Clip 5: Former ERCOT officials indicted / Contractor also charged; crime scheme alleged inside grid operator
The story announcing the indictments that followed from our reporting.By SUDEEP REDDY and PETE SLOVER
A grand jury in Williamson County issued 23 indictments Friday against six people in what the Texas attorney general called an "elaborate organized crime scheme" inside the state's electricity grid operator.
The five former top managers and one contractor at the Electric Reliability Council of Texas billed the organization $2 million for work by security and computer-contracting companies, even though much of the work was not performed.
The activities were first detailed last summer by The Dallas Morning News, drawing intense scrutiny of ERCOT's financial controls and security practices.
"The maze of illicit business dealings going on within ERCOT over a year's time is simply stunning," Attorney General Greg Abbott said.
The indictments handed up by the special grand jury charge the former ERCOT workers with engaging in organized criminal activity, "including the misapplication of fiduciary property, commercial bribery and theft by receiving stolen property," the attorney general said.
Most of the offenses are first-degree felonies with punishments ranging from five to 99 years or life in prison.
At a news conference Friday, Mr. Abbott said the former ERCOT officials "engaged in a pattern of lies, deceit and kickbacks dating back to 2003."
The indicted ERCOT officials "set up multiple shell companies with puppet presidents" to provide services to the grid operator, Mr. Abbott said.
The former ERCOT workers indicted Friday all left the organization by last summer. They are Kenneth Shoquist, 52, chief information officer; Steve Wallace, 44, program development director; Chris Uranga, 37, director of information technology operations and corporate security; Chris Douglas, 46, senior manager, data warehouse; Carlos Luquis, 37, physical security manager; and John Benito Cavazos, 33, a non-employee contractor and director of a security contractor.
Mr. Wallace did not return messages left at his home and on his cellphone. Mr. Cavazos did not return a message left on his answering machine.
"I'm just starting to hear about it, so I really have no comment," Mr. Uranga said when reached on his cellphone after the announcement.
Phone numbers that have previously worked for Mr. Shoquist, Mr. Luquis and Mr. Douglas were all disconnected.
All of the former ERCOT officials joined it as it grew rapidly with the turbulent introduction of electric competition in Texas in 2002. ERCOT's mission is to maintain the reliability of the Texas electricity grid and coordinate key pieces of the state's $20 billion deregulated electricity market.
The charges against the former workers involve bogus billings and funds collected through four companies they allegedly controlled, including ECT Global Solutions Inc., Cyberensics Corp. and Tri Force Security Inc.
False billing alleged
The News reported in June that three top ERCOT officials had founded ECT Global and had been paid under an ERCOT contract for security work. The News also identified Cyberensics and Tri Force.
In a separate false-billing scheme uncovered by The News in July, a different consulting firm - DSS Group, directed by Mr. Wallace - billed the grid operator for work by people who said they never performed any services. One person listed on billing records died long before his supposed work under that contract began.
The attorney general said DSS Group sent ERCOT 13 invoices totaling $951,000 for work supposedly performed. Only one person is known to have done any work for DSS - Mr. Wallace's nephew.
In an interview last summer, Mr. Wallace described Mr. Shoquist as a longtime friend who recruited him to ERCOT. Both executives had worked together at Dell Financial Services before joining the grid operator.
Once inside ERCOT, Mr. Shoquist and Mr. Wallace reported directly to ERCOT's chief executive. The other insiders ultimately reported to Mr. Shoquist.
Mr. Shoquist was charged with getting more than $100,000 from organized criminal activity and a criminal conspiracy involving payments he approved to Mr. Wallace's firm, DSS Group. He's also charged with accepting a $120,000 bribe from DSS.
Mr. Wallace was charged with receiving more than $800,000 through a criminal conspiracy, organized criminal activity and bribery for the $120,000 paid to Mr. Shoquist by DSS. In addition, he could face revocation of his probation from a prescription drug abuse conviction in Virginia.
Mr. Luquis and Mr. Uranga are former Navy cryptologists who served with Mr. Cavazos in Japan. Mr. Uranga held a top-secret government clearance and performed work for the National Security Agency. Mr. Luquis is a former FBI agent.
Mr. Douglas, Mr. Luquis and Mr. Uranga were all charged with six similar counts of organized criminal activity. Their activities allegedly netted more than $100,000 for Mr. Luquis and more than $300,000 each for Mr. Douglas and Mr. Uranga.
Mr. Cavazos, allegedly installed by the others to run Tri Force, faces one charge of misapplying ERCOT money, including nearly $9,000 he took from Tri Force.
A Department of Public Safety spokeswoman said late Friday that authorities were finishing paperwork to arrest the defendants. In addition, she said, officers were searching two locations in Travis County and two in Round Rock, with search warrants allowing seizure of computer equipment, banking records and other potential evidence.
The DPS and Mr. Abbott said steps would be taken to force the defendants to give up homes and other assets obtained with proceeds from illegal activity.
ERCOT chief executive Tom Schrader, who took his post in late July, called Friday's indictments "a relief for the organization."
"These are individuals who intentionally took advantage of a situation," Mr. Schrader said in an interview. "They used their technical expertise to gain trust and in essence abuse that trust. Seeing the process of bringing them to justice is encouraging to people."
Reforms sought
A state legislator who chairs the House committee overseeing ERCOT and utility regulation said lawmakers will ensure that promised reforms at ERCOT take place.
"I'm very, very disappointed that the [ERCOT] board was not providing the oversight of management operation that it should have been," said Rep. Phil King, R-Weatherford.
After an internal investigation last spring, ERCOT told DPS and the Williamson County district attorney of its findings. DPS launched an investigation, and in late November a state district judge appointed Mr. Abbott as a special prosecutor to handle the matter. At the same time, the judge seated the special grand jury in Williamson County, where ERCOT has its primary control center. ERCOT's headquarters are in Austin.
ERCOT's board established a special committee once the investigation became public. Directors have said that the organization's "start-up" mentality and focus on making the market work had allowed some employees to avert ERCOT's controls.
The nonprofit organization's $126.9 million annual budget is funded by mandatory fees paid by electricity customers or their power providers.
Officials have stressed that the illicit activities did not result in any breaches in grid reliability or the accuracy of market data.
But with the organization shaken up by the scandal, ERCOT has also faced a wave of departures since last summer by people who were not believed to have been involved in any wrongdoing.
The Texas Public Utility Commission, which regulates ERCOT and the industry, ordered independent audits of ERCOT's security systems and business practices. Those showed widespread holes in the organization's financial and management controls, which officials are now trying to plug.
"We are well on our way to correcting the controls and the process and procedure elements that enabled this to happen," Mr. Schrader said.
Mr. Abbott, the attorney general, said the case is "far from over" and additional indictments may come down in the future.
"These indictments send a very clear message to the people in positions of power across the state of Texas," he said. "If you take money illegally like these individuals have, you, too, will be held accountable."
