Business as Usual

Despite a deregulated energy market, Houston is sticking with the home team

For a month, a special evaluation team pored over proposals for one of the city's largest contracts: a three-year deal, valued at roughly $324 million, to handle all of Houston's municipal electrical needs.

The city's consultants finally reached their conclusion by the end of March: Maryland-based Constellation New Energy was the best company for the job.

Larry Baker, the city's building services director at the time, did his own evaluation and made his final recommendation in a memo to Mayor Bill White. Constellation, he wrote, was the most qualified bidder.

Two weeks later, City Council awarded the contract in a unanimous vote -- to Reliant Energy.

At the time, that decision raised enough questions that Baker visited council to try to explain his choice; White patiently explained why he'd taken another path.

That might have been the end, except for complaints from rival companies and the city's subsequent unwillingness to release the records that might clear up the details. That combination has caused conspiracy theories to fester.

As Stephen Brownell, the general counsel for AmPro Energy, wrote to Texas Attorney General Greg Abbott in July, "bizarre occurrences in this bidding process" led him to one conclusion: "Dark deals were being done in smoke-filled rooms."


Based in Houston, Reliant has long handled the city's electric supply. As with its most recent contract that expired in July, Reliant partnered with the Texas General Land Office, which provides the company with natural gas from state-owned land to fuel the generators.

Council and White decided to stick with the company for another three years on the recommendation of Issa Dadoush, a soft-spoken engineer who replaced Baker as head of the building services department on April 1.

Vetoing Baker's selection was one of Dadoush's first decisions as director. As he explains it, Baker had picked Constellation thinking it would take a full month to shepherd the contract through council. That made Constellation significantly cheaper -- about $950,000 less for each year of the contract, according to a memo written by the city's consulting firm, CDM.

But Dadoush was convinced he could get the contract passed in two weeks. In that window, Reliant was offering a discount, making it cheaper than Constellation.

It's hard to get details confirming that discount. Baker didn't return a call for comment, and his memo doesn't mention it. (According to council minutes, he did mention the discount before council's vote, putting the savings at $600,000, but said he'd still prefer Constellation.) The CDM memos don't mention it either, but that may be because the city blacked out information about both price and Reliant's proposal.

Even in their blackened state, the memos would never have come to light except for two small companies that were knocked out in the first round.

Prior to council's vote, AmPro Energy and Utility Choice Electric had requested records about the process and where their proposals had fallen short. Instead of answering, the city appealed the companies' requests to Attorney General Abbott. He agreed with the city, noting that the records were closed until the contract was approved.

There was just one problem: By the time Abbott got around to issuing his ruling, council had already approved the contract -- almost two months earlier, in fact. But instead of releasing the records, the city announced that it was canceling the requests.

Utility Choice Electric complained immediately to the district attorney. And AmPro demanded the same stuff a second time from the city, this time with more success.

Tom Kelly, a spokesman for the attorney general, says his office would have preferred that the city release information as soon as the contract was final, without making the companies ask again. "We like government to approach these issues in a spirit of open democracy," he says.

The released records only raised more questions. Take the first-round evaluation. That committee -- seven city staffers and a consultant -- evaluated the companies on stability, pricing and their plan to meet the requirements of WMBE, the women- and minority-owned business enterprises program, under which contractors are required to farm out a percentage of work to women- or minority-owned firms.

Some of the evaluators' conclusions seem odd. For example, AmPro is owned by a Hispanic woman and certified as a WMBE contractor. But Felix Johnson, the city's division manager in charge of electricity, gave the company one out of ten points on the question of whether it could meet WMBE goals. On the same question, Johnson gave Reliant a perfect ten.

Johnson explains that even WMBE-certified companies have to farm out part of their contract to subcontractors. But the city's request for proposals seems to indicate solely that 15 percent of the contract must go to a WMBE -- a percentage AmPro could exceed on its own.

Johnson concedes that he was comfortable working with Reliant thanks to its previous contract, which he personally supervised. He gave Reliant 87 points out of 100, eight points more than its nearest competitor.

Three committee members didn't even place Reliant in the top three; Reliant finished fourth, overall, in pricing.

In the final round, evaluators gave Reliant perfect scores for company stability, experience, customer service and billing, and its WMBE plan. The other finalists, Dallas-based TXU Energy and Constellation, are both larger companies, according to Forbes, with better bond ratings and a history of big municipal contracts. But they still got docked on experience and customer service.

Dadoush and Johnson defend the ratings. The city gave Reliant extra points because of its experience handling the current contract, they say. Also, the city asked the companies to prepare sample bills using existing account information. It's no surprise that Reliant -- which has been preparing such bills for three years -- scored higher than TXU and Constellation.

Those two categories alone were enough to boost Reliant's score seven points above its competitors. And that made the difference: In the city's final analysis, which compares all factors except price, Reliant beat Constellation by just four points and TXU by six. (Curiously, the city says it has no record of who participated in that final evaluation meeting.)

A Constellation spokesman says he has no problem with the process. But Carlos Santos, a spokesman for Dallas-based TXU, says Reliant had "more time to design the system and tailor it to the city's requirements." He adds, "We have handled larger accounts than the one from the city of Houston. We were just very, very disappointed."

Reliant, of course, is the hometown favorite. Its name is on Reliant Stadium; its political action committee has cut two generous $5,000 checks to Mayor White in the last year. When former building services director Baker faced City Council to explain his last-day memo, he said he'd decided to recommend Constellation in part because the mayor had instructed them not to "do business as usual."

"We think it's important that the city did business with the local provider," says Reliant Vice President David Roylance. "We've got to support our local companies. The mayor's been very outspoken about that."

Roylance's argument ignores the stated goals of deregulation: finding better deals, opening the playing field to new companies and breaking up old monopolies. But even White seemed to engage in hometown boosterism in his remarks to council April 13. He said he was supporting Reliant's proposal for three reasons: value and its commitments to diversity and to the community.

But Reliant's record on diversity is less than clear. AmPro's attorney, Brownell, asked the city for copies of the monthly WMBE reports that Reliant had been required to file under the old contract.

When the city finally released them, close inspection revealed that each document was part of a 27-page fax Reliant sent the city on May 27 -- weeks after Brownell's request and months after Reliant supposedly submitted the reports.

The report allegedly filed in September 2003 made reference to something that didn't happen until late October. Also, while the fax was dated February 11, 2004, it detailed the company's report for April.

Velma Laws, the city's affirmative action director, insists there's an innocent explanation: Her department started to "revamp" its processes in March or April, and realized it had somehow lost its entire Reliant file. So when Brownell made his request, the city contacted Reliant and asked it to resend whatever records it had, she says.

The episode caused Brownell to ask Attorney General Abbott to investigate both the entire bid process and Reliant for fraud over the fax misdating. Abbott's spokesman declined to comment on the request.

But Abbott did move on another matter. Last month, he told the city it must release the memos written by its consultants.

In the memos, released last week, CDM painstakingly detailed the pluses and minuses of the proposals from Constellation, TXU and Reliant. But the city blacked out the entire section about Reliant, even while releasing nonpricing information about the other companies.

The memos still seem to indicate that the consultants preferred Constellation. The company demonstrated "the most sensitivity to the city's needs and provided the city with most of the major contract terms sought," a CDM staffer wrote. He also rejected Reliant's supposed price advantage: "The cost difference for these two offers…is less than one percent of the estimated annual expenditure of electricity, so other factors are important."

City officials, alternately bemused and annoyed by Brownell's bomb-tossing, say they stand by their choice. But they still seem more interested in blocking information than clarifying matters.

For example: Last month, Reliant provided the Houston Press with fax cover sheets indicating it sent the city monthly WMBE reports on three occasions before Brownell's request in May.

The city might have records that concur with this. Then again, it might not. On August 6, affirmative action director Laws called to say she'd found a file containing additional documents about her department's dealings with Reliant. Because it seemed to be covered by the Press's original public records request, Laws offered to fax it over.

Six hours later, she called to apologize. The city had decided to appeal the records' release to the attorney general. She wasn't allowed to fax anything.

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