Clip 3: Scandal inside Texas power grid / Exclusive: Morning News inquiry finds suspect deals, insider intrigue
This story revealed how agency insiders had set up their old Navy buddies as straw men to run companies to which they steered agency money.By PETE SLOVER and SUDEEP REDDY
AUSTIN -- What began as a discreet internal inquiry at the organization that oversees Texas' electric power network has mushroomed into a scandal involving the murky financial affairs of three insiders and concerns about the security of the state's grid.
The state Department of Public Safety is pursuing new allegations of self-dealing by former security officials at the Electric Reliability Council of Texas. Investigators have also asked a grand jury to subpoena documents from the organization.
As they assemble records and interview witnesses, police are trying to determine the roles of the three managers in at least two firms that were hired to handle computer and physical security for ERCOT, according to a government official with knowledge of the investigation.
One of the firms was Cyberensics Corp., The Dallas Morning News has learned. The other firm, previously identified by The News, was ECT Global Solutions Inc.
Police have discovered payments from the two contractors to two of the three ERCOT officials, the government official said.
Cyberensics took in about $1.3 million over its yearlong existence, according to Bobby Joe Greer, the contractor's president. He also said in a written statement that he was recruited by one of the three ERCOT managers - the grid operator's security chief - to start and run the firm.
No charges have been filed in the case. The government official said DPS is investigating whether employees committed theft or laundered ERCOT funds - money derived from the state's electricity customers.
The brewing scandal isn't just about money. State regulators have raised questions about whether Texas' vast electricity network was placed at risk, because the case centers on security and technology contracts.
In a post 9-11 era, amid worries that computer hackers and tech-savvy terrorists could disrupt the grid, proposals from Cyberensics workers to strengthen security were ignored.
ERCOT supervisors "didn't really know what we were working on," said one former Cyberensics worker, speaking on condition of anonymity. "They were just wanting to keep us busy" and were more interested in sustaining contracting firms that would make them money.
ERCOT declined to comment for this story, citing the ongoing criminal investigation. Earlier, chief executive Tom Noel said "a small number of people have chosen to violate" the organization's ethics policy.
Mr. Noel, who is retiring from his post, has said he "has no reason to believe" that the suspect contracting arrangements compromised the integrity of the grid operator's systems.
His successor, Thomas F. Schrader, a former utility executive in Wisconsin, said last week that he wasn't familiar with the most recent details of the probe. But, he added, based on discussion with ERCOT board members, he was comfortable taking the job. He begins July 26.
A DPS spokeswoman said she couldn't comment on an ongoing investigation.
After deregulation, dizzying growth
With a $133 million annual budget, ERCOT is funded by a surcharge on the state's utility companies, which pass that cost on to customers.
It has grown at a dizzying pace as Texas ushered in deregulation of the state's $20 billion electricity market. Since 2000, ERCOT has expanded from 50 employees to about 400. It also employs about 160 contract workers.
Six DPS investigators - up from just one at the outset - are examining ERCOT's contracting practices. They have interviewed approximately 50 witnesses. The investigation began by looking into a group of at least five consulting firms identified in an internal ERCOT report, according to the government official, who spoke on condition of anonymity. State utility regulators have launched their own inquiry into possible security breaches at ERCOT.
The DPS effort has grown to include additional contractors, the official said. Last month, at the request of police, a Williamson County grand jury subpoenaed the notes of the ERCOT lawyer who conducted the internal inquiry.
The agency had refused to voluntarily surrender the materials, the official said.
ERCOT had at least $2.5 million in contracts with ECT and Cyberensics, the companies linked to the three managers, the official said. Both companies have lost their contracts and been dissolved.
ERCOT managers share common backgrounds
The three ERCOT insiders at the heart of the investigation all recently left the organization. James Christopher Uranga, 36, served as director of corporate security and information technology operations. Christopher Allen Douglas, 46, was senior manager for data warehouse and security. Carlos Luquis, 36, managed physical security.
Financial records examined by police show payments to Mr. Uranga, Mr. Douglas and another ERCOT insider from ECT, Cyberensics and another recently dismissed ERCOT contractor. No such payments have been discovered to Mr. Luquis, the official said, but many bank records have not yet been obtained.
Mr. Douglas declined to comment. Mr. Uranga and Mr. Luquis didn't respond to messages left by telephone and with family members.
The three men intersected before joining ERCOT, forming ECT in 1999 and naming themselves directors, state corporation records show.
Until 1995, Mr. Uranga and Mr. Luquis had served nearly nine years together as Navy cryptologists in Florida and Japan, military records show. In 1997, after the Navy, Mr. Uranga received a bachelor's degree in management information systems from the University of Texas at Austin. He went to work at Electronic Data Systems Corp., where Mr. Douglas was employed.
When ECT was formed, Mr. Luquis listed a Pennsylvania address, about 70 miles from the New York office where he worked as an FBI agent.
Calling on a former instructor
Dallas lawyer Alan Tompkins said he prepared the paperwork for ECT as a courtesy to Mr. Douglas, a former student of his in the graduate business program at Southern Methodist University. Mr. Tompkins said he believed the company to be a software-related enterprise.
"I never heard from him again," Mr. Tompkins said.
In November 2000, the state dissolved ECT after it failed to file updated reports.
By the summer of 2002, Mr. Uranga and Mr. Douglas were working at Dell Financial Services, the finance arm for computer maker Dell Inc. Both held information technology positions under Kenneth M. Shoquist, Dell Financial's chief information officer. They followed him to ERCOT, taking jobs there after Mr. Shoquist joined the grid operator as CIO in November 2002.
Mr. Shoquist left ERCOT in late May. He declined to comment about his departure and referred questions to ERCOT. Outside of Mr. Shoquist's supervisory duties at ERCOT, The News found no evidence linking him to ECT or Cyberensics.
A company gets reinstated
In March 2003, a month after Mr. Uranga joined ERCOT, his old company was revived from the dead, state records show. The paperwork for re-establishing ECT originated from a fax machine on the second floor of ERCOT's facility in Taylor, northeast of Austin, where Mr. Uranga worked.
The name on the documents reinstating the firm was Matthew D. Nelson of San Rafael, Calif., who was listed as ECT's vice president for business operations. Mr. Nelson also served with Mr. Uranga and Mr. Luquis as a Navy cryptologist in Japan, records show.
Sometime later, Mr. Nelson was installed in place of the three ERCOT managers as ECT's sole director, and the company's address was changed from Mr. Douglas' Austin apartment, eventually ending up at a Mail Boxes Etc. store in Dallas.
The effect of these changes was to make Mr. Nelson the public face of ECT and obscure any links between the company and its founders in publicly available electronic indexes of corporate records.
Mr. Nelson, who was eventually listed as president of ECT, declined to comment when reached by phone at his office in the San Francisco ad sales bureau of the Weather Channel.
Shortly afterward, ERCOT hired ECT to assess its security. ECT's lead worker on the project was Mr. Uranga's
Navy friend, Mr. Luquis, who had left the FBI after filing a racial discrimination lawsuit, which has not been settled.
By last July, after completing the contract work, Mr. Luquis was hired at ERCOT.
Another contractor is hatched
Meanwhile, in the spring of 2003, plans were in the works for Cyberensics.
Mr. Uranga got in touch with Mr. Greer, a bankrupt farmer and rancher who had gone back to school at UT. They were classmates there and later worked at the same time at EDS and Austin software firm Vignette Corp.
On May 12, 2003, Mr. Greer incorporated Cyberensics, which soon landed a contract with ERCOT. It's unclear whether Cyberensics ever had contracts with other companies or organizations.
"I was contacted by Chris Uranga, and [he] asked me to set this corporation up," Mr. Greer, 45, wrote in his statement to his regular employer, Novotus LLC, a copy of which was obtained by The News.
Mr. Greer submitted his written statement June 14 as Novotus sought to distance itself from his activities at Cyberensics. He also told his employer that Mr. Douglas and Mr. Luquis were partners in Cyberensics.
The Cyberensics trail
Officials at Novotus, a Round Rock, Texas, job placement firm for high-tech workers, said they didn't know that Mr. Greer had started Cyberensics on the side.
Novotus' Web site lists state Rep. Phil King, R-Weatherford, as an advisory board member. Mr. King chairs the Texas House Regulated Industries committee, which has authority over ERCOT and the state's electricity industry.
Contacted by The News on June 13 about Mr. Greer's involvement with ERCOT, Mr. King said he knew nothing of Mr. Greer and also expressed certainty that Novotus had done no business with ERCOT. He referred questions to Novotus officials, who also expressed surprise.
The next day, Mr. Greer was fired for violating a contract clause prohibiting outside employment, Novotus chief executive Mike Mayeux said. The company then turned over Mr. Greer's statement and his work computers to DPS investigators.
After giving the statement, Mr. Mayeux said, Mr. Greer told him that he had been paid $80,000 out of Cyberensics' $1.3 million in revenue over the previous year.
Mr. Greer also identified the other two ERCOT managers as partners in Cyberensics and said he signed company checks after Mr. Douglas prepared them, according to Mr. Mayeux.
Mr. Greer declined to comment. His attorney, A. Scot Chase of Houston, said: "Mr. Greer would love to cooperate and would love the opportunity to tell his side of the story, but given this situation, he's not sure the newspaper is the place to do it."
Mr. Douglas' involvement in Cyberensics is also suggested in the Internet registration record for the domain name, Cyber-ensics.com. The record lists Mr. Greer as the contact with his home address and cellphone number. The e-mail address: Chris-- Douglas@hotmail.com.
Also, employment contracts distributed electronically to Cyberensics workers contained "metadata" - standard but hidden electronic identifiers - that indicated they were originally created by Mr. Douglas for ECT Global Solutions. At least one contract has been turned over to police investigators.
A start-up begins hiring workers
Within weeks of launching Cyberensics, Mr. Greer began approaching potential employees, casting his job net in a market teeming with displaced dot-com veterans.
Some workers said they got jobs inside ERCOT facilities based only on phone interviews without the background checks common for such sensitive positions.
Jeremy Molnar - one of four Cyberensics employees interviewed by The News - said the company hired him through the online job board Monster.com.
When Mr. Molnar and another early Cyberensics hire arrived, he said, ERCOT staffers weren't expecting them. Even though existing Cyberensics employees such as Mr. Molnar had little to do those first weeks on the job, the company kept adding staff, he said.
Workers said Mr. Greer had minimal interaction with the people he hired, often telling them he'd have to check with his partners before making decisions.
"He never said who his partners were," one worker said. "He was very close-mouthed. I've worked for some consulting companies before, and Cyberensics was very strange."
Recommendations about bolstering security made to Mr. Uranga "just didn't go anywhere," the worker said. "Obviously, if it got implemented, then that would've shown light in places they didn't want light shown."
Frustrated by unnecessary assignments, some workers offered their own ideas for improving security at
ERCOT. But Mr. Molnar recalled, "I'd write up detailed reports and they'd just get blown off."
ERCOT has said that complaints from employees and questions from a vendor sparked the organization's
internal inquiry in late March. On April 22 and 23, the Cyberensics workers were fired along with an undetermined number of other contract workers. A week later, Cyberensics was dissolved, according to state records.
On May 19, the day ERCOT delivered to DPS its internal report, ECT was dissolved.
A third contractor attracts attention
Investigators are in the early stages of reviewing other dismissed contractors. One of them, Tri Force Security Inc. of San Antonio, had a contract to provide security guards for ERCOT offices.
According to state records, the president of that company was Terry Warner of Eunice, La. Mr. Warner, who couldn't be reached for comment, is another Navy cryptologist who served with Mr. Nelson, Mr. Luquis and Mr. Uranga in Japan.
Tri Force's founding director was John B. Cavazos, a stage actor from San Antonio. Mr. Cavazos served with Mr. Uranga and the Navy men at Misawa Air Base in Japan, according to a person who knew the men there. Mr.
Cavazos didn't return calls left at his home and with his theatrical agent.
The mailing address listed with the state comptroller for Tri Force, which was dissolved May 17, was a private mailbox service in San Antonio.
Some reforms begin at ERCOT
Since a rare emergency meeting of the Texas Public Utility Commission early last month, ERCOT has released few details of what it has termed "vendor procurement irregularities."
The commission plans to hire independent auditors to review the grid operator's security systems, finances and management controls.
The agency will look at ERCOT's "critical internal processes" with the aim of identifying "improvements necessary to help restore the public trust," PUC Chairman Paul Hudson said in a written statement.
ERCOT started requiring background checks May 5 for all contract workers. That move was long overdue, but the organization still needs a major overhaul, consumer-advocacy groups said.
"Anybody who comes in with a flashy resume can make a deal," said Randy Chapman, executive director of the Texas Legal Services Center. "Where were these people in the chain of command? Where was the accountability?"
As a private nonprofit corporation, ERCOT has few of the controls or public disclosure requirements of government entities.
"There really needs to be a full, public investigation to find out exactly what's gone wrong with ERCOT management and what all this wrongdoing will be costing electric customers," said Carol Biedrzycki, executive director of the Texas Ratepayers' Organization to Save Energy.
"Right now, all the powers that be are meeting behind closed doors."
