Clip 4: Why did ERCOT pay a dead man?/ Exclusive: Morning News inquiry finds deception goes higher at grid operator
In this story, we exposed how one insider ran a company that submitted fraudulent billings, including my discovery of payments for “work” by a dead man.By SUDEEP REDDY and PETE SLOVER
AUSTIN -- A consulting firm billed the state's electricity grid operator for hundreds of thousands of dollars in services from people who didn't perform any work - including a dead man.
Stephen Clifton Wallace, a high-ranking manager at the Electric Reliability Council of Texas, had ties to the firm while he oversaw its work at ERCOT, The Dallas Morning News has learned.
The firm, DSS Group, charged for work from two people who said they had no idea why their names appear in billing records. A third supposed worker died months before DSS became an ERCOT contractor.
Only one worker at the firm is known to have performed any of the technology consulting work that ERCOT was paying for. He is Mr. Wallace's nephew.
Mr. Wallace, 44, who denies any wrongdoing, reported directly to ERCOT's top executive until he left in April.
He is on probation for a 1999 Virginia conviction for attempting to procure prescription painkillers, court records show.
DSS is one of the firms under scrutiny in a widening state police investigation into contracting activities at ERCOT, according to a government official familiar with the inquiry.
With DSS, there are now four firms that have been publicly connected to the expanding scandal. Mr. Wallace is the most senior ERCOT official to be linked to one of the companies.
The News reported previously that three top ERCOT security officials had ties to firms that received contracts from the grid operator. Those individuals and firms appear to have operated separately from Mr. Wallace and DSS.
A state Department of Public Safety spokeswoman said she couldn't comment on ongoing investigations. No criminal charges have been filed.
"From my standpoint, I'm confident that everything will be cleared," Mr. Wallace said.
The state's electricity providers directly fund ERCOT's $133 million annual budget through charges built into customer rates.
Consequently, nearly every Texan pays to support the grid operator, which is the nerve center of the state's $20 billion power industry.
As ERCOT's responsibilities have grown with deregulation over the last five years, legislators and watchdog groups have called for greater financial controls and better oversight of the organization's management.
The contracting irregularities, with their many unanswered questions, have led to even more calls for reform.
Asked to explain how the failures occurred, ERCOT officials have provided copies of their general policies. They have declined to discuss specific cases in detail, citing the police investigation.
In written testimony for a legislative hearing last week, ERCOT chairman Mike Greene said the organization has identified problems and is fixing them.
"We had a small number of rogue employees who took advantage of our trust and their fellow employees' trust," he said. He added, "Their employment has been terminated."
A senior ERCOT role
Mr. Wallace joined ERCOT early last year as director of program development, with a sweeping portfolio that included "coordinating all aspects of corporate programs, projects and risk management activities."
Mr. Wallace said he was recruited by Kenneth M. Shoquist, a longtime friend. Mr. Shoquist, ERCOT's chief information officer until May, also supervised the three security officials already linked to suspect contracts. The News found no evidence connecting Mr. Shoquist to the firms. He has declined to comment about his work at ERCOT.
In several interviews last week, Mr. Wallace changed his explanations of his business dealings after his claims were contradicted by people who he said would corroborate his answers.
Mr. Wallace founded a company called DSS Group in California in 1995, county records there show. It's unclear what kind of business DSS performed in its early days. Mr. Wallace, who held various technology consulting jobs, started running DSS from Virginia within a few years.
Soon, Mr. Wallace found himself in trouble with the law.
In February 1998, he was arrested for trying to illicitly obtain Valium, Percocet and Fiorinal with codeine from the pharmacy of a Rack & Sack grocery store in Richmond, Va., records show.
A year later he pleaded guilty to prescription fraud. The judge revoked Mr. Wallace's driving privileges for 18 months and gave him three years' jail time, suspended for 10 years on the condition of his good behavior, records show.
By the time of his sentencing, Mr. Wallace had moved to Texas and began running DSS in Austin.
DSS was working for Dell Financial Services, the financing arm of Dell Inc., in 2002. As chief information officer, Mr. Shoquist supervised the firm's work, according to a former DSS contract worker.
The Dell contract ended that August. In November 2002, Mr. Shoquist went to ERCOT as its chief information officer. Two months later, Mr. Wallace followed him as a senior manager.
Conflicting interests?
DSS became an ERCOT contractor within months of Mr. Wallace's arrival.
Mr. Wallace told The News that he informed both ERCOT chief executive Tom Noel and Mr. Shoquist that he would maintain his DSS ties and bring its employees into the organization as contract workers.
Mr. Wallace also said he sent them a memo outlining those terms. The News requested a copy of the memo, which Mr. Wallace couldn't immediately produce.
In a written statement, ERCOT flatly denied Mr. Wallace's assertions.
"Tom Noel never had a conversation with Steve Wallace about a connection with DSS or any other company, nor would he ever approve anything like that. It is in direct violation of our ethics policy."
Mr. Noel is retiring from his post as CEO on July 26.
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Mr. Wallace said DSS billings to ERCOT totaled in the "hundreds of thousands of dollars," a figure consistent with records examined by The News.
Eighth-grade classmates
A former ERCOT contractor could recall only one DSS worker on site: Mr. Wallace's 25-year-old nephew, Errin O'Connor, the primary DSS contact at ERCOT.
Mr. Wallace said Mr. O'Connor could provide information about the three other DSS contract workers. But Mr.
O'Connor said he knew little about the nature of their work.
One man whose name was used to bill ERCOT, Mike Sotir, lived decades ago on Tartarian Way in Sunnyvale, Calif., where Mr. Wallace grew up.
In the early 1970s, Mr. Wallace and Mr. Sotir lived across the street from each other as eighth-grade classmates at Sunnyvale's Mango Junior High School, according to Chip Sotir, Michael Sotir's brother.
The Sotirs moved in 1974 and never saw Mr. Wallace again, relatives said.
Mike Sotir was licensed as a construction contractor and as a real estate broker. He never worked in computer consulting, his brother said. He died of a heart attack in November 2002.
Months later, his name surfaced in DSS billings to ERCOT.
Chip Sotir puzzled over how that happened. He last knew Mr. Wallace as "one of the neighborhood gang" when they were kids. "I'd be curious if he just grabbed the junior high school yearbook and picked a name."
Mr. Wallace said he couldn't remember Mike Sotir. But he acknowledged that he attended Mango Junior High.
Borrowed identities
Two other supposed DSS contract workers had more recent ties to Mr. Wallace.
Both told The News they had once been Mr. Wallace's employees at DSS but had severed their relationships and were never involved with ERCOT work.
Asked whether he worked at ERCOT, Tim Pletcher of Austin said: "That is so far from the truth as to be laughable."
Mr. Pletcher said he had worked for Mr. Wallace at DSS as an independent contractor.
But, Mr. Pletcher said, that relationship lasted only from 2001 until August 2002. He said he rejected a subsequent overture to work for Mr. Wallace.
Mr. Pletcher said he learned in late May that his name appeared on DSS records at ERCOT. His lawyer sent a letter to Mr. Wallace demanding that DSS stop using his name and notify ERCOT he wasn't a DSS subcontractor.
DSS also billed ERCOT for contract work by Joshua Jeyasingh of Virginia. Mr. Jeyasingh once worked for DSS and later started a Virginia corporation by the same name after Mr. Wallace moved to Texas.
That's when all business ties ended, Mr. Jeyasingh said.
Mr. Wallace said last week that his DSS firm is a branch of the Virginia company.
Mr. Jeyasingh scoffed at the suggestion that his company had an Austin office or did any work for ERCOT. "I've been to Austin once, and that was probably in '98, '99," he said.
After complaints from employees and a vendor, ERCOT hired an outside lawyer in late March to conduct an internal investigation.
Mr. Wallace left ERCOT in mid-April. He said that he needed emergency knee surgery and that DSS never came up in final discussions with Mr. Noel. "I didn't want to come back afterwards," he said.
DSS' contract ended in May, Mr. Wallace said.
ERCOT declined to comment on his departure.
