California Reamin': California and the Power Pirates
Wednesday, April 23, 2003
On April 10, 1989, Jacob "Jake" Horton, senior vice president of Southern Company's Gulf Power unit, boarded the company plane to confront his board of directors over the company's accounting games and illegal payments to local politicians. Minutes after takeoff, the plane exploded. Later that day, police received an anonymous call: "You can stop investigating Gulf Power now."
Fast-forward to December 2000. The lights in San Francisco blinker out. Wholesale electricity prices in California rise on some days by 7,000 percent, and San Francisco's power company declares bankruptcy. Dick Cheney, just selected vice president by the U.S. Supreme Court, begins a series of secret meetings with power company executives. On their advice, within three days of Bush's inaugural, his Energy Department wipes away regulations against price gouging and profiteering ordered that December by outgoing President Clinton.
Out of Cheney's off-the-record meetings came the energy plan released by the president in May 2001. Billed as the response to the California electricity crisis, the president told us the plan contained the magic potion to end the power shortage. Then, after the horrors of September 11, 2001, the plan was remarketed as a weapon against Middle East terrorists. Nasty-minded readers may believe the Bush energy program, still rolling around Congress, is just some pea-brained scheme to pay off the president's oil company buddies, fry the planet and smother Mother Earth in coal ash, petroleum pollutants and nuclear waste. In truth, it's more devious than that.
There is a link running from Jake's exploding plane to blackouts on the Golden Gate Bridge to the polluters' wet dream of an energy plan offered by Cheney and Bush. They are connected through the mystical economics of electricity deregulation. Beneath the murky surface of this odd backwater of market theory is a multicontinental war over the ownership and control of $4 trillion in public utility infrastructure-gas, water, telephone and electricity lines-a story that began a decade earlier with Jake Horton and continued through a coup d'état in Pakistan and the bankruptcy of a company called Enron. Andersen's Magic Show
In 1989, I was brought into an investigation of Horton's employer, Southern Company of Atlanta, by Georgia civic groups suspicious that Southern had overcharged its several million electricity customers in Georgia, Alabama, Mississippi and Florida. I focused on transcripts of tape recordings made a year earlier by accountant Gary Gilman. Wearing a hidden microphone, Gilman recorded his fellow executives detailing the method by which Southern charged customers $61 million for spare parts which, in fact, had not been used. Like all good accountants, Southern's kept a careful record of the phantom parts in electronic ledgers-found in the trunk of one executive's car. I obtained copies of the documents, spending months decoding the accounts, gaining an insight into what would, a decade later, lead to blackouts and bankruptcies from California to Argentina.
Take a look at a bit of what I saw (figure 3.1).
There's two sets of numbers-one for government and one for the boys at the top of the company structure to keep track of reality. Here's where it turns a little technical. The parts held in inventory should have been "capitalized," that is, listed as an investment in "Account 154." In fact, they were "expensed"-to use the accounting lingo-and charged as if they were used. The difference between capitalizing and expensing is the difference between having your cake (investing) and eating it (using it up).
Moving numbers from one account to the other cheated the IRS and bill payers out of millions.
Shortly after Horton's death, a grand jury in Atlanta was prepared to indict Southern Company's Georgia unit for the spareparts accounting manipulations. But, invoking a rarely used procedure under the federal racketeering statute, Bush Sr.'s Justice Department overruled local prosecutors to quash the request for indictment. The reason? Keeping hidden accounts in secret files and booking costs into the wrong accounts may be a bit unusual, and may have cost the public a bundle, but it was approved at each step by that upstanding auditing firm, Arthur Andersen.
Indeed they had. I found one letter from Andersen coaching the power company executives on how to wave a bookkeeping magic wand over the spare-parts records to make the problem disappear. I suggested at the time, "Why not indict Andersen?" and proposed a civil racketeering claim against the accounting giant, naming them as Southern's coconspirator. My suggestion, not surprisingly, was dismissed with a chuckle by lawyers who understood that politics trumps law. The signal from the Bush administration was clear enough: Hire Andersen, knead your account books like cookie dough, and get a "Get Out of Jail Free" card |
