Duke Energy Employee Advocate
Deregulation - December, 2001 - Page Four
in ‘tort reform,’ making it harder to sue corporations for the damage they do” - San Jose Mercury News
Whitewater Critics Quiet About EnronNew York Observer – by Joe Conason – December 24, 2001
While the implosion of Enron is almost as murky as the bankrupt company’s financing schemes, its self-dealing and scamming have evoked memories of other great business scandals, such as Teapot Dome and the South Sea Bubble. Whether or not those analogies ever prove to be justified, the most compelling political comparison for the moment is with another scandal that turned out, despite the investigative zeal of journalists, pols and prosecutors, to be more squib than bombshell: Whitewater.
Consider the stated purposes of the long, costly probe into that tiny, troubled land deal, as expressed in the final report of the Senate’s Special Committee to Investigate the Whitewater Development Corporation and Related Matters (Alfonse M. D’Amato, chairman). According to the report’s preface, its mission was to investigate "the complex web of intermingled funds, fraudulent transactions, political favors and conflicted relationships," all of them "woven together by common and recurring themes of abuse of power, fraud on federal institutions and theft of public funds, and frequent neglect, if not deliberate disregard, of professional, ethical, and at times, legal standards," including "clearly identifiable patterns of motivation, conduct and, at times, concealment."
If those damning phrases sound familiar, then perhaps you’ve been reading some of the better coverage of Enron in periodicals like Fortune, which concluded that even if no one ever goes to jail, "it feels as though a crime has been committed."
That question will be decided by the courts, which must determine whether Enron was sunk by "fraudulent transactions" as well as more mundane abuses of corporate authority. But there is no question that Enron’s corporate history is laden with "political favors" and "conflicted relationships" with leading figures in the White House, regulatory agencies and the Senate itself.
Those relationships extend well beyond the $2 million bestowed on the President and other politicians by Enron executives, or the substantial blocks of stock held by Bush appointees, or the formidable cadre of connected lobbyists, consultants and officials that make the White House resemble an Enron branch office. One place to start untangling the Enron tale might be the moment in early 1993 when Bush appointees on the Commodity Futures Trading Commission voted to exempt energy traders from its anti-fraud regulations. The commissioner who initiated that convenient rule-making process, following a post-election request from Enron and several similar companies, was Wendy Gramm, wife of the Texas Senator. She left the CFTC just before the actual vote and, five weeks later, joined the Enron board of directors. This was merely a coincidence, as she and her benefactors in Houston later explained.
Coincidence or not, that decision pulled open the "regulatory black hole" in which Enron thrived and connived. It also represented the beginning of an unwholesome pattern that culminated earlier this year, when Enron’s generosity to the Bush-Cheney campaign evidently won its executives the right to choose their own regulators in Washington. (Meanwhile, those same strutting geniuses were unloading their watered-down stock into the pension portfolios of their unfortunate employees.)
The immediate justification for the Senate probe of Whitewater was that Madison Guaranty, the storefront savings-and-loan operated by small-time hustler James McDougal, had cost the government about $65 million in bailout funding. Setting that pitiful amount against the $60 billion or so that suddenly evaporated from Enron’s market capitalization–as Gene Lyons and Molly Ivins have noted–offers a way to chart the difference in magnitude. Yet so far, thanks to the "war on terrorism" and perhaps other, less patriotic factors, the level of public indignation is inverted; Enron seems to generate about one-tenth of 1 percent as much concern as Whitewater did.
The Justice Department and the Securities and Exchange Commission are examining Enron, of course, and various committees of Congress are also looking into the matter. Their approach, however, is strangely desultory and deferential. Enron founder and chief executive Kenneth Lay blew off an invitation to appear before a House committee the other day, prompting an audible yawn from the same media outfits that screamed incessantly about "the Whitewater scandal" year after year. Those excitable editorialists at The Wall Street Journal have dismissed Enron’s problems as an example of "bad accounting."
Imagine the outcry if, instead of providing a million pages of documents to the Senate Whitewater Committee, the Clinton White House had withheld all relevant papers. That is precisely what Vice President Dick Cheney has done to date, in response to requests from the House Government Reform Committee about private meetings that he and his energy task force held with Enron executives.
And imagine what Mr. Lay might have said to Mr. Cheney and Larry Lindsey, the former Enron consultant who now serves as the President’s chief economic advisor, during those secret sessions.
You’ll have to imagine, at least for now, because the Vice President and his cronies aren’t talking–and because nobody in the media is even asking.
Duke Energy Dodging Enron FalloutThe Charlotte Observer – by Ted Reed – December 23, 2001
Concerns over the collapse of Enron Corp. have spilled over to other energy trading and marketing companies, threatening their stock prices and credit ratings.
Analysts say Charlotte-based Duke Energy Corp., one of the largest energy traders, has largely avoided being dragged down by Enron's bankruptcy. This week, the credit ratings of three competitors - Dynegy Inc., Calpine Corp. and Mirant Inc. - were downgraded, meaning they could face higher borrowing costs in the future.
Debt issued by subsidiary Duke Energy Trading and Marketing LLC remains on negative credit watch at credit rating agency Standard & Poor's, but S&P analyst Nancy Messer said that is not related to the Enron situation.
Rather, the downgrade was prompted by the battle between Duke and Exxon Mobil Corp. over ownership of Duke Trading and Marketing. Exxon Mobil owns 40 percent of the subsidiary, and Duke is seeking to exercise a buy-out clause. But Exxon Mobil is reluctant to sell. The case is in arbitration.
"Having two strong parent (companies) gave it support," Messer said. "But now one parent (may) walk away. That led to a credit watch."
With the arbitration case expected to end in the first quarter, S&P is evaluating how to rate the unit. The best result, she said, would be for parent Duke Energy to consolidate its balance sheet with that of the subsidiary, which currently has an A minus credit rating.
"Duke Energy is fundamentally healthy (and) faces no liquidity problems due to its exposure to Enron, so we have not seen any reason to take actions on (its) credits," she said.
Enron's bankruptcy, the largest in history, has severely hurt many companies involved in trading and marketing. Since Oct. 15, when Enron's problems first surfaced, Enron stock has fallen from $33.17 to 53 cents.
By contrast, Duke stock has barely moved, falling from $38.32 to close Friday at $37.90, up 25 cents. On the credit side, credit agency Moody's Investors Service is raising credit rating standards for energy traders following the downgrades of Dynegy, Calpine and Mirant. In response, Dynegy and Mirant have said they will sell assets and use the proceeds to strengthen their balance sheets.
Barry Abramson, energy analyst for UBS Warburg, said Duke has had to work to convince analysts and investors that it is not affected by such problems. "Enron's problems are so fresh in everybody's mind (and) Duke has to deal with the fact that some people remain skeptical," he said.
Duke has benefited from being a conservative energy trader, one that limits its exposure and has control of physical assets rather than just contracts for delivery, and from owning Duke Power Co., Abramson said. "It helps to own a boring utility, which provides the parent with a stable source of earning and cash flow," he said.
Enron Makes Whitewater Look Like PeanutsTribune Media Services - by Bill Press – December 23, 2001
WASHINGTON - Something smells rotten in Houston. Energy giant Enron, which used to brag about becoming the world's biggest company, now holds the record for the country's biggest ever bankruptcy filing.
The human impact is staggering. Some 4500 employees are out of work. Tens of thousands of investors watched their Enron stock sink suddenly from $83 per share to 26 cents, wiping out $60 billion of stockholder value. And those 11,000 employees whose 401K funds were invested exclusively in Enron -- and who were forbidden by Enron's own rules from diversifying -- today have no retirement plan at all.
But Enron may be more than the world's biggest corporate disaster. It could also be the world's biggest case of corporate criminality.
Enron's demise wasn't due to business factors like strong competition, a shrinking market or a lagging economy. It was due to deceitful, and perhaps illegal, games played by corporate executives: diverting funds into secret partnerships, cooking the books to keep those deals secret, lying to investors and employees about the financial health of the company, while selling their own stock to make sure they wouldn't be hurt when the whole house of cards collapsed.
Unlike thousands of employees, for example, Enron Chairman Kenneth Lay isn't crying the blues. He cashed out on $123 million worth of stock options in 2000 alone, and this year pocketed another $25 million.
Even as the company started falling apart, other executives were rewarded. Just days before filing for bankruptcy, Enron handed $55 million out to some 500 senior officials: an average $110,000 bonus for screwing up.
Yes, something smells rotten in Houston. But something smells rotten in Washington, too -- because both the rise and fall of Enron are closely linked to the political fortunes of George W. Bush.
For years, Ken Lay and George Bush have been joined at the hip, two free-wheeling Texas buddies. One helped the other succeed in "bidness;" the other helped his pal make it big in politics.
Consider the Bush-Enron connections. Enron could never have happened anywhere but Texas. It was only able to grow so big, so fast, because of the deregulation of energy companies instituted by then-Gov. George W. Bush.
And Ken Lay rewarded his friend. He and Enron together were Bush's biggest contributor, giving $2 million to his campaigns for governor and president. Lay also loaned Bush his corporate jet. In 2000, Lay sent a memo to company employees, suggesting that they contribute personal funds to Bush through the company's political action committee: $500 for low-level managers; $5000 for senior executives. Once in the White House, Bush responded generously.
Ken Lay was the only energy executive to meet privately with Vice President Dick Cheney to help shape the administration's new energy policy -- which included a recommendation to break up monopoly control of electricity transmission networks, a longtime Enron goal.
For a while, Bush even considered naming Lay his Commerce Secretary. Fortuitously, that appointment never happened. But he did surround himself with Enron partisans. Lawrence B. Lindsey, Bush's top economic adviser, was an Enron consultant.
Robert Zoellick, U.S. Trade Representative, served on Enron's advisory council. I. Lewis Libby, Cheney's Chief of Staff, was a major Enron stockholder. Thomas White, Secretary of the Army, was an Enron executive for over 10 years and held millions of dollars in stocks and options when appointed.
Karl Rove, chief White House political adviser, owned between $100,000 and $250,000 worth of Enron stock when he met with Ken Lay in the White House to discuss Enron's problems with federal regulators. And, until he was named Republican National Chairman last week, Marc Racicot was Enron's Washington lobbyist.
No wonder the Bush White House refused to help California solve its energy crisis last Spring. California's problems were caused by Enron's suddenly inflating the price of electricity, forcing blackouts throughout the state. But Bush refused to intervene to help consumers. He wouldn't do anything to hurt his pal's big business.
Indeed, the Bush-Enron connections are so close, it's hard to tell whether Enron is the house that Bush built or Bush is the house that Enron built. We know George Bush and friends were major players in Enron's corporate success. Were they also major facilitators of Enron's corporate wrongdoing?
Either way -- and war or no war -- the whole mess demands a congressional investigation.
If Congress and Ken Starr could spend two years investigating a 20-year old $100,000 real estate investment in Arkansas, they can and must examine a multi-billion dollar energy scam in Texas, where millions lost their shirts.
Enron makes Whitewater look like peanuts.
Enron Criminal Investigation UrgedThe Oregonian – by Jim Barnett – December 23, 2001
WASHINGTON – (12/19/01) - Members of a Senate panel called Tuesday for a criminal investigation of officers of Enron, alleging that they illegally forced rank-and-file employees to hold Enron stock as its price collapsed this fall.
"I hope some of these people wind up in jail," Sen. Barbara Boxer, D-Calif., said at a news conference after a hearing held by the Committee on Commerce, Science and Transportation.
Boxer and other senators also said the Enron disaster is an argument for tighter regulation.
Current and former Enron employees testified that they could have salvaged some of their retirement savings during the energy-dealing firm's collapse this fall. But the company prevented them from selling their shares in its 401(k) investment plan.
The employees also said they believed they had been double-crossed: Enron executives quietly cashed out millions in personal holdings earlier this year, but they continued to tout the company's prospects as the stock price headed for a plunge.
"As the truth about Enron started to come to light -- and the officers at the top cashed out -- we, the employees, had no choice but to ride the stock into the ground," said Bob Vigil of Madras, Ore., an employee of Enron subsidiary Portland General Electric.
As the Senate panel listened, Vigil and three Enron retirees described how the decimation of Enron's stock price wiped out years of hard work, dreams of a carefree retirement and longtime trust in their employer. "Who thought there would ever be anything wrong with Enron Corporation, the biggest energy company in the world?" said Charles Prestwood of Conroe, Texas, who worked 33 years for Enron and its predecessors. Prestwood said he lost $1.3 million in retirement savings as Enron's stock plummeted to less than $1 from a peak of $90. Don Eri of Gresham, Ore., fared better by selling all but 600 Enron shares when he retired from PGE. Still, Eri estimates he lost $40,000.
"If I had not retired and cashed out in late April, I probably could not afford to retire," Eri told the panel. Boxer and other senators said they suspected foul play in Enron's demise. Boxer demanded that the administration launch an investigation of Enron executives, including Kenneth Lay, Enron's chief executive, a close friend and major contributor to President Bush.
The senator said that Enron likely violated federal law governing corporate retirement plans when it switched administrators of its 401(k) plan. She said it used the switch as a pretext for "locking down" employee holdings of Enron stock, making it impossible for many employee investors to trade their shares for several weeks.
Boxer said she planned to ask Attorney General John Ashcroft to launch an investigation. Susan Dryden, a spokeswoman for the Department of Justice, said she could not comment on whether Ashcroft would heed Boxer's request.
"I can only say that at this time, there is no investigation open on this matter," Dryden said.
Sen. Ron Wyden, D-Ore., also laid blame for the employees' woes with Enron's auditor, Arthur Andersen. Wyden said the firm failed to recognize warning signs that should have been evident in the creation of partnerships that moved debt off of Enron's books.
"Certified financial statements are not supposed to be a game of financial hide-and-seek," Wyden said.
Enron built its reputation in the 1990s as a champion of deregulating state electricity markets. The company sent a phalanx of lobbyists to state capitals promising lower prices and then set itself up as the chief arbiter of wholesale power contracts.
The business plan seemed straightforward: buy power at low prices and sell higher. But where Enron saw opportunity, there also lurked huge risks in light of fluctuations in weather, supplies and fuel prices. Enron sought to hedge its risk through futures contracts and other speculative financial instruments.
Employees said that Enron crossed the line by urging them to put retirement savings in Enron stock only to use the 401(k) plan as a feeble attempt to prop up the stock against a loss of investor confidence and a massive sell-off of shares.
"We ate, slept and breathed Enron because we were owners of the company," said Janice Farmer, an Enron retiree from Orlando, Fla. Because of the lock-down of Enron's 401(k), she added, "I had to stand by and watch my savings disappear."
While the panel focused on Enron's retirement plan on Tuesday, the bankruptcy of the Houston-based company -- unprecedented in its scope and speed -- has began to ripple through the agendas of lawmakers across Capitol Hill.
Already, some have cited Enron's collapse as evidence that the trend toward looser regulation of stock trades, wholesale electricity pricing and administration of employee retirement plans should be halted.
"We find out why government is the problem when we don't follow through on our regulations," said Sen. Fritz Hollings, D-S.C., chairman of the Commerce committee.
Even Republicans, who usually favor free markets, conceded that Enron was allowed to go too far with too little oversight.
"I do think there is an opening for more regulation," said Sen. Peter Fitzgerald, R-Ill.
One immediate casualty of the Enron debacle could be Bush's hopes to begin privatizing Social Security, the federal retirement entitlement plan begun in the New Deal era of the 1930s.
Last week, a bipartisan commission recommended three ways that a portion of each worker's Social Security payment could be diverted to private savings accounts similar to 401(k) plans.
Proponents of privatization say any change in the Social Security system would come with safeguards to prevent a similar meltdown in shareholder value.
Vigil, the Portland General employee, urged senators to act cautiously, if at all.
"I think there's a real huge concern by labor that corporations are going to try to privatize as many of the benefits as possible," Vigil said in an interview. "That takes a lot of the burden and the liability away from them."
Deregulation Harms Power ServiceReuters – by Leonard Anderson – December 22, 2001
SAN FRANCISCO, Dec 19 - Energy deregulation, tarnished by the collapse of once-mighty Enron Corp. and California's electricity crisis, is also under the gun from labor leaders and regulators who warn it threatens the reliable delivery of power to consumers.
They fear that deregulated power markets mean dangerously overused plants, fierce cost cutting, fewer -- and nonunion -- workers, loss of apprentice training programs, and a laser focus on profits over reliability.
Not so, reply the independent power companies buying up plants from formerly regulated utilities.
Companies like Chicago-based Midwest Generation, a unit of Edison International, are seeking to negotiate new labor contracts that boost productivity and make plants more cost efficient to make electricity at more competitive prices, said Doug McFarlan, a spokesman for Midwest.
Labor leaders see it differently.
``Under regulation, plants were shut down on regular schedules for needed maintenance. But now if a deregulated market is high priced, operators will push them flat out and ignore leaking tubes, valves and other equipment,'' said Jim Dushaw, utility director at the International Brotherhood of Electrical Workers (IBEW) union.
The IBEW, which represents about 220,000 utility employees in the United States and Canada, warns that in addition to breakdowns at plants and transmission grids, deregulation leads to smaller, less-experienced workforces as utilities sell their plants to the independent, unregulated power companies.
To counter this trend, the union is urging Congress to adopt reliability standards and certify power industry workers as part of a new national energy policy, said Dushaw.
VETERAN WORKERS DEPART
``Experienced workers are leaving plants because of all the turmoil, and apprentice programs are drying up,'' said Daniel Dominguez, business manager for the Utility Workers Union of America (UWUA) local that represents workers at newly deregulated plants in Southern California.
About half of 2,100 UWAU's members have left power stations in Southern California since state energy regulators proposed a deregulation scheme in the mid-1990s that directed utilities to divest generating plants, Dominguez said. ``We see workers with 25 to 30 years experience getting out. Instead of working at one plant, now they have to roam between a number of them. There's a lot of uncertainty, and some say 'forget it,' they retire,'' the union official said.
Midwest Generation's McFarlan, however, said a new five-year contract it signed with the IBEW this fall after a bitter 16-week strike was a ``win-win'' for both sides.
The pact gave about 1,100 IBEW workers a 16.5 percent wage boost and a fast track toward top-paying jobs like plant operator in return for a streamlined contract and more flexibility on work rules and the use of contractors. ``We viewed this contract as a critical transition from a utility to an independent power producer,'' McFarlan said. But Carl Wood, a member of the California Public Utilities Commission and a former electrician at Edison International's Southern California Edison utility, warns that deregulation, less training, and job cuts "certainly mean more blackouts.
``There is a definite threat to reliable electric service in California and beyond,'' Wood said. He said that nationwide, utilities cut more than 127,500 employees, or about 27 percent, from their electric operations in the 1990s.
OUTAGES IN CALIFORNIA
The CPUC is investigating a rash of unscheduled plant closings that began at the outset of California's power crisis in summer 2000 and extended to last spring but has not decided on what actions to take, a spokeswoman said.
With demand soaring and plants shutting for emergency repairs, power prices soared tenfold over normal levels, triggering accusations of price gouging and market manipulation from California Gov. Gray Davis, the CPUC and other state officials.
Confronted by a supply shortfall and strong demand, state power officials were forced to order rolling blackouts across the grid last winter and spring.
Limited price caps set by the Federal Energy Regulatory Commission, a mild summer, conservation steps and new power supplies helped to ease the emergency.
Prodded by former CPUC commissioners, utilities seeking to move into new markets, and big industries wanting to cut their own power deals, California pioneered deregulation of its electricity market in a landmark 1996 law.
Despite all the problems in California, including the bankruptcy of PG&E Corp.'s Pacific Gas & Electric utility, 23 states and the District of Columbia are moving to deregulate their retail power markets.