The $450 million is a huge sum, and hard to grasp. But imagine that you could get just $45,000 today from your job and not have to pay your taxes for thirty-seven years. At 3 percent, inflation would reduce the value of the taxes you would owe by two-thirds. Meanwhile, if you earned a real return of 5 percent annually on the money in your deferral account, after thirty-seven years each dollar would have grown to close to six dollars. To paraphrase Mel Brooks in History of the World Part I, it’s good to be a utility.
These and other tax benefits flowing to corporate-owned utilities are enormous. From 1954 to 2006, corporate-owned electric utilities got tax benefits worth $450 billion, according to a study for the American Public Power Association by MSB Energy Associates of Madison, Wisconsin. In 2006 alone another $11.6 billion in tax benefits was added to the total. That is almost a dime a day from every man, woman and child in America who get their electricity from a corporate-owned utility, about $150 per year from each affected family of four.
From the utility’s point of view, things are likely to get even better because of the clamor in Washington to reduce corporate income taxes. Since 1993 the corporate tax rate has been 35 percent. But during the Bush administration special rules were added that lowered the real corporate tax rate for utilities. The Obama administration got Congress to do more to cut actual rates. In 2012 Congress was moving to lower the rate to 25 percent. If the rate is cut, as seems likely to happen, the utilities will get a windfall, unless state utilities boards make adjustments. Almost a third of the money in the utility deferral accounts—those ADIT funds—would no longer be owed, but instead would be pocketed by the utilities. That is a huge boost to their finances and a further drain on yours.
Utilities are understandably eager to make sure government looks upon them with the soft gaze of a lover and not the flinty stare of a skeptic, especially when it comes to their finances. More than a century of experience has taught corporate-owned utilities how to keep politicians focused on corporate interests rather than what is good for country or customers. One way is to raise money from regulated industries to spend on travel for those who regulate the companies. That is just what Mike Peevey did after his term ended as president of the California Public Utilities Commission. Peevey helped create the California Public Utilities Commission Foundation, which held a fund-raising dinner where tables sold for $20,000 each. Among the buyers were Pacific Gas & Electric, San Diego Gas & Electric and Southern California Edison, the utility that Peevey was president of before he became its chief regulator.
Bill Bagley, another former commissioner, told the San Francisco Chronicle that he saw no reason for anyone to look askance at the utilities giving money to pay for travel by PUC commissioners and staffers. “Basically, every utility will be contributing—so if it’s a conspiracy, it’s a massive conspiracy,” Bagley said in 2011.
Indeed, it was a massive conspiracy, in this case to undermine the public interest. That the idea was embraced by the utilities and various politicians shows how thoroughly corporate values permeate California’s utilities commission, which up until the end of the century was regarded as the best utility regulatory body in the country because it actually balanced utility interests with those of customers. Under Peevey it became the utilities’ best friend.
The California Public Utilities Commission Foundation soon met a well-deserved early death, but the idea of free travel for politicians and officials paid for by utilities didn’t die with it. Each year more than a dozen California state lawmakers enjoy a free trip to Hawaii. In 2011 they checked in to the luxurious Fairmont Kea Lani hotel in Maui, part of a chain owned by a billionaire Saudi prince. Among those headed to the land of the lei was the speaker of the state assembly, Los Angeles Democrat John Perez, who said he could not imagine anyone thinking the trip was questionable. Another traveler was Tom Berryhill, a Republican state senator from Modesto who opposed efforts by the South San Joaquin Irrigation District to buy out PG&E. The district said it could cut prices 15 percent and improve service.
California law prohibits state lawmakers from taking more than about $400 in gifts. The Maui trip was quite a lavish working vacation, costing $13,000 per lawmaker. The lawmakers could go because of a loophole. While gifts from corporations and others were limited, no restriction was placed on travel paid for by nonprofit organizations. The nonprofit sponsor in this instance was no charity in the traditional meaning of that word. It was the misleadingly named Independent Voter Project, a front for PG&E, Southern California Edison and other special interests eager to get five days with lawmakers to educate them on what they want state government to do for them.
On the other side of the country, another kind of influence jacks up electricity costs for consumers and small business owners in New York.
Niagara Falls generates massive amounts of cheap electric power. Buffalo journalist Jim Heaney likens Niagara Falls to an eternal Saudi Arabia, a place where, long after the last drop of oil has been extracted from the Middle East, the waters of the Great Lakes will keep spinning turbines to generate electricity. All that cheap power could foster an economic boom in western New York, historically a center of innovation and manufacturing. Cheap power is doing just that on the Canadian side of the border as automakers and others flock there. Out west, Grand Coulee and nine other dams on the Columbia River have made the Pacific Northwest economy flourish for more than seven decades.
But in New York the cheap power benefits only a few. Just ten corporations get two-thirds of the cheap power not dedicated to the handful of publicly owned electric utilities in New York. Among those with long-term contracts to buy power at well below the rates anyone else pays are Intel, Occidental Petroleum and Olin, a chemical company. The biggest share—a fourth of Niagara Falls’ power—goes to Alcoa for its aluminum smelters at the eastern end of Lake Ontario. This power is so cheap compared to what other industrial customers pay that, over thirty years, Alcoa will save the mind-boggling sum of $5.6 billion. That is ten times the entire profit Alcoa earned worldwide in 2010. So what does all this cheap power subsidize?
About a thousand jobs, filled by workers who earned an average of less than $60,000 each per year. Divide up the subsidy, and it amounts to about $150,000 per job annually. Paying the workers in full to stay home would thus save $90,000 per job each year. That makes the Alcoa subsidy the equivalent of throwing your money over Niagara Falls. The subsidy also means that while Alcoa reports profits to investors, those profits come not from the competitive markets, but this subtle gift of a public resource.
What makes these sweetheart electricity deals even more astonishing is that the state studied them years ago and recognized that the power was being wasted. The knowledge, however, did nothing to alter the behavior of the politicians or the companies. Alcoa insisted on, and got, a thirty-year contract for Niagara Falls electric power at giveaway rates.
In one California city the leaders grew tired of being robbed by PG&E. The town is Manteca, home to about sixty-five thousand people. Located in California’s Central Valley, Manteca’s environs look more like the drier parts of Texas than the forested coast eighty miles away. The farmers who settled there in the late nineteenth century realized that water was key. They spent their own money to build and maintain the South San Joaquin Irrigation District waterworks, which captures the runoff from melting Sierra Nevada snows. The early farmers’ foresight means that today Manteca’s prosperous almond growers pay about $8 an acre foot for reliable, clean sweet water, while other California farmers pay up to a hundred times that much for salty, less reliable flows. The dams that the irrigation district built—without federal subsidies—also produce electricity, generating sales that ease tax burdens.
The irrigation district wants to buy out PG&E in the area. The farmers understand that if they can get rid of PG&E, their electric power costs will fall by at least 15 percent. They hired as their general manager Jeff Shields, who has taken on corporate utilities four times in the past. In one
case he forced the sale of corporate-owned utility assets and, when a judge ruled that the proper value for these was their cost less depreciation, known as book value, the utility decided to let it go. Had the utility appealed and lost, the decision by a California court of appeals would have established book value for future takeovers by public agencies.
One September morning in 2009, under a cloudless sky, the district held a public hearing. Men in blue jeans with big belt buckles, starched plaid shirts and cowboy boots and women in flowery dresses took seats in what is normally the parking pad for irrigation district trucks. The well-maintained metal roof overhead looked neat and clean in contrast to the dusty mess visible through a chain-link fence surrounding the local yard for PG&E crews. The ranchers voiced strong support for buying out PG&E, their every word captured by a video crew sent by the utility to record the proceedings.
Three speakers stood out that crisp morning. Two were young men in dress shirts who railed about government abusing its power of eminent domain to condemn PG&E property. Neither acknowledged that PG&E, like all utilities, also has the power of eminent domain and can force you to live with a power pole in your garden. You will be compensated, but the utility’s idea of fair compensation may seem to you like a token fee for their destruction of the value of your property.
The third speaker was a PG&E executive who stood out because she wore a sleek tight dress and red-soled Louboutin high heels more appropriate to a San Francisco office than a country town. PG&E, she said, would sue the district like it had never been sued. She tossed out figures for the value it would get a court to award for its property, figures that if applied to the whole company would make it one of the most asset-rich companies in America, worth many times what it told its shareholders it was worth.
When the session ended, the woman raced off before I could interview her. The farmers who stayed to sip coffee said they were not worried about the threats, though they considered them bad manners. “That’s the PG&E way,” one rancher said. “They are bullies, pure and simple, with no regard for anyone or anything except their profits.”
“Pure greed,” the farmer’s wife said. Others nodded in agreement.
Among the many things that upset these ranchers and other Mantecans besides high rates and bad service was how anyone who built a new home or business had to gift the electric wires and natural gas lines to PG&E—and then pay taxes on the value of those gifts and taxes on the value of the taxes.
Dennis Wyatt, the no-nonsense editor of the daily Manteca Bulletin, figured out how much these gifts cost: $7,000 for the wires and pipes for the average new home valued at $250,000. Of that amount, Wyatt calculated that $2,380 was for the taxes and the taxes on the taxes. “This isn’t chump change,” Wyatt told his readers, since the grossed-up taxes alone inflated the value of the typical new home in Manteca in 2009 by 1 percent.
For years Wyatt explained to readers how the Public Utilities Commission fixed this rule to benefit PG&E at the expense of customers, news that no other major news organization in California reported. Jeff Shields, as wily an opponent as PG&E has ever encountered, put all the obscure and damaging evidence he could find in the public record in front of the irrigation district customers, many of whom learned of these matters by reading Wyatt.
One evening in his tiny office at the Bulletin, Dennis Wyatt stared at his computer. He was trying to come up with a shorthand way to communicate to his readers how the Public Utilities Commission was serving the interests of PG&E to the detriment of its customers, who had no alternative for electricity and natural gas.
After midnight, Wyatt started focusing on the word “public,” with its implication that the Public Utilities Commission existed to serve the commonweal. He had a little epiphany when he looked at the acronym PUC in a new way.
In reality, Wyatt wrote, what PUC really stood for was Profits Upkeep Commissions.
7…
“We Lead the Industry with Integrity”
When you are the captain of the ship, you are responsible for everything that happens to the ship.
—Judge Kern A. Reese
7. Walking along the 1500 block of Tulane Avenue in downtown New Orleans in 2007, I saw a curious sight. On the sidewalk was a thin pad of crumbling cement; bolted to its top was a piece of sheet steel about a foot square. The steel seemed to have a great puncture in its middle; in fact, the round, jagged-edged hole was the result of a violent storm that had shorn off the light pole once mounted there.
I visited this site on a September day when New Orleans seemed so steamy you could almost sip the moisture from the air. My guide was a man named Joe Seeber, and he directed my eye to the dark pit at the hole’s center and a tangle of black and white cables inside. The ends of the wires were wrapped in black electrical tape, creating bulges that, in the stylized manner of modern art, might be said to resemble Medusa’s deadly tresses, as if she lay in wait beneath the pavement, her headdress of vipers waiting to strike anyone who dared to gaze upon her.
Spotting a telephone repair crew up the street, I asked the two workmen to take a look.
“Live wires!” exclaimed one of them, showing us a meter holding steady at 227 volts. “Dangerous! Stay back!” he warned as I drew closer to see the meter’s needle.
The four of us were standing in front of Charity Hospital, where the poor and those without insurance sought care for illness and injury until flood damage caused by Hurricane Katrina forced it to close in 2005. But there in front of Charity’s white towers, in the heart of the city’s hospital district, people were ambling by as they do every day. All that stood between a pedestrian and a potentially fatal shock were the black tape turbans wound around Medusa’s electrified split ends.
“Been that way for more than eleven years,” Joe Seeber said.
The two telephone guys shook their heads in disbelief. “Someone needs to fix this,” one said as they walked back to their truck.
Joe Seeber knows more about this than anyone. That snarl of live wires nearly got him jailed, even though he had nothing to do with the storm that snapped off the light pole in March 1996. The pole fell on a street vendor, leaving him permanently disabled.
How a falling light pole almost got Joe Seeber imprisoned is a story that reveals how corporate America abuses its power, aided by government, to punish those who dare to challenge its privileges.
JOE SEEBER’S CRUSADE
Entergy, the electric-utility holding company that is the most powerful corporation in New Orleans, decided to silence Seeber. His offense? Seeber had exposed how Entergy cheated the people of New Orleans out of millions of dollars.
Joe Seeber owns TriStem Consulting in Hewitt, Texas. TriStem examines electric bills that utilities send to cities and state agencies, colleges, charities, factories and shopping malls. From his base in Hewitt, halfway between Austin and Fort Worth, Seeber dispatches teams across the country to count the streetlights for which utilities charge taxpayers, just to be sure they exist. Many do not. His teams compare the wattage shown on power bills to the actual bulbs in streetlights (often utilities charge for high-wattage bulbs, even though they install smaller lamps that consume less juice). TriStem finds streets that have been dark for months or even years, with lights that residents and business owners have complained need to be replaced, but for which the billing has never ceased.
New Orleans is not alone in being overcharged by Entergy on its electric bills. Seeber has caught the company cheating taxpayers in states throughout the South. Entergy owns four other utilities—one each in Louisiana, along the gulf coast of Mississippi, in East Texas and Arkansas. All of these Entergy utilities have billed taxpayers large sums for power that was never used.
Late in 2009, the small East Texas town of Beaumont got a report from TriStem detailing how Entergy billed for nonexistent streetlights and overstated wattage on other lamps. Seeber included photographs with addresses so that anyone could check his work. Three decades earlier, one of Seeber’s firs
t audits had uncovered $100,000 of bogus Entergy charges to Beaumont taxpayers, but in 2009 the City of Beaumont sued Entergy for fraud. “After an inspection and audit,” the Beaumont lawsuit charged, “shocking trends were discovered” about “Entergy’s unethical and fraudulent billing practices.” Within days four other East Texas towns—Conroe, Huntsville, Nederland and Port Neches—filed similar lawsuits based on TriStem audits of Entergy bills.
Although it serves many poor areas, Entergy is an enormously profitable company. From 2006 through 2008, Entergy reported profits of more than $5 billion. Customers of its utilities paid the company more than $800 million to cover its corporate income taxes for those three years. Yet Entergy did not pay a dollar of corporate income tax to the government. Instead, Entergy got back almost $58 million from the government. That gave Entergy a real federal tax rate of minus 2.4 percent.
In 2009, Entergy paid just $43 million in income taxes on a pretax profit of nearly $1.9 billion for an effective income tax rate of just 2.3 percent, according to its own annual disclosure statement.
Although many of its customers are impoverished, Entergy’s chief executive officer, J. Wayne Leonard, is paid exceptionally well for his performance as head of a holding company with five monopolies, among other investments. According to Equilar, a company that tracks executive compensation, Leonard’s 2009 pay came to $27.3 million. Entergy’s board had been so generous that, as 2009 ended, Leonard’s stock equity and pension were worth more than $92 million. These figures are based on the way the government requires companies to calculate executive wealth, though history shows that official figures often understate the real wealth of executives.
The Fine Print: How Big Companies Use Plain English to Rob You Blind Page 10
