Fresno suit says PG&E hit by kickback scheme

Pacific Gas & Electric Co. has lost millions of dollars in a kickback scheme run by some of its construction supervisors and contractors, according to a lawsuit filed in Fresno County Superior Court.

Corruption at the utility means safety improvements aren't made and customers pay higher rates, said attorney S. Brett Sutton.

He filed the lawsuit against PG&E and others on behalf of a former contract employee who says the company wrongfully fired him for reporting the problems.

The lawsuit accuses PG&E supervisors of receiving money, vehicles, trips and other gifts in exchange for contract awards and lax oversight of contractors who overcharge the utility for projects.

The lawsuit does not specify how long the alleged corruption has lasted, how widespread it was, or how much money has been lost.

PG&E has repeatedly denied the claims since the lawsuit was filed in 2008. But the case recently took a turn when a PG&E construction manager, Dennis Slagle, abruptly changed his story about alleged kickbacks.

Slagle said he allowed a major PG&E contractor, DC Construction Group of Fresno, to build an addition to his home and that he went on several hunting trips with company executives. He didn't say, however, that he provided the company any favors in return.

DC Construction Group denies Slagle's allegations.

PG&E spokesman Jeff Smith would not comment on the lawsuit, except to say that the utility is conducting a through investigation of the allegations. The utility investigated many of the same complaints three years ago and found no wrongdoing, according to internal documents filed in the case.

The lawsuit was filed by Daniel Alsup, a former contract employee at PG&E, who alleges he was wrongfully fired two years ago as a result of his complaints about overbilling by contractors. Alsup, who worked as a construction inspector for nearly 10 years, says he routinely found contractors were overbilling for work.

Alsup primarily was responsible for electrical projects but says he also inspected natural gas projects.

The lawsuit contains allegations about PG&E management practices that are important in the wake of the recent fatal explosion of a PG&E natural gas line in San Bruno, Sutton said.

"When I look at what happened in San Bruno, and the money that went into corrupt practices instead of safety, I know there's something wrong," Sutton said.

For its internal investigation, PG&E interviewed Slagle in August 2007, when he was responsible for construction on PG&E projects in Northern California. He was asked whether DC Construction Group provided an addition to his home the year before. He said no.

DC Construction Group figures prominently in Alsup's allegations. In 2006, internal PG&E records show, the Fresno-based company received a three-year contract for $45 million to handle concrete and grading work throughout the utility system.

When Sutton interviewed Slagle for the lawsuit in July of this year, Slagle again denied that DC Construction Group built the housing addition.

Then an attorney for PG&E alerted Sutton that Slagle would make significant changes to his statement. Among them: DC Construction had provided labor and supplies for the housing addition. He also said he had taken trips with DC employees.

He said he had a reason for telling a different story before. "To keep my job," he said, according to records filed in the lawsuit.

Slagle, who recently left PG&E, said he couldn't comment for this story because the lawsuit is pending. It's not clear why he decided to change his story, why he's no longer working for PG&E, or whether he changed his story after leaving the utility.

Other PG&E supervisors are accused of corruption in the lawsuit. A former construction supervisor, Dave Swofford, is accused of receiving a high-paying job from DC Construction after he left PG&E.

Swofford also received a new Ford truck from a former PG&E contractor, the lawsuit claims. Alsup's attorneys have submitted a vehicle title in the case, and it lists Swofford as the owner and contractor Joseph Stone of Fresno as the lien holder.

In response to questions from The Bee, Swofford denied receiving any gifts or favors from contractors when he worked for PG&E. But he refused to answer questions about the truck title or work he did for DC Construction Group. Stone didn't return calls from The Bee.

DC Construction Group is not being sued in the case. In response to questions from The Bee, Denna Milhollin, president of DC Construction Group, confirmed that she once hired Swofford to work as a consultant for a project in San Diego.

He wasn't working for PG&E then, and the work wasn't intended as any sort of payoff, she said.

Milhollin denied ever providing gifts or anything else of value to PG&E employees.

She said Slagle accused DC Construction Group of building his housing addition because he now works for a competitor of her company.

Milhollin said Alsup is going after DC Construction Group because he's upset that she wouldn't agree to let him shift contracts from her company to another contractor.

Alsup says her comments are off the mark because he didn't have the authority to award contracts when he worked for PG&E.

In his July statement to Alsup's attorneys, Slagle said Alsup was fired because he accessed a PG&E computer with someone else's password. Alsup concedes he used someone else's password because he was waiting to receive a new one, and he needed to get into the system to do his job.

But he says the real reason for his dismissal was his repeated complaints about contractor waste. Alsup said he repeatedly warned PG&E supervisors about overbilling by DC Construction Group and other contractors.

An internal PG&E e-mail from one of Alsup's supervisors, provided by the utility to the plaintiffs through discovery, shows some of his complaints.

"Please review the following efforts by this [work] group to save PG&E and stockholders money by challenging our alliance partner with questionable billing practices," it says, and then lists projects that were allegedly overbilled by DC Construction Group by about $700,000.

Alsup concluded that the company was overbilling PG&E by comparing DC rate sheets to work the company performed, the e-mail says.

The e-mail described projects completed near the end of the year. Plaintiff's attorney Sutton said year-end projects provided an opportunity for abuse by contractors because of pressure to spend maintenance funds.

PG&E supervisors have to use up their maintenance budgets or they will lose the money in the following budget year, former supervisor Slagle said in his July interview with Alsup's attorneys.

Slagle, who was still working for PG&E when he made the statement, also said supervisors routinely overestimate the cost of maintenance contracts.

The practice is intended to prevent having to make additional budget requests for cost overruns, Slagle said.

But Sutton questions whether the practice, like others at PG&E, leads to extra money in the pockets of contractors.