Perot Says Firm Acted Within Law

California Atty. Gen. Bill Lockyer has subpoenaed Perot Systems Corp. for more information about the company’s role in marketing techniques to exploit weaknesses in the state’s electricity markets--an activity that Chairman H. Ross Perot described Thursday as legal and sanctioned by state power grid officials.

Perot’s firm, which helped develop the computer systems for the California Power Exchange and the California Independent System Operator, shifted into overdrive Thursday as it tried to repair damage to its reputation and stock price, which fell an additional 11%, on top of a 19% drop the day before.

Perot Systems’ stock closed Thursday at $12.90 a share, down $1.65 on the New York Stock Exchange. In all, the Plano, Texas, computer services company lost about $539 million in market value Wednesday and Thursday after state Sen. Joseph Dunn (D-Santa Ana) released a 44-page computerized sales presentation produced by Perot Systems’ energy services unit, touting ways to boost profits in California’s electricity markets by taking advantage of holes in state market rules or protocols.

Specific bidding practices to affect power prices are discussed in the document. On one page, the document says, “Gaps in the protocols provide for opportunities for increased profits.� Elsewhere it notes, “Bid capacity in one market and withhold in others.�

The document unleashed a political uproar, and Gov. Gray Davis called on federal regulators to investigate the allegations.

In an interview, Perot said in the two days since the document was released to The Times, the firm had contacted six or seven former employees from its disbanded energy services unit. He said current and former executives would cooperate in the investigation.

Perot, a two-time U.S. presidential candidate, said his company developed the energy marketing techniques based on publicly available information about California’s deregulated energy market--including filings with the Federal Energy Regulatory Commission.

He said his company had no inside track on information based on the work it did for Cal-ISO and the now-defunct California Power Exchange, which consisted of serving as project manager for the massive software-development effort, integrating computer systems, helping identify weaknesses in the system and developing solutions for them.

“We want to set the record straight and everybody is free to come down and look with a microscope or whatever they want to bring and when they’re done they’re not going to find that we did anything wrong,� Perot said.

Lockyer’s spokeswoman declined to comment because the investigation is continuing. Perot said he telephoned Lockyer on Thursday to assure him of the company’s cooperation. Perot also telephoned Dunn on Wednesday and offered to testify before Dunn’s committee, which is investigating price manipulation in California’s energy markets.

Perot said in the conference call with Wall Street analysts Thursday and in a subsequent interview that the company he founded in 1988 shared no confidential information with market participants but instead was making sales presentations about a software it intended to develop to help power sellers “trade better� and “follow the rules� in California’s newly deregulated energy market.

Although the document released by Dunn bears no date, Perot Systems was making presentations to utilities and power sellers in 1997 and 1998 but was never successful in selling its product, company executives said.

California officials, he said, are looking for a scapegoat for their market’s problems.

Russell Freeman, Perot Systems’ chief financial officer, said the company is unsure who produced the document, but market experts formerly employed by the company have assured them that these were old loopholes that had been corrected by the time the document was written.

Perot Systems received written permission in 1997 in a series of letters from Cal-ISO’s executive director at the time, Jeffrey Tranen, to make similar presentations to market participants, according to company executives. However, Cal-ISO stipulated that no confidential information could be disclosed and an “ethical wall� would have to be erected to prevent the sharing of such information.

The letters setting the terms for the marketing effort were included in a document filed Thursday with the Securities and Exchange Commission. In the initial letter, dated Oct. 22, 1997, Tranen said Cal-ISO had received complaints that Perot Systems was attempting to teach market participants “to exploit the new California energy market by exploiting potential weaknesses and shortcomings in the ISO’s system to their commercial advantage.�

If Perot Systems were to use inside knowledge gleaned from working at Cal-ISO, that would violate a confidentiality agreement, he said.

Cal-ISO lawyer Charles Robinson said everyone involved in those negotiations has left the nonprofit company and “I can’t second-guess past management.�

Although Cal-ISO officials think the Perot marketing presentation contains no proprietary information, they have not analyzed it closely enough to determine if Perot Systems was pointing out weaknesses that existed at the time or was merely giving examples of past loopholes that were plugged, he said.

Dunn was not satisfied by Perot’s explanations.

“Mr. Perot was speaking to the investment community ... in a desperate attempt to avoid the death spiral in his stock,� Dunn said. “Perot Systems set up the computer system and knew of its errors and marketed it to the market participants. That was wrong.�

Cal-ISO, whose board included power sellers, was not in a position to give its blessing to such sales presentations, he said. Cal-ISO “doesn’t see itself as a regulator, it sees itself as a facilitator,� Dunn said.

Dunn said claims that the loopholes were fixed is “total Perot Systems fantasyland� because Enron Corp. used similar games to fake congestion along transmission lines to boost profit.

Perot Systems does not believe it made the sales presentation to Enron, Freeman said. The last formal work for Enron occurred in 1994, when Perot Systems was paid $3,000 for computer support services, he said.

Also Thursday, Perot Systems announced a plan to buy back as much as $50 million in company stock, and repeated previous earnings guidance of 17 cents to 18 cents a share for the second quarter and 71 cents to 76 cents a share for the full year.