Palo Alto has millions of dollars of contracts with PG&E, and Utilities Director John Ulrich directly participated in discussions relating to them and to the 2001 PG&E bankrupty proceedings, according to a letter from the city to the district attorney's office.

An investigation has been launched into whether Ulrich violated state conflict-of-interest and Political Reform Act laws because he owns about $6,000 worth of PG&E stock relating to the 25 years he worked for PG&E. He joined the city as utilities director in 1999.

At current stock values, $6,000 equates to just under 160 shares.

William Larsen, special assistant district attorney, besieged with media queries about the status of the investigation, on Wednesday quoted directly from a letter sent to the D.A.'s office by City Attorney Gary Baum.

"The City of Palo Alto has multi-million-dollar contracts with PG&E," the letter stated. "The city has been involved directly in the PG&E bankruptcy, including serving on the creditors' committee.

"At Ulrich's insistence, he directly participated in PG&E contracts and the bankruptcy litigation," the letter stated.

Larsen has emphasized that the investigation is in its earliest stages and no facts have been verified.

Baum on Wednesday expressed some shock at the release of the portion of the letter, but declined to release the entire letter.

He said Ulrich voluntarily disclosed his ownership of the stock during a separate, intensive six-month investigation into alleged "moonlighting," timecard violations and supervision problems in the city Utilities Department.

While actual loss to the city is believed to be in the $500 range, the cost of the investigation in consultant and staff time is believed to be as high as $300,000, according to Assistant City Manager Emily Harrison.

The separate probe into Ulrich's potential conflict occurred after Ulrich disclosed his ownership of PG&E stock last spring, which he told other city officials he had forgotten about. He had not declared the ownership at the time he was hired nor in recent annual "form 700" disclosure statements required of all high-level public officials.

A source within the Utilities Department told the Weekly that several of the 19 employees disciplined in the six-month investigation were punished for failing to file form 700, and there was a "flurry of activity" relating to such forms last March -- about the time Ulrich disclosed his PG&E stock. The 700 form requires disclosure of stocks, investments and outside work that might be a conflict of interest.

Baum told the Weekly he became concerned about possible conflict of interest and called Karen Sinunu, a deputy district attorney who specializes in conflict-of-interest law.

Baum said he asked if the amount involved met the minimum standard for action by the office.

"She said to write a letter, which I did," Baum said.

City Councilman Bern Beecham, the city's point person on energy matters and its official representative to the Northern California Power Agency (NCPA), defended Ulrich Wednesday afternoon.

"I have worked with John since I came on the council and I continue to have confidence in his strong sense of ethics," Beecham said.

Palo Alto has a separate contract with the Western Area Power Administration (WAPA), a consortium of municipal and public power agencies through which Palo Alto contracts with PG&E and through which it responded to the PG&E bankruptcy.

He said Ulrich was involved in shaping the city's response in both contract and bankruptcy proceedings, working through WAPA.

"In my working with him he has always held the city's interest as paramount in all discussions," whether or not PG&E was mentioned, Beecham said.

The city does contract directly with PG&E on a major natural gas contract, but terms of the contract reportedly predated Ulrich's arrival with the city, Beecham said.