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Page   1 - Duke Energy Employee Advocate

Legislation - Page 6

“You can't give up to the forces of silence. They mean us harm.” - William Matthews
(The poet made this statement shortly before his unexpected death in 1997 at age 55.)

Hard Time for CEO’s

New York Times – by Richard A. Oppel Jr. – July 12, 2002

WASHINGTON, July 10 — The Senate endorsed broad new criminal penalties today for corporate officers who cheat investors or harm employee pensions, highlighted by a penalty of up to 10 years in prison for executives who recklessly or willfully allow their companies to publish misleading financial statements.

With relatively little debate, the Senate also approved measures that would increase prison time for executives who conspire to commit certain white-collar crimes, create a 10-year prison term to punish perpetrators of schemes used to defraud investors and toughen obstruction of justice laws. In a move that has already generated strong opposition in the House, the Senate also lengthened the amount of time in which defrauded investors and plaintiffs' lawyers can sue corporations.

The Senate's actions, which went beyond proposals put forward by President Bush, were taken in a series of unanimous votes this afternoon that reflect the extraordinary momentum that corporate reform legislation has gained in the wake of the recent scandals involving Enron, WorldCom and Tyco.

The amendments adopted by the Senate toughened its main accounting and corporate-governance overhaul legislation, sponsored by Senator Paul S. Sarbanes, a Maryland Democrat. The unanimous votes, which came a day after President Bush's address on Wall Street, reflect a willingness on the part of senators, including Republicans, to take a harder line than the president. The votes also indicate the unwillingness of many lawmakers, as the fall elections approach, to appear to be blocking almost anything characterized as corporate reform.

The Sarbanes legislation must still be voted on by the full Senate, perhaps later this week, and lawmakers expect it to pass by a wide margin. Democrats made a parliamentary move tonight to try to limit debate and force a vote within days.

Passage of the Senate bill would set up a potential showdown — after Congress returns from the August recess — with the House, which passed a much different bill in April. That one carries no criminal penalties and is generally considered less aggressive than the Sarbanes bill.

In particular, some House Republicans are highly critical of provisions in the Senate bill that increase the time permitted to bring securities fraud lawsuits against corporations. The Senate amendment would allow lawsuits to be filed either five years after the misconduct, or two years after the discovery of facts that constitute the violation, whichever is earlier. The current legal standard is three years after the misconduct and one year after discovery of the fraud.

Today, the chief sponsor of the House legislation, Republican Michael G. Oxley of Ohio, declined to say whether he supported a central element of the Senate's proposed criminal statutes — the 10-year penalty for using any "scheme or artifice" to defraud investors, a provision sponsored by Senator Patrick J. Leahy, Democrat of Vermont. Mr. Oxley also complained that some aspects of the Sarbanes bill appeared to be turning into "a gravy train" for trial lawyers.

But he maintained that while important differences remained, his proposal was not that different from the Sarbanes legislation, and he urged the Senate to approve its legislation quickly so the competing measures can be reconciled by a conference committee.

The White House declined to comment tonight on many of the provisions approved today. "We are still reviewing many of the amendments that passed," said Claire Buchan, a White House spokeswoman.

Some lawmakers believe that the Senate legislation still does not go far enough.

On Thursday, Senator John McCain, the Arizona Republican, plans to call for a complete ban on accounting firms' performing any consulting services for clients for which they also serve as external auditor. He will also call for disciplinary hearings conducted by a proposed new accounting regulatory board to be open to the public.

Mr. McCain's plan is more aggressive than existing provisions in the Sarbanes bill that are meant to reduce conflicts of interest in the accounting industry and tighten oversight of auditors.

In a proposal approved unanimously today and sponsored by Senator Orrin G. Hatch, Republican of Utah, and Senator Joseph Biden, a Delaware Democrat, maximum prison terms for executives convicted on some types of conspiracy charges would be increased to the same maximum term for the underlying infraction. Currently, according to the sponsors, conspiracy carries a maximum five-year prison term for convictions related to white-collar fraud. By contrast, drug kingpins and other felons often face prison terms of as much as 15 or 20 years for conspiracy convictions.

"Innocent lives have been devastated by the crook who cooks the books of a publicly traded company, the charlatan who sells phony bonds, and the confidence man who runs a Ponzi scheme," Mr. Hatch said.

Another provision of the Biden-Hatch amendment, intended to deter executives from harming employee pension plans, would increase the maximum term for criminal violations of federal employee-benefits laws to 10 years, from 1 year now.

The most far-reaching proposal by the two senators applies to chairmen, chief executives and chief financial officers of publicly traded companies that file financial statements with the Securities and Exchange Commission. That proposal requires each executive to certify that the financial statements "fairly present, in all material respects," the company's financial picture.

However, "recklessly and knowingly" violating this provision would result in prison terms of up to five years and a $500,000 fine; a "willful" violation of the standard would result in up to a 10-year prison sentence and a $1 million fine.

Last month, the S.E.C. ordered the chief executives and chief financial officers of 945 public companies to certify under oath that "to the best of my knowledge" their companies' financial statements are accurate.

An amendment by Republican Trent Lott of Mississippi, the Senate minority leader, incorporated specific proposals suggested by President Bush in his speech on Tuesday. That includes giving the Securities and Exchange Commission the power to freeze for 45 days any "extraordinary payments" to executives at companies that are under investigation, enacting stronger document-destruction laws, and raising maximum penalties for mail and wire fraud to 10 years from 5.

Some of the proposals by Mr. Bush, however, covered ground in legislation by the chairman of the Senate Judiciary Committee, Mr. Leahy, that was also endorsed by the Senate today in a unanimous vote.

Mr. Leahy's proposal includes the new 10-year felony for schemes to defraud investors, but it also toughens penalties for illegal document shredding and the destruction of documents used in audits, and offers new protections for whistle-blowers.

Senate Panel Approves Pension Reform Bill

Reuters – July 12, 2002

WASHINGTON (Reuters) - As lawmakers push to crack down on corporate misconduct, the U.S. Senate Finance Committee on Thursday approved legislation to protect workers' pension plans, as well as tighten rules on executive compensation and company loans to top officials.

The panel unanimously approved the measures by voice vote. The bill, developed in response to accounting scandals surrounding the collapse of energy giant Enron Corp., aims to prevent workers' retirement accounts from becoming overloaded with stock from their own companies.

It would also require plan administrators to provide more information to workers and set guidelines for offering investment advice to employees.

The bill is expected to be joined with pension reform legislation passed in March by the Senate Health, Education, Labor and Pensions Committee before going before the full Senate in September for a vote.

With scandals engulfing other companies, such as telecommunications giant WorldCom Inc., the legislation was broadened to include measures on the tax treatment of executive bonuses, loans and deferred compensation arrangements.

``The executive compensation provisions in this bill are designed to provide further safeguards to ensure that companies and their officials act with integrity and honesty,'' Committee Chairman Max Baucus, a Montana Democrat, said in a statement. He said the bill will require more transparency and ensure that transactions between corporations and individuals are appropriately taxed.


Companies have been increasingly providing low-interest loans to top executives. WorldCom Chief Executive Bernard Ebbers resigned in April under pressure over the company's huge debts and a $408 million low-interest loan he received.

President Bush has called on companies to end the practice of giving loans to their officers. Bush was himself the beneficiary of such loans more than a decade ago as a director at Harken Energy Corp.

The Senate Finance committee bill would treat such loans as compensation if they are not properly collateralized and no repayment schedule has been arranged. The measure would also require that loans carry a minimum interest rate.

The legislation would also lift a moratorium on new regulations affecting deferred executive compensation arrangements. It would allow the Treasury Department to define when taxes should be paid on such arrangements.

The bill would require that in order to keep tax benefits on deferred compensation, the accounts be subject to the claims of general creditors. Under the bill, tax benefits would be lost for deferred compensation placed in offshore accounts.

The bill would also require chief executive officers, instead of other officials, to sign their companies' federal income tax returns. Baucus said the measure would force chief executives to be more cautious about their companies' accounting practices.

Sen. Don Nickles, an Oklahoma Republican, said he thought the measure was ``ridiculous'' and went too far.


Many contributions to workers' 401(k) and other retirement plans are shares they must hold until they reach retirement age. The bill allows divestiture after three years of service.

The bill will also require pension plan administrators to provide more information to workers about the plan.

The Republican-led House of Representatives passed pension legislation in April. The House measure, which was criticized by Democrats, would also shorten the periods employees could be forced to hold company stock in their retirement accounts.

Energy Derivatives Trading Regulations

Oil Daily – July 12, 2002

(7/11/02) - Efforts to regulate online energy derivatives trading are poised for a revival as Sen. Dianne Feinstein (D-Calif.) gears up to offer her legislation as an amendment to the accounting reform bill now being debated in the US Senate.

Feinstein told reporters Wednesday that "putting it on the accounting bill" is an option. Boosting her efforts, Sen. Tom Harkin (D-Iowa), the chairman, and Sen. Richard Lugar (R- Ind.), the top Republican on the Senate Agriculture Committee, which has jurisdiction over the issue, said they supported her.

In April, the Senate effectively defeated Feinstein's plans to attach the legislation to a comprehensive energy bill. But the latest wave of big business scandals has given new life to legislation attempting to crack down on corporate wrongdoing. Feinstein said her legislation seemed to have a better chance as people now understand the need for a "straightforward, transparent system."

The California senator crafted the legislation in the aftermath of the bankruptcy of energy trader Enron, which has been accused of manipulating the energy market. She maintains her legislation would repeal a congressional exemption that allows firms to buy and sell billions of dollars worth of electricity, natural gas, oil, gasoline, and metals without disclosing information on those deals to the Commodity Futures Trading Commission (CFTC).

In addition to regulating over-the-counter energy derivatives, Feinstein's legislation would require online trading facilities to maintain sufficient capital to carry out their operations, keep books and records of transactions for five years, and publish daily data on volume, settlement price, open interest, opening, and closing ranges.

Feinstein said she would be talking about her plans with Harkin, Lugar, and Sen. Paul Sarbanes (D-Md.), who is shepherding the accounting bill. However, Sarbanes would like the accounting reform bill to pass with the largest majority, Feinstein said, indicating that there was concern that attaching her amendment would take away some support.

If she fails to get her legislation tagged onto the accounting bill, Feinstein said she would negotiate with Senate Majority Leader Tom Daschle (D-S.D.) to take up the legislation at a later stage. She ruled out bringing up the derivatives issue during conference on the energy bill.

Indicating that he is not averse to marking up Feinstein's legislation in his committee, Harkin said it would depend on whether the derivatives amendment is added to the Sarbanes' accounting bill.

Earlier at the hearing, Lugar expressed frustration that the CFTC was not more forthcoming on the issue. He said he expected the CFTC to come up with legislation. "We are looking to you so as to get a handle on something as egregious as this."

In absence of an alternative, Lugar said, he would cosponsor Feinstein's legislation and ensure its passage. "Clearly, something has to change here," he said.

At the heart of the debate is whether energy derivatives are exempted from the CFTC's anti-fraud and anti-manipulation oversight under the Commodities Futures Modernization Act (CFMA). CFTC Chairman James Newsome and CFTC Commissioner Thomas Erickson, a Democrat, differed on whether CFMA exempted energy derivatives from such oversight.

Newsome said that the CFTC needed to get all the facts before offering remedies, but Erickson backed Feinstein's amendment fully. Erickson said while Feinstein's legislation could not have prevented Enron's collapse, "it would have given us a better chance to detect their risk exposure financially."

Several companies that earlier opposed the legislation have also changed their views. A good example is Aquila, whose chairman, Richard Green, told the committee his company supported Feinstein's bill as "it provides the necessary safety nets to restore public trust while not impeding the dynamics of this marketplace."

According to Feinstein, Federal Energy Regulatory Commission Chairman Pat Wood also supports her legislation. But Feinstein is still up against the powerful International Swaps and Derivatives Association and internet-based trading platform IntercontinentalExchange.

In yet another effort to thwart manipulation following the electricity crisis in California, Feinstein on Wednesday introduced legislation that would empower federal regulators to levy fines of up to $1 million on traders manipulating electricity prices.

Vested Worker (Pension) Protection Act

U. S. Congress – June 23, 2002

Statement of the Hon. Gil Gutknecht,

a Representative in Congress from the State of Minnesota

Testimony Before the Subcommittee on Oversight of the House Committee on Ways and Means

Hearing on Retirement Security and Defined Benefit Pension Plans

June 20, 2002

Chairman Houghton, Ranking Member Coyne, and Members of the Subcommittee:

Thank you for allowing me to testify at this very important hearing on retirement security and defined benefit pension plans. I would like to focus on conversions from defined-benefit retirement plans to “cash-balance” plans.

Over the past several years, our country has witnessed the unfortunate spectacle of major corporations converting defined-benefit plans to cash-balance plans in order to recapture billions from supposedly “over-funded” pension plans. Hundreds of thousands of employees, many of whom were older and “vested” in their plans saw the value of their retirement benefits drop precipitously.

In my dictionary, “vested” is defined as follows:

Vested. adj. 1. Settle, fixed, or absolute; being without contingency: a vested right.

Despite this definition, being “vested” in a pension plan does not mean what most Americans think it means. Companies can, at any time and for any reason, change a vested employee’s pension plan. Such conversions often result in anywhere from a 20 - 50% reduction in final benefits, with long “wear-away” periods during which employees do not accrue any new benefits.

This is wrong. When companies change their retirement plans in a way that may reduce employee benefits, vested employees should be allowed to stay in the original pension plan that they were promised.

Bureau of Labor statistics indicate there are more than 48 million American workers over the age of 45. The latest Bureau of Labor statistics also show that more than 40 million workers or their spouses participate or receive benefits from defined benefit plans. Many of these 40 million workers fall into the over-45 age category.

Several years ago, thousands of IBM workers in my district came into work one morning to find that the defined benefit pension plan they had been promised had been changed to a cash-balance plan without warning. For years these employees had been able to calculate their future benefits with a pension calculator located on their computer, compliments of IBM. When the plan changed, the calculator disappeared. So did the employees’ promised benefits.

Congress needs to take action that simultaneously gives all employees fair warning of pension plan changes and gives vested employees protection from company actions that rewrite the pension rules in the middle of the game. That is why I introduced H.R. 4181, the Vested Worker Protection Act of 2002. This bill would require healthy companies to:

  1. provide 90 days notice of a defined-benefit pension plan change to all workers

  2. give fully vested employees the choice of staying in their current plan or switching to the new, amended plan

This bill exempts companies in financial distress from penalties, while otherwise healthy companies will be subject to an excise tax should they violate the provisions of this bill.

Most Americans take protection of their pension plan for granted. The Enron situation has demonstrated the need for employees to carefully monitor how their employer handles their retirement benefits. As more companies change their pension plans and reduce future benefits for employees, Congress must provide, at a minimum, protection for vested workers who are planning for retirement based on promises made by their employers. Providing employee choice in the event of a plan conversion will go a long way toward re-establishing balance and fairness for workers with respect to pensions.

Thank you.

Window Dressing Pension Legislation

Employee Advocate – – June 22, 2002

The associated Press reported that H.R. 4931, the Pension Tax Relief bill, passed in the House on Friday.

The House rejected, along party lines, a meaningful alternative that would have raised taxes on executives of companies that leave U.S. shores, go bankrupt or that promote pension fund irregularities.

“Rep. Lloyd Doggett, D-Texas, said, ‘Let me tell you, the people who've got the money, honey, are the people running this Congress.’ ''

Democratic Representative Sheila Jackson Lee said “It's a darn shame we're do-nothing Congress.”

The defeated Democratic alternative offered other worthwhile provisions:

  • Prohibit companies from deducting more than $1 million in executive compensation if it were effectively taken from the employee pension fund.

  • Executive deferred compensation benefits would be taxed if they were protected from bankruptcy.

  • Executives would pay capital gains taxes on stock options if the corporation move overseas. (Shareholders now pay these taxes, but not executives.)

There will always be legislation offered that appears, on the surface, to help workers. But often, the bills are presented only to stifle real legislation. Perhaps more workers will become interested enough in national politics to throw their enemies out of office. Until that day comes, pension justice will be an uphill battle.

Energy Bill Should Help Citizens, Not Polluters

Public Citizen – Press Release – June 20, 2002

(6/19/02) - WASHINGTON, D.C. - Members of Congress joined consumer, environmental and public interest groups at a press conference today in response to the naming last week of conferees in the U.S. House of Representatives for upcoming House-Senate negotiations on energy legislation.

Press conference participants demanded that the conferees not sell out the American public as proposed by House energy legislation, which offers nearly $34 billion in tax breaks and subsidies to wealthy and polluting oil, nuclear and coal companies. Nearly a dozen lawmakers stressed the importance of prioritizing people over wealthy corporations.

"One provision in the House bill would let companies that want to drill for oil and gas in the federal waters of the Gulf of Mexico forego paying royalties to the American people. The owners of these resources, the American people, get nothing. Zero. Zilch. That is unacceptable," said Rep. Nick Rahall, ranking Democrat on the House Committee on Resources. "If you are an executive of a major oil company, you would love the House energy bill. But if you are just plain folks, a person who pays for gas for your vehicle, you have to wonder why you should be gouged twice - at the pump and at the U.S. Treasury."

Congress is currently struggling to find an additional $7 billion dollars to fund the commitments it made recently in the education reform bill. It will also need between $350 and $700 billion for a Medicare prescription drug plan. Yet the House measure offers, in subsidies and tax breaks, $2.6 billion to the nuclear industry, $5.8 billion to the coal industry, $5.8 billion to the private electric utility industry and $19.5 billion to the oil and gas industry.

A February 2002 report prepared by the minority staff special investigations division of the House Committee on Government Reform calculated the campaign contributions made by those industries in the 2000 election cycle and compared them to the dollar amount of the benefits the industries would receive in the House bill. The rate of return on the industries' investment was 47,700 percent.

The House energy measure also provides the industries with other special breaks. The government - not the coal industry - would pay the cost of industry applications to mine on federal land. The nuclear industry would get a boost by a provision that would promote the idea of building new nuclear plants on Department of Energy land. And auto manufacturers would get a huge break by not having to boost fuel efficiency of sport utility vehicles. Further, the bill does little to promote energy conservation or renewable energy sources.

"The House energy bill is yet another tax cut for the rich that does little to nothing to secure America's long-term energy needs," said Rep. George Miller (D-Calif.). "While President Bush and House Republican leaders are giving tens of billions in tax cuts to energy companies, they are cutting federal support to elementary and secondary schools by $90 million from last year. Their energy bill and their priorities are wrong for America."

Added Rep. Lynn Woolsey (D-Calif.), ranking member on the Science Subcommittee on Energy and a conferee for the energy bill, "The answer to America's energy needs is conservation and increased use of renewable energy. Our number one priority must be the future of America's working families. We must develop energy alternatives to stop our dependence on dirty, exhaustible fossil fuels, and in that way we will provide a healthy, secure future for our children."

Also speaking at the event were U.S. Reps. Bob Filner (D-Calif.), Maurice Hinchey (D-N.Y.), Jay Inslee (D-Wash.), Dennis Kucinich (D-Ohio), Barbara Lee (D-Calif.), Sander Levin (D-Mich.), Edward Markey (D-Mass.) and Hilda Solis (D-Calif.).

DOL Enforcement Of Cash Balance Plans – June 12, 2002

(6/10/02) - Rep. Bernie Sanders (Vt.) has introduced the Pension Protection Act of 2002 (H.R. 4778), which would amend ERISA to provide "more effective" enforcement by the Department of Labor of ERISA's requirements relating to participation, vesting, benefit accrual, and funding. The bill is targeted at employers' conversions of traditional defined benefit plans into cash balance plans.

H.R. 4778 would amend ERISA Sec. 502(b) by striking paragraph (1). That paragraph permits the DOL to exercise its authority with respect to a violation of ERISA's participation, vesting, and funding requirements only if requested by the Secretary of the Treasury or by one or more participants, beneficiaries, or fiduciaries.

Shareholder's Bill of Rights

Wall Street Journal – by Tom Hamburger – June 4, 2002

(6/3/02) - WASHINGTON -- Leaders of a Senate panel investigating the collapse of Enron Corp. say lapses by the firm's board were so serious that legislation may be needed to improve corporate governance. In advance of a hearing next week focusing on Enron's board, Sen. Carl Levin, a Michigan Democrat, is preparing a Shareholder's Bill of Rights that, among other things, directs the Securities and Exchange Commission to issue stricter rules governing board-member conduct and compensation.

"We think the [Enron] board was asleep at the switch and fell down on the job," said Sen. Levin, whose Senate investigations subcommittee issued more than 50 subpoenas to the energy trader's officers and board members as part of its inquiry. His panel will quiz five present and former board members at the hearing Tuesday. Among other things, the committee will consider whether board members' financial relationships with Enron influenced their oversight of the Houston concern's activities.

Some board members had business deals with Enron. In addition, two top officials who were also board members -- Kenneth Lay and Jeffrey Skilling -- received personal loans from Enron. Mr. Lay received more than $70 million in cash during one 12-month period and repaid the loan with his own Enron stock. This kind of lending to board members "creates at least an appearance issue," Mr. Levin said. Evidence already made public indicates board members approved some of the energy-trading giant's most questionable transactions. Board members have said they received incomplete information and that controls they ordered weren't carried out.

About half of the 15 members of the board have resigned and many of them face various shareholder lawsuits. The attorney for outside directors, W. Neil Eggleston, couldn't be reached for comment. To improve board conduct, Mr. Levin's bill would require the board's audit committee of any publicly traded firm to oversee the company's accounting practices.

"We want them to have that responsibility and we want the SEC to issue specific regulations requiring it," Mr. Levin said. While some stock-exchange rules require such oversight, it isn't yet codified in law, an aide to the senator said.

Two dozen other accounting and corporate-governance bills have been introduced in Congress following the Enron collapse, including an accounting-industry overhaul package that passed the House last month. But Mr. Levin's "bill of rights" is considered among the most far-reaching.

Its elements alarmed some. "This bill puts the federal government in every boardroom," said one GOP staffer working on reform legislation. But the legislative counsel to Consumers Union, Frank Torres, was delighted. "It is a strong indication that the Senate wants to take strong measures to protect investors," he said.

Among other things, Mr. Levin's bill of rights would ask the SEC to bar businesses in bankruptcy from providing benefits to company directors or officers that weren't also offered to other workers or creditors of the business. It also would require improved disclosure of loans and other financial transactions involving board members.

The hearing is expected to focus on important moments in recent Enron history when the board might have acted to prevent or reduce the damage of the company's collapse, the largest bankruptcy on record.

Outside board members haven't been thought to have benefited from the special partnerships that concealed Enron's spiraling debt in the past few years. But the board did approve waivers that allowed Chief Financial Officer Andrew Fastow and other executives to participate in the partnerships, which yielded them large profits.

Directors expected to testify Tuesday include: Herbert Winokur Jr., chairman of the board's finance committee and chief of Capricorn Holdings Inc; Robert Jaedicke, former dean of Stanford University's graduate school of business; John Duncan, a founder of Gulf & Western Industries Inc.; Norman Blake, a turnaround specialist who leads Comdisco Inc; and Charles Lemaistre, formerly of the M.D. Anderson Cancer Center at the University of Texas.


Shareholder Bill of Rights

Sen. Levin's bill would impose tough new mandates:

On Directors

-- Audit committee oversight Board of directors' audit committees must review accounting practices.

-- Limits on Preferences Prohibits favorable treatment of directors or officers in distribution of benefits by companies in bankruptcy.

-- Company information Requires disclosure of all loans to company directors or officers. Prohibits companies from improperly influencing or misleading auditors.

On Auditors

-- Auditor independence Bars accounting firm from auditing its own work and from providing nonaudit services to a company for two years after the audit.

-- Independent accounting standards Establishes independent source of funding for the Financial Accounting Standards Board and sets new rules governing board's review process.

-- Stock-option restrictions Requires shareholder approval of any stock-option compensation plan not shown on company financial statements as an expense.

More Energy Welfare

Wall Street Journal – by Shailagh Murray – May 31, 2002

(5/30/02) - WASHINGTON - A full year after President Bush called for a new energy law, just this much is clear as the House and Senate struggle to agree: The final product will be chock-full of industry tax breaks.

With the federal budget back in the red since the energy bill's legislative odyssey began, lawmakers say they have to keep its price down. But no matter how divided Republicans and Democrats are on some issues, such as drilling in an Alaskan wilderness refuge, they share an election-year zeal to bestow tax breaks to supporters. And the oil and gas, nuclear, electricity, and environmental lobbies are all angling to keep their perks in the final bill.

The GOP-led House has shaped the more pricey package. It would reduce federal tax-revenue an estimated $36.5 billion over 10 years, according to new estimates by Congress's nonpartisan Joint Committee on Taxation; the price tag on the Senate version is about $20.6 billion. "I think we'll end up at about $20 billion," predicted the Senate's top Republican tax-writer on its Finance Committee, Sen. Charles Grassley of Iowa. The cheaper the final package, he added, the better the chance Mr. Bush will get to sign one of his top priorities into law.

Given the parties' many differences, assorted costly tax breaks for special interests could be the glue that holds a bill together. Or the tax breaks could make up the bill itself, if negotiators fail to agree on anything else. "It may be we take the tax provisions out and pass those separately," says Democratic Sen. Max Baucus of Montana, the Finance panel's chairman.

A big reason for the House bill's higher cost is simply timing. The House went first, starting on a bill last summer after Mr. Bush and Vice President Dick Cheney called for legislation. The budget was in surplus, California's energy crisis was fresh on politicians' minds, and Enron Corp. hadn't yet collapsed. Under pressure to act, the House Ways and Means Committee cleared its shelves of any tax-break proposal remotely energy-related, including an excise-tax exemption for railroad diesel fuel.

The Senate bill, in contrast, is a creature of a post-Sept. 11 Congress that had become consumed with a war on terrorism, grim budget forecasts, and the Enron scandal.

"The political establishment was in a somewhat more generous mood" last summer, says Richard Myers, senior director for economic and business policy at the Nuclear Energy Institute. By the time the Senate took up its bill, "there was a general sense that we needed to show a little more restraint."

Both bills would give tax relief to the nuclear-power industry for putting aside the reserve funds that will be needed to decommission its plants -- that is, to dismantle the facilities and safely secure all radioactive materials once the plants are retired. The House version would cost about $2.2 billion over 10 years, the Senate's at less than half as much. Both bills change existing law to make it easier for plant owners to take tax deductions on contributions to the decommissioning accounts, but the House would let companies claim deductions on past contributions, too, as well as any made after a plant's normal life expectancy.

While the House's extra relief "would be nice," says the nuclear industry's Mr. Myers, easing deductions is the main issue. "The biggie is in both bills," he says. "The major concern is resolved."

Both bills also would give utilities an incentive to spin off transmission assets as part of deregulation. Over five years the difference isn't huge; the House break is valued at about $4.8 billion, and the Senate provision would carry a $3.7 billion cost, the Joint Tax Committee's estimates show. But over 10 years, it is a different story. The House provision allows companies to avoid taxes on gains, if they acquire new property with the proceeds. Under the Senate provision, companies would still pay the taxes, but over eight years. Its 10-year cost, then, is $184 million, and the House's is at $2.4 billion.

"It's unrealistic for anyone to expect to get exactly what they got out of the House," says Ron Clements, a lobbyist for the Edison Electric Institute, which represents for-profit utilities.

The House bill gives a double dose of assistance to the emerging landfill-gas industry, making it eligible for two alternative-energy tax credits. The Senate offers one of the credits, and under less-attractive terms.

Holly Smithson, who lobbies for the Solid Waste Association of North America, is sympathetic to the cost constraints, but gripes that the Senate created "an unfair competitive advantage" by approving tax breaks for other alternative energy sources, such as animal waste. She isn't wild about the House version, either.

One of the credits, for selling nonconventional fuels including landfill gas, limits the volume eligible to about a fifth of the methane gas produced at an average landfill.

"It's not completely worthless, but it doesn't do much to encourage these projects to come on line," she says. While she would like both incentives, she would prefer one without restrictions, just as the White House proposed. "If you're going to do something, do it thoroughly," Ms. Smithson says.

The House tax package includes $9 billion in incentives for oil and gas production over 10 years, compared with $3.5 billion in the Senate bill. Both estimates amount to "downpayments on a much larger need," argues Lee Fuller, lobbyist for the Independent Petroleum Association of America, citing industry studies concluding it needs $10 billion a year in new capital investments.

The House and Senate both would extend and liberalize a tax credit for extracting oil and gas from nonconventional sources such as geo-pressurized brine and shale. Studies indicate those sources account for around a quarter of U.S. gas production and a third of gas reserves. The House version would not only reward producers for new wells, but allow companies to claim credits for old-well output as well. Its revenue cost is put at $2.6 billion over 10 years; the Senate's version, $1.9 billion.

Petroleum industry officials, who have sought a more generous break for years, aren't quibbling. Any incentive for nonconventional oil and gas production "will be viewed as a positive step," says Mr. Fuller. As negotiators dicker, the most vulnerable proposals are those that made it into either the House or Senate bill, but not both. The Democratic-controlled Senate, for instance, included incentives for numerous alternative-energy sources that environmental-group allies favor but the House overlooked. Katherine Hamilton, co-director of the American Bioenergy Association, frets about the fate of a tax credit for what is known as closed-loop biomass, in which plants such as prairie grass are grown specifically to generate energy. Utilities have started to use some forms of biomass, to reduce emissions, and yet Ms. Hamilton counts them as foes.

"Almost everyone is experimenting with renewables," she says, "but they're unwilling to give up on their other subsidies. My fear is that there's a lot of differences that won't be resolved, and we lose all the good stuff."

The Energy Bill Scam

The Waste Basket - – May 3, 2002

With the passage of the Senate Energy Bill last week, our national energy policy has become the poster child for all that is wrong with Washington. Every stage of the Energy Bill's design and creation has involved the securing of massive welfare handouts for wealthy corporate interests.

The story begins with the energy industry contributing millions of dollars to the campaigns of Democrats and Republicans in Congress. It should come as no surprise that those "contributions" bought industry unprecedented access and influence over the legislative process, and set in motion a policy process that resulted in legislation that dishes out billions of dollars in subsidies and tax credits to very profitable companies.

The interest of the broader public was forced into the wings when the President's energy task force held closed-door meetings with industry executives where they were asked to play the role of II Duce in creating a wish list for their industries. Rather than the long-term interests of the nation's pocket book or the public good, when the President released his national energy strategy, corporate profits received the most attention.

The House followed in lock step with consideration of H.R. 4, the House Energy package passed last August. It includes a whopping $33 billion in tax credits and incentives for energy companies, including new subsidies for oil, gas, nuclear, coal and electric utilities, but offers little to taxpayers and consumers. Legislation passed by the Senate last week was almost as bad. More outrageous than the overall content of the bill, however, was how billions of dollars in corporate giveaways were tacked onto the bill with little or no debate.

One such provision would mandate the use of ethanol in gasoline, and increase the use of ethanol to five billion gallons by the year 2012. When the five billion gallon mark is reached, the ethanol mandate will cost taxpayers about $2.5 billion annually. Also included in this section is a provision that would protect companies from being sued should the ethanol mandate have a detrimental effect on either the environment or the public health. Should any clean-up costs be incurred, as has happened with the MTBE mandate in California, taxpayers would more than likely be liable for those costs.

Another lucky recipient was the Healy Clean Coal Plant in Alaska. As reported in the February 15th WasteBasket, after having received over $117 million in federal subsidies to experiment with Clean Coal, this project-gone-bad now wants the feds to pay for them to retrofit back to a traditional coal-burning plant. With absolutely no debate, the Senate earmarked $125 million more in loan guarantees for Healy to correct their past mistakes.

The Bonneville Power Administration in Oregon also struck gold when in the eleventh hour they were guaranteed $1.3 billion in new borrowing authority despite the fact that they have an atrocious record on being accountable for the billions in borrowing authority that they've already received. This nearly doubled the $700 million dollars requested for BPA in the President's budget for 2003, yet there was no Senate debate and no vote.

Then there is the story of the Alaska Gas Pipeline. In exchange for building a natural gas pipeline from Prudhoe Bay to major U.S. markets, gas companies will receive a new tax subsidy that provides a federal guarantee on the future price that they will receive at the end of the pipe. Energy consultants can't even predict how much this may cost taxpayers, yet the Senate passed the legislation without a public debate.

Energy legislation's next step is conference committee where, if last week's outcome on the Farm Bill is any indication of what will happen now, it's likely that the negotiations between the House and Senate Energy Bills will only sweeten the pot and leave Democracy out in the cold.

This is just one example of how serious national policy debates have turned into pork fests for every special interest in Washington. It is a sorry state of things when industry antes up campaign cash to get the invitation to write the policy, then spreads around even more money to secure its eventual passage into law, and at the end of the day has a few extra goodies added to sweeten the special interest grab-bag that Congress and the administration call "energy policy."

The country certainly needs a real debate about its energy future, but participation shouldn't be limited to the highest bidders.

Arbitration More Expensive Than Court

Public Citizen – Press Release – May 2, 2002

Sens. Kennedy and Feingold Unveil Arbitration Bill to Protect Workers

WASHINGTON, D.C. - Arbitration, although widely billed as a low-cost alternative to court, is actually far more expensive for consumers and employees who seek redress for discrimination, fraud and malpractice, a new Public Citizen report reveals. In fact, arbitration costs are so high that many people drop their complaints because they can't afford to pursue them, Public Citizen found.

Arbitration is a private legal system in which, practically speaking, no appeals are allowed. Arbitrators tend to favor businesses, and arbitration awards tend to be much lower than jury verdicts, because arbitrators often favor companies that will provide them future business.

Mandatory arbitration clauses are increasingly being written into everything from basic equipment purchase forms to employment contracts. If consumers use a credit card or cell phone, or have health insurance, they likely have signed or received a form with fine print prohibiting them from suing the company and instead requiring them to take disputes to arbitration. Employees, too, are increasingly finding out too late that they have given up their right to sue, and instead must submit disputes with their employers to an arbitrator instead of a judge.

Public Citizen unveiled the report at a Law Day press conference at which Sens. Edward M. Kennedy (D-Mass.) and Russ Feingold (D-Wis.) introduced legislation protecting employees from arbitration clauses.

According to the report, the cost of initiating an arbitration case is almost always higher than the cost of filing a lawsuit. For instance, an $80,000 consumer claim brought in the Circuit Court of Cook County, Ill., would cost $221, versus $11,625 at National Arbitration Forum (NAF), a 5,260 percent difference. The American Arbitration Association (AAA) would charge the plaintiff up to $6,650, and Judicial Arbitration and Mediation Services (JAMS) would charge up to $7,950, amounting to a 3,009 percent and 3,597 percent difference in cost, respectively. In requiring payment of these high fees up-front, arbitration destroys the benefits of attorney contingency fee arrangements, which allow plaintiffs to pursue cases without advancing funds.

"Congress, the courts and the public have been victims of a disinformation campaign, portraying arbitration as an inexpensive and impartial alternative to the public courts," said Joan Claybrook, Public Citizen president. "Today, we authoritatively debunk this myth. The grim fact is that for people who are victims of consumer rip-offs and workplace injustices, arbitration costs much more than litigation - so much more that it becomes impossible to vindicate your rights."

People caught in arbitration's net include home buyers complaining of shoddy workmanship, employees pursuing discrimination cases, patients seeking redress for poor care from their HMOs, small business owners in dispute with franchisors and consumers who are improperly billed.

Los Angeles resident Stephanie Paul had to arbitrate a malpractice claim against her lawyer. She was charged $5,000 for filing the claim - a fee the arbitration association refused to waive even though she was unemployed. Each fiscal quarter, the association charged her $150 for processing fees. When the law firm filed a motion to have the case dismissed, Paul was charged $2,425 for the time the arbitrator spent handling it. More fees were added over time. Finally, when the bill hit $10,474, Paul dropped her claim because she could no longer afford to pursue it.

In another case, the Malkani family of Austin, Texas, had to take its dispute with a homebuilder to arbitration. The Malkanis were charged $3,500 as an initial administrative fee, followed by $1,375 in other miscellaneous fees. In the end, the family was awarded $18,819; however, the builder didn't have to pay the family's attorney fees or administrative fees. The arbitration fees cost the family $13,069 - not counting attorney fees.

The report also found that:

§ Arbitration costs are high under pre-dispute arbitration clauses because there is no price competition among providers. Clauses in contracts lock consumers in to a specific arbitration firm. Companies that want to use arbitration to prevent consumers and others from asserting their legal rights have no incentive to arrange low-cost arbitration. Instead, it is to their advantage to seek out the most expensive providers.

§ Arbitration costs will probably always be higher than court costs because the expenses of a private legal system are so substantial. The same support personnel that expedite cases at a courthouse, such as file clerks and court administrators, are also needed to manage arbitration cases. While it costs the Clerk of the Circuit Court of Cook County an average of $44.20 to administer a case, AAA's administrative cost per case averages $340.63, about 700 percent more.

§ Arbitration saddles claimants with a plethora of extra fees that they would not be charged had they gone to court. For example, the NAF charges $75 to issue a subpoena, which is provided for free by courts. The NAF also charges fees for discovery requests ($150) and continuances ($100), which are also free in court.

"We challenge Corporate America and the arbitration apologists to rebut this report," said Jackson Williams, legislative counsel for Public Citizen, who prepared the report. "Show us your substantiation for the claim that arbitration is cheaper."

Hold Congress Accountable for Pension Bill

WorkDay Minnesota – by Stephen L. Langlie – April 23, 2002

To the editor,

The House pension bill, which just passed, is a new scam in the American workplace. Please note the following excerpts:

“We think it’s a do-nothing or worse-than-nothing bill,” says Karen Friedman, director of policy with the Pension Rights Center. “It does nothing to prevent future Enrons, nothing to help those employees get their money back.”

AARP opposed the Boehner bill mainly because it would let employers hire the same company that administers its retirement plan to give participants investment advice.

This idea predates the Enron fiasco and was backed by groups representing brokerage, mutual fund and insurance firms that administer 401(k) plans.

Opponents say the bill would unleash conflicts of interest. They say administrators could push their own investment products over competing ones that may be cheaper, better or more suitable.

The investment advice provision “would open the door for the very kinds of conflicts we are reading about in this week’s newspapers,” says Rep. George Miller, D-Martinez, who sponsored a competing pension bill that the House voted down yesterday.

One provision could let companies reduce the number of lower-paid employees covered by pensions and give larger benefits to the highest-paid employees.

Under current law, to obtain tax benefits, plans must meet nondiscrimination tests designed to balance benefits between higher- and lower- paid workers. But the new provision would allow companies that fail those tests to meet more-subjective standards."

I would strongly urge you to publish or post the votes of the MN Congressmen. They were as follows:

FOR: Luther, Peterson, Ramstad, and Kennedy

AGAINST: Gutknecht, Oberstar, Sabo, and McCollum

These Congressmen need to be called to task on these issues, publicly! I would especially like to know why the two Democrats are trying to screw the workers; it is, of course, par for the course for most Republicans to do this!


Stephen L. Langlie

Bill Great for CEO’s, Disaster for Employees

Congressman Sanders – Press Release – April 12, 2002

Rep. Bernie Sanders (I-VT) today voted against the so-called “Pension Security Act” introduced by the Republican leadership because it would be a disaster for American employees. The bill passed the House of Representatives by a vote of 255 to 163.

Sanders said, “I voted against this bill because it will weaken pension protection for American employees. Not only does the Republican bill fail to address the problems that were brought to light by Enron and IBM, incredibly it opens new loopholes to protect CEOs at the expense of average workers. Today, millions of American workers are increasingly concerned that the pensions that were promised to them will not be there when they retire. Millions more have no pensions at all, even though companies receive some $100 billion in tax breaks every year to provide retirement plans for their employees. This is simply unacceptable. Congress must not only pay lip service to this issue, it must work to find serious solutions to protect the pensions of American workers, and to increase pension coverage for all employees.”

As a first step, Sanders voted in support of an alternative bill introduced by Rep. George Miller (D-CA) that would protect employees 401(k) pension plans and prevent future Enrons. Sanders opposed the Republican bill because it:

  1. Fails to Give Employees Control of Their Nest Egg:

    The Republican bill would allow companies to prohibit employees from diversifying their 401(k) pension plans for 5 years. The bill that Sanders supported would allow all company-matched stock to be diversified after three years of employment.

  2. Allows Conflicted Investment Advice:

    The Republican bill would, for the first time in almost 30 years, allow investment firms to serve both as principal financial advisor and investment manager to an employee. The bill that Sanders supported would not permit this to take place. Instead the Miller bill would allow unbiased, independent financial advice for employees who have questions about their 401(k) pension plans.

  3. Fails to Require Companies to Notify Employees When Executives Dump Company Stock:

    Enron company executives - with inside information about the company’s real financial condition - dumped millions of dollars in company stock while employees were left in the dark and locked out of their savings. The Republican bill fails to address this issue. The bill that Sanders supported requires insiders to notify retirement plan participants of any stock sales of $100,000 or more within 3 business days.

  4. Fails to Provide Employees a Voice in Their Own Retirement Savings:

    Enron pension plan trustees failed to protect the irreplaceable life savings of thousands of Enron employees, despite conclusive evidence that a number of trustees were aware or should have been aware that the company was covering up serious financial problems. The Republican bill denies employees a right to have a voice on their own pension boards. The bill that Sanders supported would require employee representatives on pension boards.

  5. Continues Special Treatment for Company Executive Pension Plans:

    As Enron began to implode in a wave of accounting scandals, company executives not only cashed out millions in company stock but also protected themselves through a number of executive-type 401(k) plans that are not subject to attack by Enron’s numerous general creditors. However, Enron employees must stand in line behind even the company’s general creditors to get any recovery of their hard earned savings -- a prospect that is quite unlikely. The Republican bill does nothing to address this great inequity. The bill that Sanders supported would help employees receive the pensions they were promised during bankruptcy hearings.

  6. Fails to Hold Company Officials Responsible for Misconduct and Fails To Enhance Plan Accountability:

    Enron workers lost $1 billion, and because of inadequacies in current law, those workers are not likely to recoup much of their life savings in court. The Republican bill fails to recognize the need for remedies for employees. The bill that Sanders supported provides remedies so that when 401(k) plans are abused, employees may receive the pensions that they were promised.

House Passes Weak Pension Reform Bill

Associated Press – by Leigh Strope – April 12, 2002

WASHINGTON (AP) - The House voted Thursday to add more worker protections to the nation's pension laws in response to the Enron collapse that caused thousands of employees to lose their retirement savings.

The bill, passed on a 255-163 vote, is modeled after President Bush's pension overhaul plan.

It would let workers get investment advice from the companies managing their retirement plans, allow workers to sell employer- matched stock in their 401(k) plans after three years and require that notice be given to workers before changes are made to their accounts.

Enron workers "are the victims of outdated federal pension laws," said Rep. John Boehner, R-Ohio, one of the bill's authors.

About 42 million Americans hold 401(k) accounts, with $2 trillion in assets.

Democrats opposed the legislation because they said it did not provide enough protections for workers caught in another Enron-type bankruptcy.

The top Democrat on the tax-writing Ways and Means Committee, Rep. Charles Rangel of New York, said the reason for Republican support was clear: "It's corporate contributions, stupid."

Democrats knew they could not defeat the measure in the Republican- controlled House. With an eye toward November elections, they attempted to tie the debate to corporate greed and Enron.

"This is a very simple issue. The question is, `Which side are you on?'" asked Democratic Rep. Martin Frost of Texas. "They're with the top executives. We're with the employees."

The bill would ban company executives from selling their employer stock during blackout periods when workers cannot make changes to their 401(k) accounts. Enron executives sold their stock while workers were prohibited from selling that in their 401(k) plans as the price plummeted.

It also would require 30 days notice to workers before they are locked out of their accounts for administrative changes.

"What you see is, from my point of view, a party that is desperate for a message," said House Speaker Dennis Hastert, R-Ill. "They will try to take Enron and ... politicize this whole process."

The bill would let employers decide if workers can sell their employer-matched company stock after holding it for three years or after three years of service with the company. Enron barred workers from selling employer-matched company stock in their 401(k) plans until age 50.

The legislation makes "modest but appropriate changes" without discouraging employers from offering 401(k)s and other voluntary retirement plans in which thousands of workers have earned wealth, said Ways and Means Committee Chairman Bill Thomas, R-Calif.

Democrats failed to get included measures to allow workers to serve on employer pension boards and to require corporate executives to notify workers when they sell company stock.

They also strongly opposed a provision allowing workers to receive investment advice from the same companies that manage their 401(k) retirement accounts, saying that advice would be tainted by financial conflicts of interest.

"It's not the silver bullet that's going to solve every problem," said Rep. Rob Portman, R-Ohio, a sponsor of one of the bills combined in the final legislation. "But it's a substantial change in current law and it does address the Enron issue."

But Portman lost his Democratic co-sponsor, Rep. Benjamin Cardin, D- Md., when Republican leaders included in the final plan the advice provision from investment firms.

"This bill fails to provide workers enough choice or enough information," Cardin said.

The Portman-Cardin plan would have let workers pay for their own investment advice with pretax dollars deducted from their paychecks. That measure also was included in the final bill.

Democrats cited Merrill Lynch & Co. Inc. as an example of problems that could occur if investment firms were allowed to advise workers. The firm was ordered Monday to reform its business practices after being accused of giving advice that hurt clients but enriched the company.

"This is the lesson of Enron," said Rep. George Miller, D-Calif., ranking Democrat on the House Education and the Workforce Committee.

Republicans said the legislation provides much-needed investment advice to workers and requires disclosure of any potential conflicts.

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