Enron: not the only bad apple
The deregulation of the energy industry is rotten to
the core, writes Greg Palast
Friday February 1, 2002
I guess I'm not a nice guy. But when I heard that Enron's
former vice-chairman Cliff Baxter had shunted his mortal
coil, I shed no tears.
One tabloid even called Baxter a "hero" who courageously
raised the alarm about his company's fantasy financials.
Maybe I'm missing something here, but this is the Baxter
who last year quietly crawled out of Enron like a cockroach
from a rotting log - then dumped his stock on unsuspecting
buyers, thereby pocketing a reported $35m (£25m). You
can just imagine Baxter chuckling to himself in January last
year as Enron's office staff gathered their pennies for his
retirement gift while he's thinking, "So long, suckers!" -
knowing they are about to lose their jobs and life savings.
There have been a lot of misplaced tears in the Affair
Enron. The employees were shafted, no doubt about it. But
the shareholders?
I didn't hear any of them moan when Enron stock shot up
through the roof when the company, joined by a half dozen
other power pirates, manipulated, monopolised and
muscled the California electricity market a year ago.
All together, Enron and half a dozen others skinned
purchasers for more than $12bn in excess charges. That's
the calculation of Calfornia's utility watchdog as presented
to federal regulators in a damning petition for refunds.
Here's an example of how Enron's po' widdle stockholders,
hero Baxter and chairman Ken Lay made their loot.
Soon after California dumbly deregulated its power
markets, Enron sold 500 megawatts of power to the state
for delivery over a 15-megawatt line. Very cute, that: the
company knew darn well the juice couldn't make it over the
line, causing panic in the state - customers would then pay
10 times the normal cost to keep the lights on and traders
could cash in.
The federal regulator caught that one. Within weeks of
taking office, George Bush demoted the troublesome
official. Lay boasted to one candidate expected to replace
the sacked regulator that President Bush had given Enron
veto over the government appointment.
Nor did Enron's stockholders object to their profitable
business of trading politicians like bags of sugar. From
Texas to Argentina to Britain, Enron used legal but
sick-making use of political donations, consultancies and
lobbying to twist contracts, rules and regulations to their
liking.
You want to cry for a power industry exec who came to an
early, violent, end? Then let me suggest to you Jake
Horton, late senior vice-president of Gulf power, a
subsidiary of Southern Company. (Southern is one of
Enron's cohort in that fixed casino called the US electricity
market.)
Horton apparently knew about some of his company's
less-than-kosher accounting practices; and he had no
doubt about its illegal campaign contributions to Florida
politicans - he'd made the payments himself.
But unlike Baxter, who took the money and ran, in April
1989, Horton decided to blow the whistle, confront his
bosses and go to state officials.
He demanded and received use of the company's jet to go
and confront Southern's board of directors. Ten minutes
after take-off, the jet exploded.
While the investigation into the plane crash was
inconclusive, the company's CEO believed his death was
suicide. He told the BBC: "I guess poor Jake saw no other
way out."
Ultimately, Southern pleaded guilty to the charges related
to the illegal payments.
Jake and Baxter are the beginning and end of the story of
deregulation. I was part of a team investigating Southern's
finances after Jake's plane went down, just after a grand
jury voted to charge his company with criminal racketeering
for manipulating its accounts.
Millions of dollars were charged to customers of Southern's
subsidiary, Georgia Power, for spare parts that were not
used.
The internal revenue service recommended indictment, but
George Bush Sr's justice department put the kibosh on the
prosecution (their legal prerogative) - in great part
because the fancy financials had been blessed by the
company's auditor: Arthur Andersen.
The company denied any wrongdoing.
But while Southern Company didn't face criminal charges,
regulators ordered it to pay back millions to its customers.
And that's the big connection to Enron. Because it was in
those years of investigation that Southern Company led
the fight to "deregulate" the power industry. Rather than
conform to the rules, they lobbied to get rid of the rules.
Southern and its buddies in the power industry were
successful beyond imagination. Industry lobbyists and
lawyers eviscerated America's Public Utilities Holding
Company's Act, and made mincemeat of the rules which
once barred power companies from making donations to
political campaigns.
Crucially, in the newly deregulated power markets, the
companies were relieved of the requirement to follow the
strict government-designed Uniform System of Accounts.
Enron, founded in 1986, was the Rosemary's Baby of this
satanic coupling of free-market ideological hoodoo and
electricity industry greed.
Enron played it faster and looser than the others, but it is
wrong and dangerous to say Enron was one bad apple.
It's the whole wormy tree of public services deregulation
mania which is rotten, root and branch.
· Greg Palast is the author of The Best Democracy Money
Can Buy and Democracy and Regulation, both of which will
be published in April. |
