Whistle­blow­ers slam fed­eral power agency, claim­ing cor­rup­tion, threats

The Arizona Republic - - FRONT PAGE - DEN­NIS WAG­NER THE REPUB­LIC | AZ­CEN­TRAL.COM

The re­ceipts just didn’t make sense: Em­ploy­ees at a fed­eral power agency in Phoenix were us­ing U.S. gov­ern­ment pur­chase cards to buy mil­lions of dol­lars’ worth of items from sport­ing­goods stores like Bass Pro Shops or Ca­bela’s, and from spe­cialty auto shops.

Am­mu­ni­tion. Scopes for as­sault ri­fles. En­gine su­per­charg­ers. Radar de­tec­tors. The mer­chan­dise had noth­ing to do with elec­tri­cal grids or trans­mis­sion lines.

Nate Elam, former as­sis­tant re­gional man­ager at the Western Area Power Ad­min­is­tra­tion of­fice in Phoenix, shakes his head re­mem­ber­ing his shock re­view­ing re­ceipts sub­mit­ted by his em­ploy­ees in 2014. Then he men­tions some­thing even more alarm­ing: In­stead of ag­gres­sively go­ing af­ter cor­rup­tion, Elam al­leges, WAPA’s bosses slow-walked the in­ves­ti­ga­tion, re­tal­i­ated against those who un­cov­ered fraud and failed to pro-

tect them from threats.

“You see stuff ev­ery­where,” said Elam, a 14-year fed­eral em­ployee who once worked for the U.S. At­tor­ney’s Of­fice. “But I’d never seen the cor­rup­tion — or the lack of want­ing to do any­thing about it — like I did in the De­part­ment of En­ergy.”

Keith Cloud, WAPA’s chief of se­cu­rity who worked with Elam to ex­pose cred­it­card abuse, said the sit­u­a­tion was har­row­ing due to a gun cul­ture within the agency. As some em­ploy­ees be­gan mak­ing threats and us­ing in­tim­i­da­tion tac­tics, Cloud said, ad­min­is­tra­tors de­layed pro­tec­tive mea­sures and held al­most no one ac­count­able.

“We asked them to look into all of this,” Cloud said. “What’s ap­palling to me is, I can­not pro­tect my staff, be­cause they just won’t do any­thing.”

Finally, af­ter FBI coun­tert­er­ror­ism agents be­gan in­ves­ti­gat­ing, WAPA’s Desert South­west Of­fice hired armed guards and com­mis­sioned a threat as­sess­ment.

Mark Gabriel, chief ex­ec­u­tive of­fi­cer for the fed­eral agency, says the en­tire con­tro­versy has been overblown, that the theft out­break was lim­ited and that re­forms are in place. He also noted that two former em­ploy­ees have been crim­i­nally charged in con­nec­tion with pur­chase-card ir­reg­u­lar­i­ties.

“Yes, there were crim­i­nal ac­tiv­i­ties, un­for­tu­nately,” Gabriel noted in a re­cent in­ter­view. “We in­ves­ti­gated our­selves, and we were able to ed­u­cate our­selves. I be­lieve it’s a piece of his­tory.”

Gabriel de­clined to ad­dress why his se­cu­rity chief, as­sis­tant re­gional man­ager and top pro­cure­ment of­fi­cer have jeop­ar­dized their ca­reers mak­ing con­trary al­le­ga­tions. Or why mem­bers of Congress are hound­ing his agency for an­swers. “There’s only one set of facts,” Gabriel said. “And I think the or­ga­ni­za­tion here has done a heck­uva job.”

A ‘slush fund’?

WAPA is a fed­eral gov­ern­ment agency within the U.S. De­part­ment of En­ergy. It mar­kets elec­tri­cal en­ergy to util­i­ties through­out the West. It spans an area equiv­a­lent to dis­tances from Paris to Moscow and from Athens to Oslo.

The mis­sion is to en­sure con­sumers get safe, clean and eco­nom­i­cal power for lights, air-con­di­tion­ers, fac­to­ries and plugged-in de­vices.

The $1.1 bil­lion agency em­ploys 1,454 fed­eral work­ers. They main­tain 17,000 miles of high-volt­age lines and 328 sub­sta­tions, trans­mit­ting power on be­half of util­i­ties such as Ari­zona Pub­lic Ser­vice Co. They mar­ket power from 57 hy­dro­elec­tric plants and Ari­zona’s coal-fired Navajo Gen­er­at­ing Sta­tion.

The op­er­a­tions are so vi­tal — and so sen­si­tive to po­ten­tial ter­ror­ism — that key em­ploy­ees re­quire top-se­cret clear­ances.

For three years, con­tro­versy has jolted the sys­tem. Al­le­ga­tions are spelled out in hun­dreds of records ob­tained by The Ari­zona Repub­lic, in­clud­ing in­ter­nal emails, con­gres­sional in­quiries, U.S. District Court files and whistle­blower com­plaints.

Cloud and Elam said the em­bez­zle­ment re­flects a larger prob­lem at the fed­eral agency — one that ul­ti­mately hurts con­sumers. They con­tend waste and mis­man­age­ment are ob­scured and ig­nored in part be­cause WAPA has built up a $767 mil­lion re­serve known as the “un­ob­li­gated bal­ance.”

Agency of­fi­cials as­sert WAPA needs a large backup fund to buy power if the hy­dro­elec­tric sys­tem is hit with short­ages caused by drought or dis­as­ter. While that is true, Elam and Cloud said the bal­ance be­came so huge, it served as a sort of slush fund. “It was a blank check. For years WAPA op­er­ated with no fi­nan­cial lim­its,” Elam said. “This al­lowed for all of the cor­rup­tion and lack of in­ter­nal con­trols and over­sight.”

Util­ity com­pa­nies in Ari­zona and Cal­i­for­nia have com­plained to Congress that WAPA is over­charg­ing them for power. In­ves­ti­ga­tors have been un­able to cal­cu­late how much con­sumers may have over­paid for elec­tric­ity as a re­sult, but 92 per­cent of WAPA’s fund­ing ul­ti­mately comes from res­i­den­tial and com­mer­cial users.

Ari­zo­nans get about 12 per­cent of WAPA’s power. Ac­cord­ing to agency records, WAPA’s util­ity cus­tomers have seen to­tal price in­creases over the past decade rang­ing from a high of 70 per­cent to a low of 10 per­cent. Tyler Carl­son, chief ex­ec­u­tive at Mo­have Elec­tric Co­op­er­a­tive Inc., said WAPA has en­gaged in “dou­ble bud­get­ing” — charg­ing util­i­ties $25 mil­lion to $30 mil­lion per year for ser­vices that are also paid via fed­eral ap­pro­pri­a­tions. “What it means is an abil­ity to spend money with­out a whole lot of strings,” he added.

Carl­son said the in­creased cost ul­ti­mately is borne by the con­sumer. “It has to be,” he noted. “It’s a trickle-down type of sce­nario.”

(Agency spokes­woman Teresa Plant said the term “dou­ble bud­get­ing” is a “mis­nomer.” “WAPA is not charg­ing cus­tomers for elec­tric ser­vice while, at the same time, re­ceiv­ing fed­eral ap­pro­pri­a­tions for that same ser­vice,” she added.)

Jorge Canaka, gov­ern­ment re­la­tions di­rec­tor for the Tempe-based Grand Canyon State Elec­tric Co­op­er­a­tive, said his as­so­ci­a­tion has been hit with an­nual WAPA rate hikes of around 7 per­cent while other re­gions are get­ting price re­duc­tions. Canaka said util­i­ties want greater trans­parency and in­put.

Records show WAPA of­fi­cials re­al­ized the sur­plus was an emerg­ing is­sue by 2013. One in­ter­nal memo ques­tioned whether to pub­licly dis­close a prac­tice that the U.S. Of­fice of Man­age­ment and Bud­get would view as a “back-door method of fi­nanc­ing.”

“Given that like­li­hood, we should not dis­close this,” the memo con­cluded. “It’s bet­ter to ask for­give­ness if OMB finds out than to ask per­mis­sion in ad­vance.”

A sub­se­quent re­port by the Gov­ern­ment Ac­count­abil­ity Of­fice said the En­ergy De­part­ment “should de­velop and fi­nal­ize strate­gies for re­duc­ing tens and hun­dreds of mil­lions of dol­lars of ex­cess un­ob­li­gated bal­ances.” The En­ergy De­part­ment’s strat­egy re­port, re­leased last fall, claims WAPA needs an even larger con­tin­gency: $818 mil­lion.

A ques­tion of se­cu­rity

Plant, WAPA’s pub­lic af­fairs chief, said the ad­min­is­tra­tion is com­mit­ted to “or­ga­ni­za­tional ex­cel­lence.” She said WAPA “con­tin­ues to iden­tify and im­ple­ment mea­sures to save money,” and blamed spend­ing in­creases on ef­forts to im­prove se­cu­rity.

“WAPA’s cus­tomers in Ari­zona ben­e­fit from the low­est whole­sale costs that we pro­vide through our ded­i­ca­tion to im­prov­ing busi­ness prac­tices,” Plant added in an email.

This year, WAPA’s fi­nan­cial con­di­tion is so ro­bust, the agency re­turned $429 mil­lion to the U.S. Trea­sury and still re­tained a huge sur­plus, ac­cord­ing to its an­nual re­port.

Cloud said the money glut is es­pe­cially per­plex­ing be­cause the power sys­tem is un­safe — vul­ner­a­ble to ter­ror­ism and other breaches — due to an un­der­funded se­cu­rity pro­gram. Sev­eral power sub­sta­tions, in­clud­ing one near Phoenix, have been com­pro­mised in re­cent years. Cloud said in­trud­ers “lit­er­ally tore the door off the back of the (Phoenix-area) sta­tion like it was a sar­dine can.”

To pre­vent a po­ten­tial catas­tro­phe, Cloud said, the agency needs $90 mil­lion for fenc­ing, cam­eras, alarms, per­son­nel, com­puter pro­tec­tions and other de­fen­sive sys­tems.

An in­spec­tor gen­eral re­port re­leased last April noted that pre­vi­ous re­views in 2003 and 2010 deter­mined WAPA had not com­pleted risk as­sess­ments or se­cu­rity as­sess­ments. In­ves­ti­ga­tors said the agency “had not placed suf­fi­cient em­pha­sis on phys­i­cal se­cu­rity.”

Gabriel, the agency CEO, said the power grid is well-de­fended. He said spend­ing for cy­ber and phys­i­cal se­cu­rity has in­creased dra­mat­i­cally, and WAPA plans to in­vest about $10 mil­lion an­nu­ally over the next decade.

Law­mak­ers in­ter­vene

Last sum­mer, Repub­li­can Ari­zona Sens. Jeff Flake and John McCain sent a let­ter to the De­part­ment of En­ergy in­spec­tor gen­eral de­mand­ing to know if WAPA em­ploy­ees were held re­spon­si­ble for em­bez­zle­ment.

A month later, the sen­a­tors com­plained of in­ac­tion and said WAPA’s in­tegrity is in jeop­ardy. “We are deeply trou­bled by the fact that DSW (Desert South­west) has not fully im­ple­mented changes to its pro­cure­ment prac­tices,” they wrote.

The two sen­a­tors have pro­posed leg­is­la­tion de­signed to force open­ness in WAPA fi­nances.

McCain re­cently told The Ari­zona Repub­lic via email, “While WAPA pur­ports to pro­vide af­ford­able power for Ari­zo­nans, the agency’s over­head has sky­rock­eted in re­cent years due to wide­spread waste and mis­man­age­ment, and it has passed on th­ese costs to con­sumers in the form of high en­ergy bills. This abuse of fed­eral power is un­ac­cept­able.”

In Oc­to­ber, Rep. Ja­son Chaf­fetz, RU­tah, chair­man of the House Com­mit­tee on Gov­ern­ment Over­sight and Re­form, chimed in with a let­ter to Gabriel seek­ing records from “an in­ves­ti­ga­tion into al­le­ga­tions of fi­nan­cial and fa­cil­ity mis­man­age­ment.”

Gabriel, whose com­pen­sa­tion pack­age to­tals $547,000, told The Repub­lic early this month that dis­agree­ments with Congress are be­ing re­solved.

Crim­i­nal charges

Con­tro­versy sur­faced in 2013 at WAPA’s re­gional of­fice in Phoenix, where au­di­tors found lax fi­nan­cial con­trols.

The En­ergy De­part­ment’s au­di­tors, us­ing a com­bi­na­tion of re­ceipts and pur­chase-card records, cor­rob­o­rated at least $6.8 mil­lion in what was later de­scribed as ques­tion­able, “po­ten­tially fraud­u­lent or im­proper trans­ac­tions.” Western of­fi­cials con­tend out­right thiev­ery in­volved a much smaller amount. But Elam and Cloud say the au­dit ex­am­ined only a frac­tion of pur­chase-card ex­penses over a two-year pe­riod. A com­plete re­view, they said, would ex­pose other crimes and losses in the “tens of mil­lions of dol­lars.”

In­stead of do­ing a full sweep to change the cul­ture, in­ter­nal crit­ics said, the agency tried to bury its scan­dal. Nearly all the per­pe­tra­tors went un­pun­ished, along with su­per­vi­sors who failed to pre­vent or de­tect the scams. And, ac­cord­ing to a sec­ond au­dit, prob­lems con­tin­ued. From De­cem­ber 2014 through Oc­to­ber 2015, in­ves­ti­ga­tors iden­ti­fied more than 11,600 po­ten­tially fraud­u­lent trans­ac­tions. One em­ployee picked up 2,000 rounds of am­mu­ni­tion for a .308 ri­fle. Oth­ers tricked out gov­ern­ment and per­sonal ve­hi­cles with fancy wheels and el­e­vated sus­pen­sion sys­tems. Re­ceipts dis­ap­peared. So did the mer­chan­dise.

Vir­tu­ally none of the stolen money has been re­cov­ered. WAPA says two Desert South­west em­ploy­ees and one su­per­vi­sor were dis­ci­plined for pur­chase-card mis­con­duct. One was fired.

Another was charged crim­i­nally af­ter he re­signed: Ge­orge L. Molina Jr., a former main­te­nance trans­mis­sion spe­cial­ist, is sched­uled to be sen­tenced in April for theft of pub­lic money. Ac­cord­ing to U.S. District Court records, Molina ac­counted for more than $174,000 in pur­chase-card losses, buy­ing an all-ter­rain ve­hi­cle, firearm ac­ces­sories and a John Deere lawn trac­tor. His of­fenses carry a sen­tence of up to 10 years, but pros­e­cu­tors will rec­om­mend no prison time un­der terms of a plea agree­ment that re­quires pay­ment of resti­tu­tion. A sec­ond WAPA em­ployee, Ja­son Hardy of Colorado, has a hear­ing sched­uled March 29 to change his plea to guilty. Hardy, an elec­tronic-equip­ment crafts­man, is un­der in­dict­ment on charges of fraud­u­lently buy­ing more than $37,000 in items such as ham ra­dio gear, a bi­cy­cle and cloth­ing.

Whistle­blower threats

In late 2015, as whistle­blow­ers pressed for ac­count­abil­ity, sus­pected em­ploy­ees al­legedly be­gan fight­ing back with threats and in­tim­i­da­tion. Elam said there were nasty mes­sages and his ve­hi­cle was tam­pered with twice.

In emails dur­ing late 2015 to Ron Moul­ton, se­nior vice pres­i­dent for the Desert South­west Re­gion, Elam noted the am­mu­ni­tion pur­chases and urged a threat as­sess­ment. He also re­quested a home se­cu­rity sys­tem.

He said FBI agents con­firmed a dan­ger of work­place vi­o­lence. Con­cern was mag­ni­fied, Elam added, be­cause his wife suf­fers from a rare med­i­cal con­di­tion that blocks the pro­duc­tion of adren­a­line. The ill­ness, ex­ac­er­bated by stress, can be life-threat­en­ing.

Elam was not alone. In an email at the time, Ge­orge Kel­ley, former WAPA vice pres­i­dent for pro­cure­ment, wrote that dur­ing 30 years as a gov­ern­ment worker he had “never seen any­thing like this and cer­tainly have never felt un­safe at work like I do at Western (WAPA) on a daily ba­sis.” (Kel­ley, who de­clined to com­ment, was ter­mi­nated and then re­in­stated af­ter fil­ing a claim with the U.S. Merit Sys­tem Pro­tec­tion Board. He re­signed from WAPA late last year.)

Finally, in late 2015, an in­de­pen­dent con­sul­tant did a vi­o­lence as­sess­ment. WAPA re­leased a ver­sion with key por­tions redacted. Ac­cord­ing to an unredacted copy of the re­port ob­tained in­de­pen­dently by The Repub­lic, the blacked­out find­ings con­cluded: “Mul­ti­ple em­ploy­ees re­ported hav­ing been threat­ened di­rectly or heard oth­ers be­ing threat­ened re­gard­ing the cur­rent in­ves­ti­ga­tions . ... Sev­eral in­di­cated they had not both­ered to re­port the in­ci­dents for rea­sons of fear and/or the be­lief up­per man­age­ment would not act.”

The re­port cited a his­tory of threats and “min­i­mal” dis­ci­plinary re­ac­tion. “Be­cause of past fail­ures to ad­dress th­ese is­sues more se­ri­ously,” it con­cluded, “it is very likely the in­ci­dents will in­crease in num­ber and sever­ity.”

Elam even­tu­ally had to buy his own home se­cu­rity sys­tem be­cause WAPA wouldn’t. On Dec. 20, 2015, he re­signed with a warn­ing about con­tin­ued dan­ger

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