The Whistleblower #19
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The Whistleblower

The Whistleblower #19 - Apr 18, 2002

The Enron scandal: more than just accounting fraud. Long before Enron made national headlines when its accounting scheme toppled, the rogue energy firm was notorious in California for its profiteering. Last week, Cal. energy officials explained Enron's role in California's power crisis and some of the ways that Enron manipulated California's electricity market. At a US Senate hearing organized by Sen. Boxer, officials related how Enron sold power to its affiliates several times over, inflating the price each time. This created a chaotic market environment in which other power providers felt emboldened to ratchet up prices as well. Officials also contended that Enron used the high volume of its energy deals to create the appearance of transmission line congestion, and then demanded payment to withhold power.

The accounting scandal: not just about Andersen. Revelations of accounting scandals have virtually taken over the business pages of major newspapers these days. Andersen has been exposed not only as the enabler of Enron's deceptive accounting, but also of Global Crossing's and others'. Now Andersen has been joined by one of its "Big 5" counterparts, KPMG. KPMG is the object of an SEC investigation of alleged accounting fraud involving the Xerox Corporation, which has agreed to pay a $10 million SEC fine and restate its earnings for four years straight. Although many instances of shareholder deception are coming to light in the wake of Enron/Andersen, the problem will not be meaningfully addressed until more stringent oversight of the books and severe penalties for misbehavior makes it uneconomical to play accounting tricks on the public.

Price-gouging is a blast. AES, one of the companies that caused California's electricity crisis by gaming the market, seems to think that the energy business is quite literally a game. According to the company's most recent annual report, AES is committed to certain principles in its dealings, including "fun." The report reads, "making decisions and being accountable is fun and [AES] has structured its organization to maximize the opportunity for fun for as many people as possible." "As many people as possible" doesn't seem to include any Californians, who had to write all those bank-breaking checks for overpriced electric power, thereby subsidizing AES shareholders' good times. Is the company still having fun, now that its stock has tanked? Maybe so; anything is possible in the odd universe of the AES report, which also touts the gouger's employees' "moral code."

Thinking like trees makes Environmental Defense's position shady. A spokesperson for Environmental Defense was quoted in the San Francisco Chronicle as supporting on environmental grounds the Cal. PUC's proposal to force ratepayers to illegally bail out PG&E: "If I was a tree or a fish, I would vote for this plan." The implied argument, that the PUC plan is better for the environment than the PG&E plan, is a non-starter; humans (including the California Attorney General) have observed that the PG&E plan does not stand up to legal scrutiny, and there's no excuse for the PUC to put forward a plan that fails consumers. Environmental Defense has a shady history where ratepayers are concerned. The group was touted by California Governor Davis's spokesperson as a supporter of the Gov.'s most recent appointment to the PUC, energy tycoon Michael Peevey (see WB#8). Since Peevey is not known for his environmental advocacy, by rallying around his appointment Environmental Defense seems to be doing favors for the energy industry. California's consumer groups unanimously opposed Peevey's appointment. Environmental Defense also joined California's big utility companies in 1998 in defeating Proposition 9, a statewide ballot measure that took aim at California's dubious deregulation scheme before the energy crisis hit.





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