The measure passed by a margin of 3 to 1, with Director Alongi being the only dissenter. So, the discussion had no impact on the outcome of the vote.
CRITICAL ANALYSIS OF THE BOARD MEETING
In retrospect, it is striking at how naïve Ron Young was about progress being made by Nevada Hydro to secure an investor. Even now, five years latter, a committed investor is no closer at hand. In fact, the outlook is substantially more problematic (see The Case for including Expenditures for LEAPS in the EVMWD FY 2007-2008 Budget). Very recently, EVMWD released yet another story that the investment banking firm of Morgan Stanley may have an interest in backing LEAPS. But, like all previous investment possibilities, no commitments have been secured in writing.
It is also very striking how bullish both Mr. Young and Director Williams were about “taking the bull by the horns” and “actions speak louder than words” expressing a gung ho attitude that was not supported by facts. They can be specifically faulted for accepting the “talking points” about the LEAPS Project hook, line and sinker. That’s because Nevada Hydro, an organization that would clearly benefit financially if the LEAPS Project were built, influenced these talking points.
While naivety many be excusable, there can be no excuse for Young making the strong statement that:
The cost of these contracts will be fully reimbursed by Nevada Hydro, so no impact to the District.
without addressing or even mentioning Director Alongi’s concern that Nevada Hydro was proposing an unsecured loan!
One wonders what EVMWD’s lawyer, John Brown, might have advised Mr. Young and the Directors about the risks of accepting an unsecured loan from an organization that is known to be short on cash and other resources. If Mr. Brown didn’t raise lots of red flags, a good case could be made that he should be fired. If he did, an even better case could be made that Mr. Young should be fired.
In this regard, things don’t look particularly good for attorney Brown who, according to Director Alongi, attended the Board meeting but said nothing about the unsecured aspect of the proposed loan to Nevada Hydro.
Even without having the lawyer’s warning, Mr. Young should have seen the serious risks involved in Nevada Hydro’s proposal. After all, he is being paid well as a senior executive to look out for the best interests of EVMWD’s rate-payers.
REQUEST FOR INDICTMENT OF DIRECTORS
About a half year after the September 26, 2002 Board meeting, a group of residents from the community of Rancho Capistrano prepared and submitted a legal complaint to the Riverside County District Attorney’s Office requesting the indictment of the three Directors who approved the risky expenditures on the LEAPS Project (see the Rate-payers’ Complaint).The basis of the complaint is that:
On September 26, 2002, the EVMWD broke California State Law when they carried a motion to implement two Lobbyist Agreements ($20,000 per month, for up to one year), relative to the Lake Elsinore Advanced Pump Storage Project (LEAPS). In California, it is illegal to make risky, unsecured investments with public funds (See Government Code Sections 53600, 53601, and 53601m). The State Code requires that “local agencies” investing public funds are fiduciaries subject to the “prudent investor standard” (see Section 53600.3). The guidelines set fourth by government code clearly state the “primary” objective is the safety of the principal (see Section 53600.5).
This complaint also requested that the District Attorney depose the staff and Board of Directors of the EVMWD, in order to investigate the possibilities associated with EVMWD funds being put forth to Congressman Issa’s political campaign for reasons that are covered in the Rate-payers’ Complaint.
Basically, it appears that Congressman Issa timed his statement in Congress about the value of the LEAPS Project to coincide within days of the approval action taken by the EVMWD Board on September 26, 2002. It may be presumed that he also was instrumental in guiding EVMWD to the two Washington lobbyist firms that each received payments from the District of $10,000 per month for a year. A total of $240,166 was actually paid by the District to these firms.
One of these firms known as ASG (Alexander Strategy Group) had close ties to the discredited lobbyist Jack Abramoff, who is now under Federal indictment. ASG closed down in the wake of the recent (K-Street) lobbyist scandal in Washington, DC.
While it is entirely possible that some of monies paid by EVMWD to ASG and the other lobbyist firm (Ryan, Phillips, Utrecht & MacKinnon) ended up in Congressman Issa’s campaign funds, there is no evidence yet that this is the case.
About a half year after the complaint was filed with Riverside District Attorney, Grover Trask, he responded with a letter that stated:
The propriety of the LEAPS project and the hiring of lobbyists is a political/policy matter to be decided by the Water District Board. Disagreement with the Board’s decision should be handled by the political process or civil lawsuits. A criminal investigation does not appear appropriate at this time.
POST SCRIPT
The residents of Rancho Capistrano, who initiated the complaint did not have the financial resources to proceed with a civil lawsuit. Lacking the discovery process that a lawsuit could provide, this matter remains unresolved.
The District Attorney who wrote the letter, Grover Trask, is now an employee of the law firm (Best, Best & Krieger or, simply BB&K) that currently represents EVMWD and has represented them for decades. So, he is now an associate of attorney John Brown, who was mentioned above in the CRITICAL ANALYSIS.
The Enron Manager, Rod Baknody, who coordinated the LEAPS Project before Enron went bankrupt has recently re-surfaced as a representative of Nevada Hydro. He attended a Board of Director’s Study Session at EVMWD on behalf of Nevada Hydro on June 20, 2007.
The action taken on September 26, 2002 served as a subsequent guiding principle in the relationship between EVMWD and Nevada Hydro. Since then, not only has EVMWD paid the $240,000 in lobbyists’ fees, but a total of approximately $2 million on behalf of Nevada Hydro – all as unsecured loans. This reckless use of rate-payers’ funds continues to the present.
Further, a substantial portion of the $2 million has been consumed by fees that were paid directly to EVMWD’s law firm, BB&K. As a result, BB&K now has a substantial vested interest in outcome of the LEAPS Project. For this reason, it would be prudent for EVMWD to drop BB&K as their general counsel and limit their involvement only to LEAPS matters.
However, there is no known action on this front by the present Board of Directors. Rather, there is a growing concern that EVMWD may take some sleazy final action, like supporting Nevada Hydro’s effort to build only the power lines through the Cleveland National Forest. While this might help to recover the unsecured loans made to Nevada Hydro, it would also expose EVMWD to major lawsuits from residents living near the power lines who would argue that their property values were seriously diminished by EVMWD’s wonton action. They would take the position that EVMWD has no business supporting the construction of power lines other than to make up for a grave error in judgment that EVMWD’s Board of Directors made on September 26, 2002.
While Nevada Hydro has yet to pay back a single penny of the unsecured loans, they did manage to “scrape together” about $60,000 to contribute to the 2006 election campaigns of three Director candidates who were supportive of the LEAPS Project or its associated power lines. Their substantial campaign contributions were laundered through a Political Action Committee (PAC) located outside of Sacramento. Presumably, this was done in hopes that the opponents of the LEAPS Project would not notice the questionable origin of the funds. Fortunately, this sorry matter was exposed by the press (see Valley News and The Californian).