David Cay Johnston on How Big Companies Rob You Blind

As part of his freshman writing seminar at college this year, my son was assigned to read one of the Federal Theatre Project’s most popular productions — Power by Arthur Arent.

It was a play about the history and evils of the electrical power industry.

Back then, during the Depression era, power was seen as a public good.

And whether the public had any control over it was a question of heated public debate.

Why not today?

That’s one question raised by David Cay Johnston’s The Fine Print: How Big Companies Use Plain English to Rob You Blind.

It may be the top corporate crime book of 2012.

Each of the first 24 chapters is jam packed with the evidence to prove the case.

And as chapter six reflects, the questions addressed by the Federal Theater Project during Depression era America are alive and well and waiting to be debated in USA 2012.

Chapter six is titled – Profits Upkeep Commissions (PUC).

The title refers to a story about the California Public Utilities Commission.

But it could refer to any of a number of law enforcement agencies across the country today whose jurisdiction includes corporate crime – from Eric Holder’s Justice Department on down.

Eric Holder’s Justice Department, which, fully four years after the financial crisis has yet to criminally prosecute one high level Wall Street executive or major Wall Street firm in connection with the fraudulent behavior underlying the crisis.

But we digress.

Back to chapter six and an electric utility company known as Pacific Gas & Electric – or PG&E for short.

PG&E owns 2.3 million power poles that need to be replaced, the company says, every fifty years.

That would mean replacing 46,000 poles a year.

PG&E made the case to the public utilities commission.

And the regulators approved higher rates to replace them.

But, alas, as Johnston reports, “PG&E diverted much of that money” and “replaced just 15,000 poles in 2002 and 2003, less than a third of the number its own experts testified should be replaced.”

Replacement rates fell to about 3,300 poles a year.

“At that rate, seven hundred years would be required to replace PG&E’s poles,” Johnston reports.

What effect?

“When PG&E makes customers pay for new poles, but then does not install them, costs are subtly pushed into the future and company profits are inflated,” Johnston writes.

“That makes executives and investors happy. When the inevitable day comes and aging poles start crashing? No worries then, either, as a profitable solution is probably in the offing. Another rate hike will address the emergency by undertaking a massive pole replacement program.”

The scenario isn’t fiction.

It happens over and over again, Johnston says.

I was born and raised in Niagara Falls, New York.

At Hyde Park elementary school, I did a third grade project about how hydroelectric power was generated by the tons of water rushing over the falls.

And ever since, I’ve wondered – given all of this cheap power, how come the economy in Niagara Falls and western New York have remained in a state of perpetual near depression?

Johnston answers on page 73.

“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 publically owned electric utilities in New York,” he writes. “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.”

Johnston makes the point that all of that cheap power could foster an economic boom in western New York.

Cheap power is doing that on the Canadian side, but not on the USA side.

What to do to rein in utility companies?

Well, Johnston says first things first.

Go back to the days of Power and Arthur Arent and get rid of utility holding companies.

“Congress should require that all legal monopolies be stand alone companies with no holding company as a parent,” he writes. “That was a lesson we learned back in the 1930s but conveniently forgot.”

And he has a long list of solutions for rip-offs in other sectors including arbitration, banking and insurance, taxes and politics.

But in the end, Johnston says it comes down to you and me.

“Real change comes from the bottom up,” he writes. “Popular power can break through any glass ceiling, any artificial barrier, because voters elect our government leaders. So get out and vote. And remember that no one will do it if you do not.”

“Reform begins with you.”





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