May 26, 2006
Al Capone of electricity
Al Capone cut throats, machine-gunned people to build his gang and went to jail — for not filing his taxes properly. Likewise, Ken Lay, buccaneer of the power industry, will go down — if the jury doesn't buy his alibi — for not filing his SEC forms properly.
(Editor’s Note: Ken Lay was found guilty of fraud and conspiracy on May 25, after this commentary was written. In a later commentary on www.Truthout.org, Greg Palast wrote, “Ken Lay, though found guilty of stock fraud, is totally off the hook for his BIG crime: taking down California and Texas consumers for billions through fraud on the power markets.”)
And just as Capone went up the river leaving us a permanent legacy of organized crime, so Lay, whether or not he's sent to the slammer, has left us, with the connivance of a few well-placed politicos, an electricity system that is little more than a playground for power-industry predators.
We've been here before. In the 1930s, a character named Samuel Insull created the first giant power holding companies. Insull played fast and loose with his account books, fast and loose with cash for politicians and pocketed millions by gouging electricity customers. Insull was indicted, like Lay, for crimes against his stockholders.
In 1933, President Roosevelt made Insull's power piracy a crime. FDR signed the Public Utility Holding Company Act and laws that capped the profit of electricity monopolies. The act required them to keep lights on by accounting for all maintenance expenses, barred "trading" electricity and, most important, banned donations by the power giants to politicians.
Fast-forward to January 2001. The George W. Bush administration, within 72 hours of his inauguration, issued an executive order lifting the Clinton Energy Department's effective ban on speculative trading in the California power market. The state was still in crisis, facing blackouts and 300 percent increases in power bills, the result of "deregulating" its electric system, as first suggested by Lay.
Instead of a "free" market, California's electricity bidding system became a fixed casino where Lay's operatives and a tight-knit cabal of corporate cronies jacked up prices through such tricks as "death star," "ricochet" and "kilowatt laundering."
In one instance, Enron "sold" the state 500 megawatts of electricity to go over a 15-megawatt line. Enron knew that sending that much power through those wires would have burned them to a crisp. To prevent this Enron-designed blackout, the state scrambled for other sources of electricity, which Enron and friends sold them at a big mark-up.
California's Independent System Operator put the cost to consumers of this "gaming" at $6.3 billion in a six-month period. Under the Roosevelt rules, when utilities were regulated to a fare-thee-well, the gaming rooms would have been busted.
Instead, the games have been institutionalized. For example, TXU, the corporate alias of Texas Utilities, has seen earnings per share rise 500 percent in five years. The reason: So-called deregulation allows the company to sell electricity at a price based on the sky-high cost of oil although much of its power is produced from cheaper coal or uranium. In effect, deregulation has become de-criminalization of price gouging.
Even more sinister than Bush's hasty executive order allowing Enron to resume speculation in the California power market was his appointment of Pat Wood as chairman of the Federal Energy Regulatory Commission, the government's electricity cops. The choice of Wood was suggested, in secret, by Enron.
This put Lay one step ahead of Al Capone who had to buy the cops. Lay just had them appointed.
Wood may have been as honest as the day is long, but on his watch, Enron and the industry treaded through the power market like Godzilla through a kindergarten. And it continues under a new chairman, also suggested by Enron.
What about the $6.3 billion filched from the wallets of California consumers, let alone the larger sums taken in by power profiteers nationwide? The Lay-blessed federal regulators barely batted an eye.
Lay's brainchild of deregulation was coupled with his other grand idea: a massive increase in industry largesse to politicians. By unsubtle, but perfectly legal, means around FDR's prohibition on political donations, Enron PACs and its executives became the top Bush funders.
Capone never lived to see armed robbery made legal. But Lay, even if convicted, can leave the courthouse for the Big House knowing power profiteering is now as legal as prayer. On July 14, 2005, Roosevelt's Public Utility Holding Company Act, bulwark of consumer protection, was repealed by a Congress fattened with utility industry cash.
This commentary first appeared in the Seattle Post-Intelligencer (www.seattlepi.com) May 23, 2006. On June 6, Penguin Dutton will publish Greg Palast's new book, ARMED MADHOUSE: Dispatches From the Front Lines of the Class War. Order it today at http://www.gregpalast.com/armedmadhouse/preorder.html.
Palast, an internationally recognized expert on Enron and electricity market manipulation, is co-author of Democracy and Regulation, the United Nation's guide to control of the utility industry. View his investigative reports for Harper's Magazine and BBC Television's Newsnight at www.GregPalast.com.
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