MOORLACH UPDATE — OC Register — September 24, 2011

The relationship between the Orange County Fairgrounds and the Marketplace owners has been filled with tension for as long as I can remember.  During my regular editorial column days with the Daily Pilot, I even had a piece on this subject in the April 10, 1993 edition, titled “What’s fair for swap meet?  Officials at the Fairgrounds shouldn’t meddle in Bob Teller’s Marketplace.”  The point I made back then was:  “Common business decency would be for the landlord to renegotiate the lease with the existing tenant.  If resolution cannot be reached, solicit other offers, approve a new tenant, and evict the old one.  But you had better be sure the devil you don’t know is better than the one you do.”

It appears that the facts are different this time.  With the advent of the internet, people can obtain items rather inexpensively without having to visit a swap meet.  There are competing swap meets within the vicinity, including one that is across the street at Orange Coast College.  The Fair Board has potentially better paying venues to consider, like the Barrett-Jackson Collector Car Auction, where the parking lot is needed on weekends.  A very long, and sometimes contentious, relationship appears to be coming to an end.  An in depth analysis is provided by the OC Register below.  The potential sale of the Orange County Fairgrounds was probably the most emotionally draining exercise I’ve experienced as Supervisor.  I believe we’ve all learned valuable lessons from this unique adventure.

It was nice not to be in the media for a few days.  However, ten years ago these last few days were quite hectic, so the LOOK BACKS portion of today’s UPDATE is a little packed with Southern California Edison’s energy crisis history and 9/11 reactions.

The State of California has 35 National Natural Landmarks (NNL).  Orange County has one and it is located on the (former) Irvine Ranch, which was recognized as an NNL in 2006 for its remarkably complete stratigraphic succession ranging from the late Cretaceous period to the present.  Other NNLs in the area include the La Brea Tar Pits in Los Angeles, Anza-Borrego Desert State Park, which extends into Riverside, Imperial, and San Diego Counties, and Torrey Pines State Reserve in San Diego County.  Why do I mention this?  Because I celebrate milestones and it is time to commemorate the fifth anniversary of the dedication of this NNL.  Please accept my invitation to join me for a fall hike in one of our County’s best kept secrets.

BONUS:   NNL 5th Anniversary Hike in Fremont Canyon – October 29th, 8:00am.

Image001

Come celebrate the 5th Anniversary of the designation of the Irvine Ranch National Natural Landmark on a hike with me in remote Fremont Canyon. This moderately strenuous hike will travel along the north rim of Fremont to the site of an abandoned surface coal mine worked during the late 1800s. Expect spectacular views of oak studded canyons, rocky outcrops, rare scrub habitats, and the San Bernardino Mountains in the distance. We will learn about this wonderful land and why it qualified as the only place to be designated a Natural Landmark by both the National Park Service and the State of California. The hike covers 5 miles round trip in 3 hours and has an elevation change of 1,000 feet.  Not recommended for children under age 12.  Participation is limited to the first 30 people to sign up.  To join the hike, call 714-834-3220 to obtain instructions or visit www.irlandmarks.org/activities.  Please contact Margaret Chang for the code at Margaret.Chang@ocgov.com.

Rift with swap meet started during fair sale

By JON CASSIDY / THE ORANGE COUNTY REGISTER

COSTA MESA – The way OC Fair board chairman David Ellis sees it, it’s Jeff Teller’s fault that his bid to buy the fairgrounds two years ago fell apart amid a storm of accusations.

During the board’s meeting Thursday, he blamed Teller, who is the owner/operator of the weekend swap meet at the site, for starting the accusations, then he led the board in a 6-3 vote to terminate the contract between the fairgrounds and the swap meet, with Kristina Dodge and new appointees Nick Berardino and Gerardo Mouet opposing.

That vote ended a 42-year relationship with Teller’s company, Tel Phil, which has another 18 months to run the swap meet under the terms of its contract.

Teller can move the Orange County Market Place to another location; the fair board will hire a new operator to run a swap meet at the fairgrounds. Some 1,577 vendors are caught in the middle.

Tel Phil’s revenues have dropped by around 50 percent over the last four years, reducing the rent it pays, but the company has not defaulted on its contract, officials agreed.

The fair board used to get $3.5 million-plus each year from Tel Phil, but cut its minimum rent to $2 million in 2009, which is still a struggle for the company to pay.

A staffer presented a series of slides charting severe downward trends in almost every revenue category.

"Looking at this report it’s pretty startling, but I don’t think it’s that different from any other retail business," Berardino said.

He asked whether any comparisons with other businesses had been done to try to measure how much of the drop was due to the recession; none had.

The fair board started laying the groundwork for an eventual lawsuit by Teller in March of this year, having its attorneys send Tel Phil complaint letter after complaint letter.

The main disagreements were over who got to use the property one weekend in June, and $150,000 in disputed sweeping fees, which Tel Phil paid in August under protest.

In late August, the board’s lawyer requested a meeting with Tel Phil to resolve outstanding issues.

"Tel Phil is unaware of any unresolved issues other than Tel Phil’s apparent overpayment of sweeping charges," Teller’s lawyer, Ruben Smith, wrote back.

Before the vote was taken Thursday, board member Dale Dykema said, "It has not been a cordial relationship. It’s been one of constantly having problems that you have to solve."

Teller didn’t think cordiality had anything to do with it.

"This is retaliation and retribution because our company spent over $1 million and time and effort in saving the fairgrounds for the people of Orange County, preserving its public ownership," he said. "In doing so, we exposed the schemes by certain current fair board members to purchase it themselves for a foundation of their creation."

The foundation Teller referred to was a nonprofit formed by Ellis and other fair board members to buy the fairgrounds around the time the state announced they were for sale.

The idea of selling the fairgrounds to a nonprofit got early support from the Board of Supervisors, among others, but that support disappeared within a few months, once the fair board was accused of conflict of interest.

Ellis blamed Teller for starting those accusations, which were repeated by Register columnist Barbara Venezia, and Mario Mainero, the then-chief of staff of Supervisor John Moorlach.

The District Attorney later refuted the conflict-of-interest charges, citing clear state law. In short, because fair board members set up a nonprofit to buy a historically significant property, they were in the clear.

Ellis cited that report to vindicate himself, but he didn’t address evidence of illegal lobbying that has surfaced since the District Attorney’s report, triggering an investigation by the Fair Political Practices Commission. Billing records from lawmaker-turned-lobbyist Dick Ackerman showed contacts with at least four lawmakers in the two weeks before a key vote.

Those contacts took place during Ackerman’s first year out of office, when he was restricted from lobbying his former colleagues. Ackerman’s contract went through middlemen, and didn’t surface until earlier this year.

The first three hours of the board meeting were spent reviewing the events surrounding the failed sale. Berardino had requested the formation of an oversight committee that would dig into all the secret political maneuvers of two years ago.

Berardino’s plan was voted down, but a few new facts came out of the discussion.

Ellis presented a timeline of events; the Orange County Fairgrounds Preservation Society circulated a rival 96-page timeline.

Both left out inconvenient facts.

Ellis left out the evidence of illegal lobbying. The activists, who have been blaming Ellis for starting the sale, ignored the fact that Gov. Arnold Schwarzenegger had been calling for the fairgrounds sale for years before Ellis was on the board.

The activists believe that the legislation authorizing the sale was the handiwork of Ackerman, working on behalf of the fair board, but haven’t found a smoking gun to prove it.

They have found evidence that Ackerman was secretly under contract for a month or two before the law was passed, and that he was contacting lawmakers in that time.

The fact that a majority of the fair board was meeting secretly as the board of the nonprofit foundation provoked outrage and suspicion. By October 2009, the press was questioning the apparently illegal meetings, and by December, Ellis’ effort was dead.

Appraisal mystery

One new development was fairgrounds CEO Steve Beazley’s explanation of the mystery of the phantom appraisal.

The Voice of OC reported in February that the board had paid $36,000 for an appraisal of the property that was never completed.

That factored into the lawsuit to stop the sale, as the three-judge panel of the Fourth Circuit Court of Appeal was mostly concerned with appraised value versus market value.

"The appraiser said he couldn’t find a single fairgrounds that’s up for sale" anywhere in the nation, Beazley said. "The best he could do was compare it to a golf course and myself and the governor’s office didn’t think that was comparable at all."

Contact the writer: jcassidy@ocregister.com or 714-796-7922

FIVE-YEAR LOOK BACKS

2001

September 20

Nancy Rivera Brooks of the LA Times did an “In Brief” titled “Creditors May Push SCE Into Bankruptcy.”  Kate Berry of the OC Register did “Moorlach vies to head Edison creditor committee – Treasurer says his ties to Edison CFO make him strong choice.”  Here is the OC Register piece, in full:

                John Moorlach, Orange County’s treasurer, threw his name into the ring Wednesday as a possible chairman of a committee of creditors of Southern California Edison in the event the utility is forced into bankruptcy.

                On Monday, Moorlach was named a representative of the Orange County Employees Retirement System, the county’s employee pension plan, which owns $1 million of defaulted Edison bonds that were purchased at a steep discount this summer.

Moorlach was criticized earlier this year for investing $40 million in school money in Southern California Edison’s parent company.  Edison International, even as the company struggled with mounting debts amid the state’s energy crisis.  Although the money was later repaid in full by Edison, the county’s Board of Supervisors made several formal changes to county investment policies to avert another questionable investment.

The earlier investment led Moorlach to develop a close relationship with Ted Craver, Edison International’s chief financial officer.  Moorlach said that makes him a strong choice to head any Edison creditors’ committee.

Edison creditors, who are owed $3.9 billion, have been mulling whether to force the utility into bankruptcy or wait two weeks for the Legislature to convene a third special session to attempt a bailout of the utility.

September 21

LAW.COM had an article by Danny Fortson, titled “Creditors Push for SoCal Edison Bankruptcy,” which continued the drum beats on this topic.  The natives were certainly getting restless and the amount of conversations with the creditors was growing.  Here are selected paragraphs:

                “We expect an involuntary filing within the next few weeks, if not days,” said [Brett] Barbre, spokesman for Orange County, Calif., Treasurer John Moorlach.  “The equation has gone from if Edison goes into bankruptcy to when they will go into bankruptcy.”

                “We aren’t going to be the ones to pull the trigger,” Barbre said.

                The news comes less than a week after the California legislature adjourned for the year without approving a controversial, state-sponsored rescue plan for SoCal Edison.

The Sacramento Bee weighed in with “Edison creditors may force bankruptcy filing” by Emily Bazar.  Here are selected paragraphs:

                After Pacific Gas and Electric Co. unveiled its proposed road map to financial security Thursday, frustrated creditors nudged Southern California Edison closer to involuntary bankruptcy.

As a result, some creditors indicated Thursday that it’s time to drag Edison into involuntary bankruptcy, said Brett Barbre, a spokesman for Orange County Treasurer John Moorlach.  Moorlach is chairman of a committee of more than 10 power generators and other creditors that are owed money by Edison.

“A bankruptcy is imminent,” Barbre said.  “There’s no question it’s imminent.”

Despite the possible movement by creditors, Edison remains “absolutely committed” to negotiating a settlement with the state, said the utility’s vice president of external affairs, Brian Bennett.

He said the utility has asked its creditors to hold off on initiating bankruptcy proceedings until the Legislature reconvenes in little more than a week.

September 22

With each passing day, the pressures on Southern California Edison (SCE) intensified.  Jerry Hirsch of the LA Times did a piece, with contributions from Nancy Rivera Brooks, titled SCE Creditors Eager to Discuss Fiscal Plan – Energy: Some express reluctance to join Mirant in filing an involuntary-bankruptcy petition.”  Every year seems to have its unique issues.  The energy crisis in California was certainly a memorable one.  The creditors, especially Mirant, were anxious to be paid as SCE was still receiving payments from utility users but not utilizing those funds to pay its overdue bills.  I was on a telephone call with SCE and creditors and specifically asked why they were receiving monthly consumer payments, but not addressing accounts payable invoices.  The financial representative for SCE stuttered and stammered, but could not answer the question.  Consequently, on the next conference call, I was not allowed to participate on specific orders from CFO Ted Craver.  I was using my squawk box for this call and the terse message refusing my participation was also heard by then-Assemblyman Bill Campbell, who had joined me in my office to listen in.   So you had creditors who wondered why available funds were being stockpiled and creditors who had developed a distrust of Craver, as his actions were obfuscatory and unprofessional.  The tension was mounting.  Here is the article in full:

Southern California Edison creditors said Friday that the company should call a meeting to begin work on a joint plan to return the insolvent utility to fiscal health, a process they believe can start without a bankruptcy filing.

Creditors said they are reluctant to file an involuntary-bankruptcy petition against SCE until the state Legislature makes one last effort to agree on a rescue plan. Additionally, the creditors said they want to see how a plan unveiled by Pacific Gas & Electric Co. on Thursday to emerge from its April bankruptcy filing is received in Sacramento and on Wall Street.

But several creditors expressed concern about the efforts of Mirant Corp., an Atlanta-based power plant owner, to force SCE into bankruptcy.

Mirant is seeking parties interested in joining an involuntary-bankruptcy petition against the utility, said Bill Adams, president of San Gorgonio Farms. Adams, whose firm owns a wind energy station near Palm Springs that SCE owes $3.2 million, said a Mirant attorney has called smaller generators and holders of the utility’s defaulted notes and bonds.

"They feel that SoCal Edison is never going to pay them. They believe it will always come up with some excuse, and that they will have a better case for collecting what’s owed them with a Bankruptcy Court judge," Adams said.

He said he rejected Mirant’s overture because he believes creditors should allow the Legislature more time "to do the right thing." Mirant declined to comment.

Any three unsecured creditors with a combined claim against SCE of $10,775 could file a petition in U.S. Bankruptcy Court seeking a filing.

Executives of Edison International, SCE’s parent company, said they are aware that the larger generators such as Mirant, which are owed a combined $1 billion, are the most skittish of their creditors.

"We have to come up with some sort of arrangement with the generators as part of the overall solution," Ted Craver, chief financial officer of Edison International, told creditors during a conference call Friday.

The utility piled up $3.9 billion in debt when wholesale electricity prices started rising sharply in May 2000 and it could not recoup its costs because of a state-regulated freeze on customers’ rates.

Several proposed Edison rescue plans have failed in the state Legislature. Gov. Gray Davis has called lawmakers back into session next month to revisit the issue.

Craver said Edison would fight any involuntary-bankruptcy petition and remained hopeful that the Legislature would still approve a rescue plan. Bankruptcy remains an option of last resort, he said.

"I am not looking to pull the trigger at this point," said John Moorlach, treasurer of Orange County. The county’s retirement system holds $1 million in defaulted SCE bonds.

"I would prefer that SoCal Edison sit down and meet with everybody. Let’s negotiate to see what we can get rolling outside of a bankruptcy," Moorlach said.

The utility could later put itself through a "prepackaged bankruptcy"–in which the creditors and the debtor would agree to terms before a formal court filing–if that turns out to be required to execute a financial restructuring of SCE debts, he said.

Adams of San Gorgonio Farms said the utility not only should meet with creditors, but even use the nearly $2 billion in cash it has banked to start paying some of its debts.

SCE immediately should pay small creditors owed less than $100,000, Adams said. He wants SCE to use the remaining cash to pay off debts on a proportional basis, leaving $200 million in the bank for its working capital needs.

At the same time, he said, the company should enter into negotiations with its creditors, attempting to issue them bonds for the remaining debt or to work out refinancing.

Several of Adams’ suggestions mirror the reorganization plan Pacific Gas & Electric filed Thursday in U.S. Bankruptcy Court in San Francisco. The utility, a unit of PG&E Corp., has a 60-day window to win the court’s confirmation but could seek an extension.

PG&E’s plan provides for repayment of $13.2 billion in creditor claims using cash and notes.

The utility’s nuclear plant, hydropower assets, transmission wires and gas pipelines would be transferred to the parent company, and the remaining electricity and gas distribution operation would be spun off to shareholders as a separate company. If the plan is approved, rates would not rise in the near future, PG&E said, because the parent company plans to sell power to the utility at 5 cents a kilowatt-hour for 12 years.

Some analysts expect state opposition to the plan because the utility’s power generation assets would be shifted away from regulation by the California Public Utilities Commission. Consumer advocates object to the transfer of power assets to the deregulated parent company.

Shares of Edison International rallied Friday, rising 44 cents to $11.79 on the New York Stock Exchange. PG&E Corp. stock, which garnered an upgrade to "outperform" from "neutral" from Morgan Stanley Dean Witter, jumped $1.28, or 8.1%, to close at $17 a share, also on the NYSE.

September 23

Ed Mendel of the San Diego Union Tribune provided his perspectives on the potential Southern California Edison involuntary bankruptcy in “Davis administration insists Edison mustn’t go bankrupt – Governor wants legislators back to enact rescue plan.”  Ed Mendel now has a website called “Calpensions.”  For a sample article see http://calpensions.com/category/local/orange-county/.  For more on Steve Maviglio, see “MOORLACH UPDATE — Twin Tragedies — September 19.”  Here are the opening two paragraphs and three other selected ones:

The administration of Gov. Gray Davis, which is desperately trying to keep Southern California Edison Co. from bankruptcy, is adding a note of urgency in the wake of the terrorist attack on New York City.

A Davis aide told reporters during a background briefing this past week that the "last thing" California needs now is an Edison bankruptcy that would create more economic uncertainty and instability. 

“We are going to move forward,” said Steve Maviglio, Davis’ spokesman.

A generator group applauded the PG&E plan, but it is not clear whether creditors will push Edison into bankruptcy.  Orange County Treasurer John Moorlach denied reports that a group he heads may take Edison into bankruptcy.

“It’s not true,” Moorlach said.

September 24

As a result of 9/11, the Orange County Business Journal invited observations from business leaders in the county.  The contributors were Nick Yocca, President of Stradling Yocca Carlson & Rauth, Jim Rosse, Retired Chief Executive of Freedom Communications Inc., Bob Olson, Chief Executive of RD Olson Construction, Judy B. Rosener, Business and Government Professor at the University of California, Irvine, Larry Higby, President of Apria Healthcare Group Inc., Dwight Decker, Chairman and Chief Executive of Conexant Systems Inc., Jack Pelatason, President Emeritus of the University of California, Irvine, Murray Rudin, Partner in Riordan, Lewis & Haden, William R. Mitchell, Lawyer, David Paine, President of Paine PR, and Byron Roth, Chairman and Chief Executive of Roth Capital Partners LLC.

Two of the submittals were presented on the editorial (Viewpoint) page under the heading of “Ground Zero:  Pain, Opportunity Lie Ahead.”  Here are both submittals, in total:

The Business Journal has been asking prominent Orange Countians to share their impressions and opinions of the terrorist attacks and the aftermath. John Moorlach and Mike Danzi responded with essays that we thought deserved to be run in their entirety. Moorlach is a CPA and the treasurer-tax collector of Orange County. Danzi is CEO of medical testing company US Labs in Irvine; he was born on Wheelus Air Force Base in Libya and served as a Naval officer aboard a nuclear submarine.

Liberties, Resolve Under Fire

Mike Danzi

Things we can count on:

Rethinking warfare.

Generals (and countries) are always prepared to fight the previous war, e.g. France’s defensive Maginot line built after WWI. We are faced with a radical new type of war. This will be a multi-year conflict that will be less like state-against-state and more like trying to kill cockroaches. Our enemies will be elusive and there may be many more attacks and counterattacks, abroad and at home.

Conflict will include the use of high technology weapons we used in the Gulf War, Tomahawk missiles, smart bombs and precision attacks from air and sea platforms. But, importantly, it will require the use of highly trained special forces units, such as Navy SEALS and Army Rangers, to make attacks on foreign soil. Use of ground forces will have to be balanced by opinion polls and potential casualties, but are necessary to the war effort.

Look for substantial military and law enforcement investment in surveillance and intelligence technologies. Military intelligence will require additional platforms such as more submarines (watch for ballistic missile submarines being converted to carry Tomahawk missiles and SEAL teams), and the expansion of human intelligence networks that have been in decline over the past generation.

Curtailing of personal and civil liberties.

Technologies exist that seem Orwellian, such as the equipment law enforcement officials used at Super Bowl XXXV in Tampa to secretly scan spectators’ faces with surveillance cameras and instantly compare their "faceprints" against those of suspected terrorists and known criminals in a computerized database. Terrorists are known to use the Internet to communicate using encryption technologies, which can be countermanded by a determined government effort to monitor its citizens. Despite the specter of Big Brother spying on citizens, our expectations of privacy will be reduced and our government will become comfortable monitoring citizens to an unprecedented extent.

More difficult travel.

Look for the civilians who staff the airport security counters to be replaced by well-armed and trained soldiers and marshals. Increased difficulty with air travel and border crossings will lead to increased costs, general reduction in economic efficiency and reduced prosperity.

Resolve.