Newspaper inquiry finds deception goes higher at Texas electric-grid operator
The Dallas Morning News - July 18, 2004
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.
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 probe.
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."
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, starting
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.
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.
Mr. Wallace said DSS billings to ERCOT totaled in the "hundreds of
thousands of dollars," a figure consistent with records examined by The
News.
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.
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.
-----
To see more of The Dallas Morning News, or to subscribe to the newspaper, go
to http://www.dallasnews.com .