An energy consultant who helped create the City of Industry’s public utility tried to warn former City Manager Paul Philips about glaring red flags and unrealistic promises associated with a proposed utility expansion that included a solar farm now at the heart of a $20 million corruption scandal, according to testimony at a preliminary hearing for Philips.

The consultant, Richard Mrlik of the energy company Intertie, said he met with city staff, sent emails to Philips and later mailed certified letters to each of the City Council members after learning of the proposal, which he described as a “wide departure from reality.” But his concerns were ignored and the plans moved forward unabated.

Mrlik alleged he was frozen out of discussions about the utility almost immediately after Philips was hired in 2015 and then unceremoniously replaced by the Cordoba Corp., a company he said had previously tried to pitch a similarly unrealistic proposal years earlier. Mrlik had worked on the utility for nearly 15 years by that point.

“Everything was vetted up until Philips arrived,” Mrlik testified.

Philips’ attorneys, Joe Weimortz and Steve Cooley, declined to say if Philips received or reviewed the warnings from Mrlik. However, Cooley noted that Mrlik notified the City Council — Philips’ bosses — of the issues and that the council still moved forward with the utility expansion.

“He was a vendor who applied for the project,” Cooley said of Mrlik. “He’s looking for someone to blame for his company’s failure to win the project.”

Prosecutors in the preliminary hearing allege Philips, who has been charged with misappropriation of public funds, was a participant in what they described as a “conspiracy” by others to fraudulently acquire a valuable piece of land on the edges of Los Angeles, Orange and San Bernardino counties that Industry would have otherwise lost due to the dissolution of redevelopment.

The Los Angeles County District Attorney’s Office charged Philips in August 2021 alongside former state Sen. Frank Hill, developer William Barkett and attorney Anthony Bouza. All four men were involved in a failed proposal, financed with $20 million of Industry’s money, to build a 450-megawatt solar farm on a plot of land known as Tres Hermanos Ranch split between Diamond Bar and Chino Hills. The project, which was started in secret in 2016, was shut down two years later by the same council that had approved it over concerns about the increasing costs and the legitimacy of certain billings.

Philips “controlled the flow of information, he controlled the staff and he controlled the money,” said Ana Lopez, a deputy district attorney.

Prosecutors allege that the city’s $20 million investment was obtained through fraudulent invoices manufactured by Barkett and his company, San Gabriel Valley Water and Power. Bank records purportedly showed Barkett used the public dollars to cover personal expenses, including a $2 million wedding in France for his daughter, according to testimony.

Philips has distanced himself from the other defendants in the case. His attorneys have argued that while there may sufficient evidence against the other three men, their client acted in good faith and relied on the advice — good or bad — of experts, including city staff, to make his decisions. There was no evidence found that showed Philips received any of the allegedly stolen funds, an investigator for the district attorney acknowledged in court.

Prosecutors have spent much of the hearing presenting evidence for the larger case and have only briefly touched on allegations against Philips specifically. They allege the conspiracy could date back as far as 2001, when Industry, with Hill’s involvement, began working on creating its own public utility. A decade later, the Cordoba Corp., Hill and Barkett pitched an earlier iteration of the solar project, but it was Mrlik, the energy consultant, who got that project shot down.

Mrlik stated that that proposal assumed prices that were double what other cities were paying for electricity. It also put all of the risk of the development on Industry, instead of the developer, an arrangement that was “highly unusual” for a renewable energy partnership. Industry would pay the upfront costs, but only receive 50% of the ownership, Mrlik said.

The land in question was much too valuable for other uses and did not make sense for a solar project, Mrlik said.

The city’s administration under then-City Manager Kevin Radecki rejected the idea in 2013.

However, two years later, Industry had its first election since 1998 and a new council majority — backed by the influential Perez family, whose patriarch former Mayor David Perez had supported the idea — won by a landslide. The council, with Hill as an adviser, hired Philips later that month and discussions about expanding the public utility — and building the solar farm on Tres Hermanos — began again almost immediately. Industry fired nearly everyone who had opposed the 2013 project.

Mrlik testified that such an expansion would have been infeasible and too expensive even for a city with Industry’s deep pockets. Cordoba’s proposal asked for 800% more than what the city had paid Intertie for the same services.

Mrlik sent letters to city staff, Philips and eventually the council outlining the problems with the proposal and detailing factual errors, but did not receive any responses. In December 2016, Mrlik then sent his concerns to the District Attorney’s Office and alleged Philips was misleading the City Council, violating ethics laws and was supporting Cordoba to “pay back ex-felon, power broker Frank Hill.”

Hill was a consultant for Cordoba and was paid roughly $700,000 for his role in the later solar project, according to earlier testimony.

Hill had helped Philips land the city manager’s job, Mrlik alleged. Two of the new council members from the 2015 election who supported Philips’ hiring have made similar allegations, but Cooley denies it. He said Philips got the job on a whim, when someone from the city called his old employer, the California Contract Cities Association, looking for a recommendation, and Philips offered to step in.

The defense spent much of day on Wednesday discrediting Mrlik’s 2016 complaint to the District Attorney’s Office. Mrlik, in response to questioning, admitted numerous times that allegations in his complaint were based on information he had been told by others, rather than what he had witnessed himself.

Cooley, one of Philips’ attorneys, said Mrlik spoke to Philips only once. Many of the allegations of wrongdoing that Mrlik pinned on Philips were based on assumptions or interactions with city staff, or Cordoba, Cooley said. Mrlik was in the running for the proposal that eventually went to Cordoba and Cooley alleged the consultant was bitter.

“He decided that Paul was his nemesis, but he never had any interactions with Paul,” Cooley said.

Still, Mrlik’s complaint to the District Attorney’s Office is a key component of the defense of Philips. His attorneys argue that the complaint should have triggered an investigation, which would mean that the statute of limitations on the misappropriation charge would have expired a year before Philips was arrested. Prosecutors, however, have stated that allegations against Philips were not learned about until 2017.

Judge Michael Pastor is expected to rule on the statute of limitations issue by the end of the preliminary hearing.