Enron: not the only bad apple

Greg Palast greg@gregpalast.com

Sat Feb 2 20:32:10 2002
68.3.132.0

Enron: not the only bad apple
http://www.guardian.co.uk/enron/story/0,11337,643422,00.html   

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.

greg@gregpalast.com

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