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SUNDAY, FEBRUARY 20, 2005
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Tapes: Gas marketer attempted to dupe DU

By Eric Fleischauer
DAILY Staff Writer

eric@decaturdaily.com 340-2435

Taped phone conversations between employees of the natural-gas marketer used by Decatur Utilities since 2000 indicate the company tried to dupe DU into signing a multimillion-dollar contract by predicting a windfall that it knew would not materialize.

DU entered the contract, according to DU General Manager Kem Carr, but not because DU fell for ProLiance Energy LLC's bait.

The taped conversations were among 1.4 million produced by ProLiance to lawyers representing Huntsville Utilities in a lawsuit. After hearing some of those calls, a federal jury in Decatur ordered ProLiance to pay Huntsville Utilities $33.5 million. The judge could increase the award to almost $50 million under federal racketeering laws.

THE DAILY reviewed numerous taped conversations after the trial.

The bait Harry Bush, a ProLiance employee, jiggled before DU and Huntsville Utilities was in the form of projected revenues from the Sipsey River Project, a proposed distribution facility that would pay Huntsville Utilities and DU for use of their pipelines to ship natural gas.

Bush explained:

"So what we said to (DU) was that we would give (it) a bonus of a million dollars over the course of three years if — and this is the big kicker, if — we got Sipsey River. Well, I'm not telling them yet, but Sipsey River died on the vine." Bush is now ProLiance's Southeastern sales manager, and in 2000 he was ProLiance's main contact person for DU and Huntsville Utilities. The phone call, between Bush and ProLiance gas trader Dan Buckner, was made on Sept. 26, 2000.

"What I'm going to do in the next month (is) get Sipsey River to write me a letter saying that, you know, it died," Bush continued. "All this was just marketing bulls---."

In a letter dated Sept. 5, 2000, Daniel Hargreaves, ProLiance's vice president of marketing, advised DU's gas, water and waste-water manager Gary Borden that ProLiance would give the Tennessee Valley Supply Group $1.5 million to divide among its members "subject to a signed agreement and payment by Sipsey River Natural Gas System." The TVSG included DU, Huntsville Utilities, and utilities in Cherokee, Russellville and Sheffield. Huntsville Utilities eventually left the group because of its dispute with ProLiance.

Three weeks after his letter to Borden, in a taped phone conversation with ProLiance's director of financial trading, Rich Maloof, Hargreaves elaborated.

"We went ahead and wrote the letter. We even knew before we wrote the letter that it wasn't going to happen. . . . But (DU) didn't know. They thought it was still up in the air," Hargreaves said.

Tom Morton, a spokesman for ProLiance, said Friday that both Bush and Hargreaves still work for the company. He said that ProLiance recorded conversations so that "if there was ever a question of any kind of financial transaction . . . there was a record to verify it." He said ProLiance still records phone calls.

The representations about Sipsey revenue were also included in a May 2000 proposal given to both DU and Huntsville Utilities.

Carr said Thursday that the Sipsey revenue looked attractive, but DU did not rely on the representations in signing the contract with ProLiance.

"We said, 'This Sipsey River thing looks good. Let's put it in the contract.' They wouldn't do that, which was a pretty good tip-off to us that it was fairly iffy," Carr said.

'Pie in the sky'

Carr said the decision to sign the contract had more to do with available options than promises of a windfall.

"The bottom line was, we had gone through half a dozen gas marketers and a lot of them were getting out of the business," Carr said. "In 2000, there were not a lot of alternatives to ProLiance. . . . Sipsey was pie in the sky. If there had been another marketer with a lower price, we would have gone with them."

Morton said he had not listened to the recorded conversations, but his company does not dispute their authenticity.

Morton said ProLiance has taken several personnel actions but he could "not discuss any specific personnel actions due to confidentiality."

"While we're not pleased by the tone and content of some of the conversations, we don't feel the excerpts . . . accurately portray our company," Morton said.

He said ProLiance, which operates in 18 states in the Southeast and Midwest, has not decided whether it will appeal the verdict.

Fear of audit

In another conversation, Hargreaves chastised David Lorenz, ProLiance's director of optimization, for failing to inflate the price of gas on an invoice sent to an unidentified customer.

"I thought I told you we were going to tack on a couple cents there?" Hargreaves said in the taped phone call.

Lorenz responded that he feared an audit if he inflated the price.

"The son of a bitches don't appreciate it anyway," Hargreaves said. "Don't be worried about audits and things like that, because nobody's going to do an audit. In these kind of contracts (where) we buy in and out, who knows?"

Carr said the complexity of natural-gas pricing does create an opportunity for fraud.

"It's complicated enough that you can make a lot of errors and not do it intentionally. If you just look at the invoice and say, 'Pay it,' and you get somebody unscrupulous, I can see it happening," Carr said. "But if that happens, I don't think you're doing very much due diligence in the process."

In an April 2001 conversation, Lorenz, referring to Huntsville Utilities, asked Bush if ProLiance could "loan them their own gas? . . . I thought it would be a creative way to make some extra money for not doing — for just shifting the numbers around."

'Dancing with devil'

In a June 2001 conversation with Maloof, ProLiance's vice president of finance Dan Short criticized Bush's methods.

"He thinks he's tricking the system, and we're going to get screwed out of a quarter million dollars. That's when it won't be laughable anymore," Short said. "He's bulls--- is what he is. . . . He's always dancing with the devil. He's going to get cooked, and it's going to be our money that gets cooked."

"I think we're breaking promises left and right," Short continued.

Marketer change?

Carr said, in light of the phone calls and jury verdict, he plans to contact other group members to see if they want to look for a different marketer. DU has that option because, when it renewed its ProLiance contract in 2004, DU added a clause permitting it to terminate the marketing agreement if Huntsville Utilities won the trial.

"If there are other (gas-marketing) companies out there," Carr said, "we could work up a new proposal from them. We'd have to decide if we want ProLiance to bid or not."

Review planned

Carr said DU has always been careful to verify all ProLiance invoices, but another review is in order.

"Since this has been brought up," Carr said, "we'll go back and see if we missed something. That's so much money, you have to check (the invoice) over and over and over, and be careful. That's not to say we didn't let something slip somewhere, somehow."

Some of the taped phone conversations suggested DU was more careful than other utilities in the group. In one, Hargreaves said DU managers were "the ones that want to go out and get 25 different legal opinions. . . . In a way, they were a pain in the hind end."

Carr smiled as he listened. "That one," he said, "you can publish."

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