Pre-bankruptcy bonuses at PG&E
April 8, 2001 1:14 PM   Subscribe

Pre-bankruptcy bonuses at PG&E The corruption in California couldn't be any more obvious to me.
posted by Brilliantcrank (20 comments total)
Corruption, sadly, is everywhere. The truth is, it takes far worse shapes than this one anywhere you go or live around the world.

Cheating the public is a little like cheating your husband or wife. Is it wrong? Yes. Should we strive to make it more difficult for those who endulge in it? Yes. Is it our duty to speak out? Sometimes. Will it ever stop? Let's not be naive.
posted by coyroy at 1:34 PM on April 8, 2001

I'd say it goes beyond simple opportunistic corruption. These guys clearly planned to do this from the beginning. It's called a SCAM.
posted by muppetboy at 1:37 PM on April 8, 2001

I am unsure of what the law says on such corporate bankruptcies, but I know a family that declared bankruptcy (the GOP as since made this more difficult for idividuals but has not changed the regulations for corporations). They were advised by a specialist (lawyer) that they had to dump assets (conceal them) a few months before declaing bancruptcy.
In the California case (above) no waiting period needed and a farewell gift given out, though clearly the company will continue to exist and "only" their creditors will lose.

Works out well for all who worked for the company.
posted by Postroad at 3:25 PM on April 8, 2001

If public officials are incompetent or fraudulent, there's the ballot box and the courthouse. In private enterprise, the equivalent of the democratic process is meant to be consumer choice: you vote with your feet. Now, with privatised utilities, that's barely possible: I've not read of anyone in CA being able to switch providers in the way you can over here.

It would be useful, I think, if there existed a mechanism to refuse bankruptcy protection in cases like this: in essence, for the courts to say that you don't get the breathing space while others deal with the mess you leave behind. (Particularly in this case, where the corporate structure of PG&E makes it easy for the parent company to offload the distributor, like a lizard's autonomous tail.)
posted by holgate at 3:40 PM on April 8, 2001

There is a mechanism in the Bankruptcy Code for nullifying transactions ("fraudulent transactions") taking place less than a certain number of days before a Bankruptcy Petition is filed. I'll leave it to someone else to write more on this subject/possiblity.
posted by ParisParamus at 3:56 PM on April 8, 2001

the GOP as since made this more difficult for idividuals but has not changed the regulations for corporations.

No, they have not. The bill was bipartisan, passed both houses by overwhelming margins (not possible if it were a GOP-only bill), and is still in conference committee, where it might still die. The laws remain the same.
posted by aaron at 4:02 PM on April 8, 2001

Chalk one up for our lame media, Aaron (the confusion).
posted by ParisParamus at 4:08 PM on April 8, 2001

There was some deliberate obfuscation in the news article, but you have to read it closely to spot it because the reporter is trying to get you angry:

One company awarded some bonuses just before a different company filed for bankrupcy.
posted by Steven Den Beste at 4:11 PM on April 8, 2001

Or the reporter didn't know what the heck was going on. If the reporter were trying to get you angry, he or she could lay out the facts more deliberately. I don't even live in California, and this makes me angry. A "different company" could be a dummy corporation, or a different division, or the parent company, or blah blah. But it's all a part of the same company. How big a "unit" is the electric utility "unit." I'd imagine pretty darn large, but leave it up to Calif. posters to type in what I believe is the obvious.

Anyway, to ParisParamus: The media reported -- or widely reported, as the media like to say -- the bipartisan passing of the bankruptcy bill. It's a shameful thing, and points up even more the need to reform the campaign finance system in some way. (Which is not to say that the McCain-Feingold is the solution.) Also, a tougher small business bankruptcy law is currently in the conference committee, one that would make it harder for small companies with debts of less than $3 million to file to file for Chapter 11 reorganization. Large corporations would be exempt from the act. This crosses the line from shameful to evil.
posted by raysmj at 4:34 PM on April 8, 2001

Oh: Strange irony, and then I'll drop this matter. One reason the personal bankruptcy law reform bill still may not pass is the slowing economy. Large credit card issuers are suddenly noticing that, hey, the economy's slowing down and people might file for bankruptcy protection before the laws change. Which leads to what? Even more losses in the short term for the credit card issuers.
posted by raysmj at 4:37 PM on April 8, 2001

A question, for any corporate lawyers out there.

How easy would it be for the parent company to create a new subsidiary -- let's call it, say, Pacific Electric and Gas Co. -- and then acquire the interests of the old company while it's under bankruptcy protection?

I'd imagine that it's not allowed, and I really don't have any understanding of company law, but some of the more notorious fraud cases in the UK have involved that kind of manipulation of subsidiaries, where one bails out the next, while the proceeds get siphoned to the directors...
posted by holgate at 4:50 PM on April 8, 2001

raysmj: the surest sign of a slowing economy, I think, is when the spam offers of cheap credit cards dry up, to be replaced by "preapproved" consolidation loans...
posted by holgate at 4:51 PM on April 8, 2001

holgate: Still getting a preapproved credit card offers almost every other day. One day, it's Citibank. Next, it's GM or my alma mater. Then, it's Joe Bob's Grocery and Bait Shop Visa Platinum. The whole consolidation loan thing is for people who were addicted to CDs prior to Napster and poor folks and has been expanded now that Citibank, et. al, no longer feel it shameful to start a glorified loan shark business -- or unit, as it were.
posted by raysmj at 5:23 PM on April 8, 2001

Well, the raise was given to "midlevel managers, secretarial staff and other support staff," and their employees probably shouldn't be the first ones to get screwed in this whole mess. 50M sounds like a lot, but according to the Post, PG&E is 6billion in the hole so that 50M isn't going to make 'em or brake 'em. But it may be a different story for their employees.
posted by Witold at 6:12 PM on April 8, 2001

I've no sympathy for anybody involved in this "crisis."

Obviously PG&E, Enron et al did what they could to enrich themselves, and now Gray Davis wants to pass along to us the cost of whatever corrupt scheme he eventually settles on. Easy targets all.

But what about that noble, mythical creature, "The Consumer"? Is he or she entirely the victim here?

In news accounts of the "crisis", The Consumer is defined by a twin set of phobias. One fear is that the cost of electricity will actually go up. God forbid. The other is the fear that the lights will go out. Yikes. (It's strange. The Consumer may be Democrat or Republican, male or female, rich or poor, but (s)he is bloody scared when you turn off the lights!)

I say: suck it up.

Electricity isn't a right. It's not even something that everyone can sustainably enjoy at Western-levels -- at least for the time being. So until Dean Kamen works his magic, Californians should just chill out, and maybe (although this is asking a lot) entertain a few thoughts about the value of their bloated, decadent lifestyles. Don't like the price of energy on the grid? Then how about not buying so much? Or, better yet, getting off the grid entirely?

I thought (foolishly) that I might find a point of agreement with Republicans here. But no -- they want an "energy policy" (to use Cheney's euphemism for his favorite brand of corporate welfare). Indeed many Republicans, while mouthing allegiance to the "free market", perversely also support the regulation of retail electricity. You see, unlike other social welfare programs, the cost of electricity actually affects them. No surprises there, I guess.

So where are all the genuine "free market" afficionados when you need 'em? Surely they all agree that the point of the government is merely to enforce law and order, and not to run the energy business. So why not simply sell off the grid etc to the highest bidder, and be done with it? Give Rupert Murdoch (or whomever) license to charge whatever the market will bear, and leave it at that?

Nope, nope, not gonna happen. You see, Republicrats are afraid of the dark.
posted by johnb at 11:03 PM on April 8, 2001

How easy would it be for the parent company to create a new subsidiary -- let's call it, say, Pacific Electric and Gas Co. -- and then acquire the interests of the old company while it's under bankruptcy protection?

IANAL so I don't know about the specific laws, but I know the Bankruptcy Court judge would have to approve of any such pseudobuyout, and I can't imagine one ever giving such permission. Besides, they wouldn't even have to try something like this. By declaring bankruptcy, the utility will get to erase much of its debt, and its owner - the parent company - will get all the benefits anyway.

A "different company" could be a dummy corporation, or a different division, or the parent company, or blah blah. But it's all a part of the same company. How big a "unit" is the electric utility "unit." I'd imagine pretty darn large, but leave it up to Calif. posters to type in what I believe is the obvious.

What most people don't understand is that this is not some sneaky trick on the part of PG&E. When it comes to industries that have a high potential for getting caught up in legal/regulatory/financial storms - such as power, tobacco, etc - it is standard business procedure to create offshoot companies in order to protect the corporate parent from such attacks. In fact, it's so standard that the executives have a legal responsibility to do so. If they didn't, they would be sued by shareholders for breach of fiduciary responsibility, and the shareholders would win. If you want to argue about the morality of a system that requires such actions, fine, but don't blame PG&E for doing what they were required to do, and what any other publicly-traded company would have also done.

Chalk one up for our lame media, Aaron (the confusion).

No argument here. One of the biggest problems of journalism, especially wire service journalism, is that they expect a reporter to become an instant expert in a given subject (in this case, business administration) the moment he gets an assignment, no matter how little exposure he may have previously had to the topic at hand. That's not possible, of course, so he almost inevitably ends up writing a clueless, surface-level story after his scant few hours of fact-gathering. ("Shoveling profits from subsidiary to parent company? Why, that must be corrupt! What other possible explanation could there be? Duhhhh.") Then the next day he gets assigned something on a completely different subject, and then another, and never even has time to absorb what little he does learn from each piece. Not that it matters, since he'll probably never get another story along the same lines.

So where are all the genuine "free market" afficionados when you need 'em?

Welcome back, johnb! To answer your question: There are certain industries in which it doesn't make economic sense to have a free market. The term for it is "natural monopolies." Most utilities are natural monopolies, including electricity. They have to be regulated in order to prevent the price-gouging of consumers who would have nowhere else to turn.
posted by aaron at 11:54 PM on April 8, 2001

As a free market "afficionado" I am compelled to note that we wouldn't be in this mess if we actually had a free market when it comes to energy and CA. PGE is in trouble because they can't raise prices. That what it comes down to. And the reason why californians don't have enough power is because they passed stupid laws that made it damn near impossible to build new power plants. Now those laws are catching up with them.
posted by Witold at 12:03 AM on April 9, 2001

Aaron: Reading things into posts that aren't there again. Yes, companies have to set up dummy corporations and distinct units and the like. It's more than merely possible that this whole thing can be abused, but I didn't say so. It was suggested by another poster the reporter's burying the part about the unit's filing for bankruptcy protection -- actually, it was the parent company, I believe -- was rather suspicious. The reporter might not have known what was going on, as I suggested. Or maybe the reporter uses this technical language so much that he or she forgot that non-business readers - who, it is fair to say, will have a greater interest in this story than most business coverage -- won't appreciate it. Or won't get it, rather.
posted by raysmj at 12:08 AM on April 9, 2001

What did I infer about your comment that wasn't there? They had to set up the offshoot company, and they had to funnel the profits the way they did. (And it was the utility that filed, BTW, not the parent company.)
posted by aaron at 12:40 AM on April 9, 2001

Aaron: Thought you were implying that my post suggested a possible sinister scenario, which was certainly not intended. But perhaps I'm a bit too sensitive about this, having been directly accused of far stranger things.
posted by raysmj at 1:03 AM on April 9, 2001

« Older Within a year, one authority expects, a judge will...   |   Free as Air, Free as Water, Free as Knowledge Newer »

This thread has been archived and is closed to new comments