Bad Policy, Big Bucks

How Pataki's Disastrous Energy Plan Fattened His Friends and Campaign Coffers

Even Mahoney, the campaign consultant who is now running his third consecutive Pataki campaign, joined the feast, forming a lobbying firm called Mercury Enterprises with Al D'Amato, Pataki's pollster Greg Strimple, and ex-D'Amato aide Kirill Gonacharenko. Their only registered client in New York until this April was Energy East, perhaps the state's biggest beneficiary of deregulation, whose skyrocketing return on equity has launched it on a recent buying binge, acquiring utilities all over the Northeast, including Rochester's.

Another D'Amato company, Park Strategies, represented Florida Power & Light, which signed a long-term, no-bid purchase agreement with the state's Long Island Power Authority to build a small plant in Far Rockaway after Enron pulled out of the deal. A third D'Amato lobbying firm, D&O Consulting, is a partnership with O'Mara, who's been closely associated with D'Amato since the first senate election in 1980. While O'Mara represents NiMo in his own name and the name of his Elmira-based law firm, Davidson & O'Mara, D&O does not report representing any energy-related clients.

Mercury, which lists Mahoney as its chief administrative officer, was retained by Energy East in 1999, more than a year after its original deregulation contract was negotiated with O'Mara and after D'Amato was defeated in 1998. The contract called for annual payments of up to $120,000, but also provided for "additional compensation"—to be negotiated—"regarding activities that Consultant may undertake in connection with possible acquisitions and/or mergers."

Energy East is not answering any questions about what Mercury did for it, but the lobbyists' state filings listed D'Amato and his son Christopher, and indicated that they lobbied the PSC throughout the period that the commission was considering both the Rochester merger and a new five-year pricing plan. A month after the merger and plan were approved on February 26, Mercury's contract was terminated. Not only did the PSC approve the merger, it allowed Energy East's wholly owned subsidiary, New York State Electric & Gas, to take a 15.5 percent return on equity, far more than the 10.3 percent simultaneously allotted to Central Hudson, a similarly situated upstate utility.

While the plan did result in a rate drop this year, its opponents, including Nucor Steel, charge that some rates will go up in January, right after the election, and that the agreement locks in artificially high prices and "extraordinary" profits for five years, longer than most PSC settlements.

The Tonko report also raised questions about another crucial consequence of the merger approval—Rochester, the state's best-run utility and the only one to insist on retaining control of their plants in deregulation, was pushed by the PSC to divest. The commission, chaired by Maureen Helmer, a longtime staffer for the Republican senate and assembly who was groomed for the PSC chair as O'Mara's counsel, ignored all the lessons apparent from the earlier sell-off of plants. Ratepayers, Tonko insists, "will be somewhat shielded from the crisis by [Rochester's] retaining its current corporate structure," controlling generation as well as transmission.

The other curious state action taken during D'Amato's representation of the company was SUNY-Binghamton's decision to pay $6.1 million for a 50-year-old Energy East office building located near its campus. University president Lois DeFleur, an Energy East director who lists the company as her only individual stock holding on state filings, says she recused herself on the no-bid deal, though her counsel concedes he kept her informed about it. Rejected at first by the PSC, the state comptroller's office, and the attorney general, the deal was revised and eventually pushed through on an emergency basis last June.

A letter from Assistant Attorney General Henry DeCotis two days before the deal's approval objected to paying $144,000 more than the value determined three years earlier by an appraisal DeCotis found unacceptable. It also assailed the special terms of the deal, which permit Energy East to continue using both the office and its parking space for $50 a year, and so constricted the university's parking access that it "might well make the building unmarketable." "What is the value of an office building in a suburban setting without adequate parking?" DeCotis plaintively asked.


Strangely, the gravest intrigue about the energy deals of this administration involves a telecommunications company based in Syracuse that no longer exists, Telergy. Founded in 1995, it, too, was represented by D'Amato. O'Mara became a "senior adviser" to the company, and a director with an option to buy 30,000 shares, a few months after he left the PSC in 1998. Pat Barrett, the former head of the state GOP who's donated $261,600 to Pataki and the party since 1998 (including his wife's donations), was the president until he, O'Mara, and Democratic National Committee chair Terry McAuliffe, who was also an investor and director, resigned in August 2001.

The company, which built a network of more than 2500 miles of fiber-optic lines, was liquidated, with over $600 million in liabilities, this January. Its business plan utterly depended, from the beginning, on its ability to join forces with utility companies so it could obtain the rights to build its network along the poles and underground transmission units that the utilities controlled.

Not only did Telergy sign exclusive contracts with the very utilities O'Mara cut individual deregulation deals with at the PSC—at least three utilities became Telergy partners. NiMo and Telergy joined forces first, with NiMo getting 25 percent of one Telergy subsidiary in 1996, and eventually investing $44 million that it had to write off when Telergy went belly-up. Two NiMo executives sat on Telergy's board.

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