KEELEY CONTROVERSY ENGULFS CONTRACTOR ON METRO RED LINE.

Byline: Patrick McGreevy Daily News Staff Writer

The largest shareholder in CalEnergy - the firm at the center of the controversy over city legal documents leaked by Deputy Mayor Michael Keeley - is a subsidiary of one of the prime contractors on the Metro Red Line subway project.

The relationship between CalEnergy and the Mayor's Office has been the focus of the political struggle between City Attorney James Hahn and Mayor Richard Riordan since disclosure last week that Keeley leaked a confidential city document to the firm when it was threatening to sue the city.

Kiewit Energy Co., a subsidiary of Peter Kiewit Sons' Inc., owns about a third of CalEnergy's stock, while the Omaha, Neb.-based parent company directs a business empire involved in an array of public works projects in Los Angeles.

One subsidiary, Kiewit Pacific, has city contracts worth more than $267 million - including the contract to expand sewage treatment facilities at the Hyperion treatment plant in Playa del Rey.

Another arm of the Kiewit firm was part of the partnership of Shea-Kiewit-Kenny, which was fired in July 1995 from the Metro Rail subway tunneling project in Hollywood after a sinkhole developed on Hollywood Boulevard. The partnership was paid $145 million for its work on the project before it was removed.

A separate partnership called Kiewit-Shea has kept its $90 million contract to build two subway stations.

Despite its role as a major contractor, Kiewit Pacific district manager Ted Barrette said the firm is not a political force in Los Angeles.

``We've done work for the city for 30 years,'' Barrett said. ``We're pretty well politically unconnected. I try to make sure we stay out of local politics.''

State Sen. Tom Hayden, D-Los Angeles, said the current investigation into Keeley's actions should look at the high-powered players with whom Keeley dealt to determine whether there was more to the deputy mayor's actions than trying to resolve a legal dispute.

``The questions in this case go beyond legal ethics to the world of corporate special interests which influence the public interest and taxpayer dollars,'' Hayden said in a statement. ``Was this a backdoor bailout for corporate interests with friends at City Hall?''

CalEnergy was one of six losing bidders in 1992 for a contract with the city Department of Water and Power to build a $300 million to $400 million geothermal power plant in Inyo County.

The deal was awarded to a seventh bidder, CalPine Corp., but the city subsequently negotiated a different deal with CalPine for geothermal energy, prompting CalEnergy to file suit in January claiming the bidding process was improper.

CalEnergy has annual revenue of $185 million and employs 500 people in the development of power plants, according to the Standard and Poor's Register. The firm, which has six geothermal plants in California, has been expanding into the Philippines and Indonesia.

Last year, CalEnergy took control of the San Diego-based Magma, another geothermal company, in a hostile takeover, solidifying its role in the market.

Kiewit Energy bought into the firm in 1991. David Sokol, who was president of Kiewit Energy at the time, is the chairman of the board and chief executive officer of CalEnergy.

Sokol himself is no stranger to the world of city contracting in Los Angeles.

In 1987, Sokol was president of a firm called Ogden Projects, which was selected by the city of Los Angeles to build the $235 million trash-to-energy incinerator in South Los Angeles known as LANCER.

Despite being lobbied heavily by interests supporting the project, Mayor Tom Bradley, also under pressure from neighborhood and environmental groups, decided in 1987 to cancel the project citing concerns over public health.

More recently, Sokol played a key role in lobbying Mayor Richard Riordan to support CalEnergy's bid for the geothermal contract at the heart of the controversial lawsuit.

In a letter obtained by the Daily News, Sokol wrote on June 21, 1994 directly to Riordan, asking him to consider CalEnergy's position as it competed for the geothermal contract that was eventually awarded to CalPine Corp.

``It would appear that the DWP proposes to enter into an amended development contract with CalPine without putting the project through an appropriate public bidding process,'' Sokol wrote, who also asked for a meeting with the mayor.

CalEnergy filed a lawsuit against the city Department of Water and Power on Jan. 16 charging that the agreement with CalPine was illegal because the bidding process was conducted unfairly.

Efforts to reach Sokol for comment were unsuccessful.

Riordan has said he did not know of Keeley's decision to give the confidential legal papers to CalEnergy on Sept. 8, 1995.

The mayor did not get directly involved in the dispute, said Noelia Rodriguez, Riordan's spokeswoman. She said the mayor first learned of the issue April 19 when City Attorney Hahn disclosed Keeley's action and called for the deputy mayor to be fired.

Keeley is facing demands by City Council members for his resignation after he obtained from Hahn a legal strategy paper on the city's position in the lawsuit, then gave it to CalEnergy's lawyers.

Keeley said he was only trying to help settle the lawsuit out of court. Mayor Richard Riordan has said ``an error was made'' by his deputy, but he felt Keeley was acting in the best interest of the city.

Under pressure from the council, he has ordered Deputy Mayor Robin Kramer to investigate with the help of former City Attorney Burt Pines.

Deputy City Attorney Stan Snyder has told a council panel that Keeley's release of the legal memo helped CalEnergy focus its legal case, which was later made in a lawsuit filed against the city.

Dale Shuster, a vice president of CalEnergy, defended Keeley's decision to share the memo.

``All Keeley was doing was trying to resolve this. He did nothing unethical,'' Shuster said.

Kiewit owns about one-third of the CalEnergy stock. The second largest shareholder in CalEnergy - with 5.82 percent of stock - is The Capital Group, an investment advisory firm whose executives and employees last year contributed $6,000 to Riordan's re-election campaign.

Chuck Freadhoff, a spokesman for The Capital Group, said the contributions to Riordan were made by individuals and not the firm itself. He said there was no effort to curry favor with Riordan on behalf of CalEnergy.

``I have no idea what employees do with their private resources,'' Freadhoff said.

Shuster said neither Kiewit nor The Capital Group had any role in dealing with Mayor Riordan's office during negotiations over a city contract sought by CalEnergy to build the geothermal power plant in Inyo County.

Shuster said CalEnergy has a strong reputation on its own as a leading developer of geothermal power and did not need the weight of the Kiewit name to get the mayor's attention.

THE KIEWIT CONNECTION

Kiewit Energy Co., a subsidiary of Peter Kiewit Sons' Inc., is the largest shareholder of CalEnergy Co. Inc. with 33.7 percent of the geothermal company's shares. In addition, a number of CalEnergy's directors have ties to Kiewit:

James Q. Crowe previously was president of Kiewit Industrial Co. and serves on Kiewit's board of directors.

Richard R. Jaros, Executive vice president, chief financial officer and director of Kiewit.

Walter Scott Jr., chairman and president of Kiewit.

David L. Sokol, CalEnergy's chairman and chief executive was formerly president and chief executive of Kiewit Energy.

John R. Shiner, partner in law firm Morrison & Foerster, which represents CalEnergy in its suit against Los Angeles over the geothermal plant.

SOURCE: CalEnergy

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Box: THE KIEWIT CONNECTION (see text)