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March 16, 2004
CASH FOR TRASH The Garbage and the Governor: Enron in Impeachment Inquiry
By ALISON LEIGH COWAN
LASTONBURY, Conn. � Most people who visit the town dump here do not seem to realize they are quite literally holding the bag for a piece of the Enron debacle every time they toss out their trash.
But now as Gov. John G. Rowland tries to stave off impeachment, the most expensive misjudgment of his tenure � a failed deal with Enron that cost the State of Connecticut $220 million � is generating attention on multiple fronts. It is the subject of lawsuits and inquiries by federal investigators, a state grand jury and the legislative panel that will recommend whether Mr. Rowland is impeached.
A suit filed in January by the town of New Hartford names the governor as a defendant and alleges that the Enron deal was but one way the state's trash authority, the Connecticut Resources Recovery Authority, was used to reward the governor and people close to him.
Billed in 2001 as an energy trade by the trash authority, because it involved electricity generated by burning trash, the deal has since been characterized by Attorney General Richard Blumenthal as an illegal, unsecured loan to a company desperate for cash. Residents in 70 towns and cities served by the authority, representing 30 percent of the state's population, are now paying higher bills to make up for the loss.
Connecticut was hardly the only state victimized by Enron. But Mr. Rowland's dealings with the trash authority and with Enron, as revealed in records, interviews and news accounts, reflect the ethical issues surrounding his administration writ large.
They involve a little-watched trash authority, run by one of the governor's top aides, whose stewards became adept at turning trash into cash for well-connected insiders; a law firm that was on both sides of the deal; and a politically astute company skilled at using contributions and contacts to gain influence and government contracts.
"It's another one of a series of relationships that the governor had with major state contractors and employees that raises all kinds of very legitimate questions," said Michael Lawlor, a Democratic member of the impeachment panel.
Mr. Rowland, a Republican, insists he did nothing wrong and played no role in the deal with Enron. The governor's spokesman, Dean Pagani, said the deal was approved by the entire trash authority board, Democrats and Republicans alike. "They all voted on it because it was seen as a good deal," he said. "Then Enron went bankrupt, and everything changed."
In the past, the relationship with Enron and the trash authority deals has dogged the governor but failed to gain traction as a major liability. Now, in the context of the ethical issues plaguing his administration, they are raising fresh questions about whether his administration habitually rewarded friends, contributors and powerful insiders. And this time the stakes are much higher than a hot tub or gutter work at a lakeside cottage.
Golden Trash
The town dump here is a marvel of efficiency and New England thrift. All day long, residents looking to save a few dollars by not hiring a hauling service arrive in cars full of trash.
The annual cost to unload is $90 to $210, depending on the size of the car. But the cost to throw away anything at home or at the dump is going up sharply here and in the 69 other towns and cities that send their trash to an incinerator in Hartford as partners in the Mid-Connecticut Project of the Connecticut Resources Recovery Authority, which arranged the Enron deal. "Someone should be held accountable," said Kevin Dalton, a Glastonbury resident.
The authority was established in 1973 simply to collect trash and burn it, producing electricity that it sold. But as a quasi-public entity, the trash authority has always had more freedom than state agencies do. Its employees could make more than government workers, and its expense account reimbursements were rarely looked at by state auditors. In those years, the governor appointed 4 of the 13 board members outright, and 3 more indirectly.
Under Mr. Rowland, the trash authority began to change. In 1997, he appointed his economic development commissioner, Peter Ellef, as the trash authority's chairman. Later that year, the governor also made Mr. Ellef his co-chief of staff.
Mr. Ellef, whose lawyer, Hugh F. Keefe, declined to comment, no longer works for the governor or the trash authority. He has been a central figure in the federal investigation into corruption in the Rowland administration ever since his deputy in the governor's office, Lawrence E. Alibozek, pleaded guilty last March to having accepted cash and gold coins in exchange for steering state business to favored contractors.
Under Mr. Ellef, the trash agency became involved with a lot more than trash.
Documents turned over to federal investigators last year show that it commissioned a compensation survey of other nonprofit groups, which was then used to argue for higher pay packages. The authority was extremely generous about expense reimbursement, covering everything from part of Mr. Ellef's stay at the Ch�teau Frontenac in Quebec to another executive's purchases at Toys "R" Us.
The authority also filled its ranks with politically connected people like Mary A. Bergenty, the girlfriend of William A. Tomasso, a construction executive whose company is at the heart of the federal investigation into bid-rigging. A recycling and enforcement supervisor, Ms. Bergenty did not return phone calls seeking comment.
The trash authority also began paying $4,000 a month plus expenses to Linda Kowalski, a Hartford lobbyist who had close ties to the governor's office and whom Mr. Rowland had asked to help raise money for the Republican Governors Association.
When some $27,000 of her spending was eventually questioned, the governor's office repaid some of it and Ms. Kowalski put $27,000 in escrow, pending resolution of the issue. Ms. Kowalski's lawyer, R. Bartley Halloran, said that all the spending was properly authorized, and that "she did not have anything to do with the Enron transaction."
Another one of the trash authority's early deals under Mr. Ellef was a $500,000 grant in 1998 to a consortium the authority formed with the National Geographic Society in Washington, to finance a program to teach geography. The chairman of the society at the time was Gilbert Grosvenor, a cousin of Mr. Rowland's.
Asked in February about the grant, the trash authority's current president, Thomas D. Kirk, said the authority was trying to get its money back.
Another deal involved transferring title to a fleet of trucks, potentially worth $1 million, to Connecticut Waste Processing in Plainville, Conn., in 2001.
Its owners, the Manafort family, had contributed heavily to Mr. Rowland's campaigns. Their company was supplying the drivers who used those vehicles to haul garbage from the trash authority's transfer stations to the incinerator in Hartford. The deal was described at the time as a way for the trash authority to lower its maintenance costs and reduce its liability. But it also allowed the company to use the trucks any way it wished during the contract and to keep them after it expired.
Mr. Kirk said the trash authority's new board was "not comfortable" with that decision and had him renegotiate it last year. In an interview, Jason Manafort, the company's president, said that the initial transfer of the trucks was requested by the trash authority solely to reduce the authority's potential liability. "There was no other motivation," he said.
But critics say the pattern of misuse of the authority's resources is clear. Barbara Surwilo, former mayor of the town of Rocky Hill, said the National Geographic deal should have been a tipoff.
"They made a run at that to see if they could get at the wealth accumulating inside C.R.R.A.," said Ms. Surwilo, whose town named the governor and other defendants in a lawsuit over the trash authority and then withdrew it, fearing that a suit against the governor could cost them approval of bond projects. "And when they found out how easy the pickings were, this whole deal with Enron was easy."
Enron's Opportunity
Connecticut was hardly the only state of interest to Enron, the energy giant, which became one of the most dazzling corporate success stories of the 90's before collapsing into accounting scandals and bankruptcy in 2001.
Under deregulation, utilities were to use their best efforts to unwind long-term supply contracts, like the one under which Connecticut Light and Power had to buy the steam that the Mid-Connecticut project's incinerator in Hartford produces as it burns trash.
Connecticut Light and Power was obliged to buy the steam for at least 8.5 cents a kilowatt-hour through 2012. Because the going rate was closer to 3 cents, the contract was highly valuable to the trash authority.
Connecticut Light and Power understood that it would have to pay to break the contract. On March 31, 1999, it signed a memorandum of understanding stating that it was prepared to pay the trash authority nearly $300 million to get out of the deal. The trash authority was unsure what to do with the windfall, but figured it would come up with a plan.
By April, state ethics filings show, Enron had engaged the law firm of Murtha Cullina, its frequent lobbyist in Connecticut. For years, the firm had also represented the trash authority as its general counsel.
One of its lead lobbyists was Michael Martone, an old friend of the governor. Mr. Martone had also worked in the governor's office during his first term and had been his political director for the 1998 re-election campaign. According to testimony by Mr. Ellef, it was Mr. Martone who introduced Enron to Mr. Ellef in the summer of 2000. Mr. Martone did not return phone calls seeking comment.
About this time, Enron also began donating heavily to the Republican Governors' Association, where Mr. Rowland was active. Between April and November 2000, Enron and people associated with it gave nearly $500,000 to the group's fund-raising arm, election filings show. The company also became a regular contributor to Mr. Rowland's campaigns.
The governors' group was just one way the company was working to win Connecticut's business.
One of its more successful gambits was hooking up with Anthony W. Ravosa Jr., a Republican fund-raiser from Glastonbury who later raised $50,000 for Mr. Rowland's 2002 re-election campaign.
Mr. Rowland has acknowledged that because of Mr. Ravosa, "a good friend," the governor played host to him and three Enron executives in his office on Dec. 18, 2000. The governor said the get-together was a chance to get acquainted and perhaps chat about a pet project, the use of fuel cells as an alternative energy source. He has said that the Connecticut Light and Power deal was never discussed.
Nonetheless, 10 days after the meeting in the governor's office, Enron made inroads on both fronts.
It signed a memorandum of understanding in which the state pledged to pursue a $124 million fuel cell deal, which would have entitled Enron to a 10 percent development fee. According to the New Hartford lawsuit, some of the construction work was to go to the Tomasso companies.
On Dec. 28, 2000, Enron had also insinuated itself into the deal with Connecticut Light and Power.
Here's how that deal worked. Connecticut Light and Power would put up $280 million in cash to buy out the contract. The trash authority would use some of that money to buy land and assets near the incinerator in Hartford and clean up the site. Most of the cash, $220 million, would be handed over to Enron.
On paper, Enron was promising to buy power from the incinerator. But the price was identical to what Connecticut Light and Power was agreeing to pay Enron for the same power, and the power was to be delivered to the utility, bypassing Enron completely.
Enron's only obligation was to pay $2.375 million a month to the trash authority until 2012. The payment was unaffected by commodity prices and was owed even if no energy changed hands. It was exactly what Enron would have paid had it borrowed $220 million at 7 percent annual interest. Using Enron satisfied the trash authority's desire to have an annual stream of payments to support the Mid-Connecticut Project, rather than a huge lump sum to manage.
If the directors of the trash authority board were fuzzy on the details, they may have had cause. The three-page summary of the deal given to the board spoke only of a "lump sum payment" to Enron. Nowhere did it mention that the payment was for $220 million.
And if the directors failed to realize that lending $220 million to a private entity exceeded their authority, as the trash authority's new management now contends, they have a likely excuse. Murtha Cullina, the same firm that was lobbying for Enron, advised the authority in a letter dated Dec. 28, 2000, that the transaction was proper.
William Prout, the lawyer representing Murtha Cullina, said the firm's representation of the authority was "appropriate in all respects." He said the claim against Mr. Martone in one lawsuit also "has no merit."
Holding the Bag
On March 31, 2001, $220 million of the money Connecticut Light and Power owed the trash authority was conveyed to Enron in a no-bid deal that left taxpayers with no protection in case of default.
Enron, which badly needed cash, spent the next eight months pushing other deals with the trash authority: the $124 million fuel cell deal that did not happen and a deal to buy paper for recycling at an unusually low price that did.
Throughout this period, Enron's donations to the governors' group and to Mr. Rowland's re-election campaign kept coming. For instance, on Oct. 16, 2001, the same day that Enron announced a $1.2 billion write-down, the Republican Governors' Association's fund-raising arm received a $60,000 gift from Enron, election filings show. Mr. Rowland had become the group's chairman 11 days earlier.
All in all, filings show Enron and its associates gave $686,222 to the governors' group's fund-raising arm and $57,750 to Mr. Rowland's election campaign in the 20 months before its collapse.
Harvey Valentine, a spokesman for the governors' group, said that his group had once been a subsidiary of the Republican National Committee, so that figure includes money that went to other national committee business as well as to the governors' group. He said Enron was one of at least 20 companies that made major donations in 2001.
The deal-making came to an abrupt halt on Dec. 2, 2001, when Enron filed for bankruptcy protection.
Since then the issue has flared intermittently, first when Mr. Rowland's Democratic challenger Bill Curry tried, mostly unsuccessfully, to make it a campaign issue, later when e-mails surfaced showing Mr. Rowland's involvement. Bankruptcy lawyers are trying to recover some of the lost money from Enron's estate. Connecticut's attorney general has sued 92 different parties he holds responsible, most out of state.
The trash authority is moving to cheaper digs. The legislature has replaced the entire trash authority board and changed it so the governor now names only 3 of its 11 members.
Now the Enron deal is getting a sustained look by those searching for evidence of corruption in the Rowland administration and by those looking for deep pockets to sue.
But the deal's very complexity, a feature it shared with many of Enron's transactions, has made it daunting to investigate, let alone understand. That is especially so with the impeachment panel's feeling some urgency to make its recommendations by this spring. "Whether or not it's possible to get one's arms around it in time to include it in the decision we need to make is hard to say right now," said Mr. Lawlor, a Democrat on the impeachment panel.
Still, in light of the other issues, the deal rankles now as never before and its political costs seem devastating, whatever the legal outcome.
Wilken Mahland, a retired wallboard salesman who was bringing his empty pizza boxes to the dump in Glastonbury recently, said he, for one, would love to have some answers. "I keep wondering how someone gives away $220 million," he said.
Still, he was not sure if lawsuits against the governor and his associates had much potential. "Who would we sue?" he asked. "What are we going to grab? His hot tub? What do we get, a motorcycle? These guys aren't worth $220 million put together."
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