Crime Without Real Punishment

The absurdity of the corporate system of justice was on full view this week when the chief executive of Pacific Gas & Electric stood in a California courtroom and pled guilty to 84 counts of manslaughter in connection with a 2018 forest fire blamed on the utility’s faulty maintenance of transmission lines.

The CEO, Bill Johnson, was not personally pleading guilty to the crimes. He was appearing as a representative of the corporation, which was charged with the offenses and which agreed to pay the statutory maximum monetary penalty of $3.48 million—or around $40,000 per victim.

Since no executive of the company was charged and since a corporation cannot be put behind bars, no one is paying a real penalty in this case. That, unfortunately, is the norm for almost all matters of corporate misconduct.

Usually, however, a hefty monetary penalty takes the place of imprisonment. PG&E is not even facing that limited form of punishment to a meaningful degree in the immediate case, though it was separately pressured to create a $13 billion fund to compensate victims of the Camp Fire.

It is difficult to see the PG&E case as anything more than a symbolic gesture. It leaves open the question of what would be an appropriate way to deal with egregious corporate misconduct.

For a while it appeared that the utility might face serious consequences after Gov. Gavin Newsom raised the possibility of a state takeover. It now appears Newsom was simply using that threat as leverage to get PG&E to make some changes to its operations. Those changes are unlikely to be adequate for a company with such a poor track record.

Converting PG&E from an investor-owned utility into a customer-owned cooperative, as some California officials suggested, would accomplish much more. Skimping on maintenance to bolster quarterly profits would likely become a thing of the past under such an arrangement.

Such a conversion would in effect be a “death penalty” sentence for the existing PG&E. But instead of putting the company out of business, it would resurrect it in a new, more accountable form.

This is actually not a very radical idea. There are already many community-owned utilities across the United States. They even have their own trade association, the American Public Power Association. There are also many cooperative utilities. Even the federal government is involved through entities such as the Tennessee Valley Authority.

Yet these forms of public power have never represented more than a slice of the industry, which instead has been dominated by large investor-owned utilities whose clout was supposed to be kept in check by strict regulatory oversight, especially at the state level.

PG&E is a prime example of the failure of that oversight. Perhaps it is now time to return to the idea of regarding access to energy, like healthcare, as a right rather than a product.

Subsidies and Bad Actors

coalashAre corporate subsidies a right or a privilege? Should a company’s accountability track record be a factor in determining eligibility? These questions take on increased relevance in light of two new developments.

The first is that utility giant Duke Energy is being fined $25 million by environmental regulators in North Carolina. The penalty, the largest in state history, relates to the contamination of groundwater by coal ash from Duke’s Sutton power plant near Wilmington. Federal prosecutors are reportedly pursing a separate and broader case against Duke in connection with its large spill of toxic coal ash from another plant into the Dan River.

The other development is that my colleagues and I at Good Jobs First are about to make public a new version of our Subsidy Tracker that for the first time extends coverage to the federal level (the release date is March 17). Without giving away too much ahead of time, I can say that Duke Energy is among the ten largest recipients of grants and allocated tax credits (those awarded to a specific company) for the period since 2000, with a total in the hundreds of millions of dollars.

Duke got about half of its subsidies in the form of grants from Energy Department programs designed to promote renewable energy and smart grid development. The other half came from a Recovery Act provision that allows companies to receive cash payments for the installation of renewable energy equipment.

Like other large utilities, Duke has taken steps in the direction of renewables while still deriving most of its power from fossil fuels and nuclear. Are federal subsidies helping to wean Duke off dirtier forms of energy, or are they simply enriching a company that is still committed to dirty energy and has shown some serious lapses in its management of its fossil fuel facilities?

Duke is hardly the only major subsidy recipient with a tainted track record. Previously, I discussed the fact that both U.S. banks and foreign banks that received huge amounts of bailout assistance later had to pay billions of dollars to settle allegations on issues such as currency market manipulation and abetting tax evasion.

Federal officials may argue that they were not aware of these practices when the bailouts happened (though these banks hardly had spotless records as of 2008), or they may claim that they had no choice but to bail them out, since they were too big to allow to fail.

Yet the list of large federal subsidy recipients includes other major corporate miscreants. Take the case of BP, which the new database will show as having receiving more than $200 million in federal grants and allocated tax credits. Much of that money postdates its 2010 catastrophe in the Gulf of Mexico, and even more came after the 2005 explosion at its Texas City, Texas refinery that killed 15 workers and for which the company $60 million in fines to the EPA and $21 million to OSHA.

In the wake of the Deepwater Horizon disaster, BP was barred from receiving federal contracts, though the debarment was later lifted. Perhaps an even stronger case can be made for disqualifying regulatory violators from receiving federal subsidies, since they are more akin to gifts than payment for goods or services rendered. This is not likely to happen anytime soon, but the release of the new Subsidy Tracker will make it a lot easier to identify which bad actors have been enjoying Uncle Sam’s largesse.

Coal Ash Taints a Would-Be Corporate Paradise

DanRiverAshPipeIt took a spill of tens of millions of gallons of water contaminated with toxic coal ash into a river used as a source of drinking water to put a halt to what was starting to look like a corporate coup in North Carolina. Duke Energy, the owner of the retired Dan River power plant in the town of Eden where the accident took place in early February, is now under siege, as is the governor who was doing its bidding.

North Carolina’s Department of Environment and Natural Resources (DENR) cited Duke Energy for “deficiencies” at the site of the spill and later charged the company with regulatory violations at other coal ash storage locations. DENR officials accused Duke, for instance, of deliberately pumping 61 million gallons of toxic slurry into the Cape Fear River several weeks after the Dan River accident. A federal criminal investigation that also covers DENR practices is also reported to be underway.

The actions were long overdue. Based in Charlotte, Duke is one of the largest utilities in the country, and it has long intimidated state regulators.  The Charlotte Observer looked into the matter and found that over the past decade the company has been fined only four times during the past decade, paying less than $4,000.

Duke gained even more sway over the agency last year after Pat McCrory took office as governor. McCrory was Duke’s guy — not just in the sense that the company supported him — but because McCrory was a manager at Duke for three decades, including the 14 years he was also serving as the mayor of Charlotte. McCrory is one of the most egregious examples of the reverse revolving door: the movement of someone from the private sector into government.

McCrory brought his corporate sensibilities with him to the governor’s job and set out to make state government even more friendly to companies such as his long-time employer. One of the areas in which this was most pronounced was in environmental policy. With the support of far-right legislators, McCrory appointed businessman John Skvarla to head DENR with the apparent intention of defanging the agency. Agency staffers were told to focus on expediting permits rather than enforcement. As the New York Times has put it:

Current and former state regulators said the watchdog agency, once among the most aggressive in the Southeast, has been transformed under Gov. Pat McCrory into a weak sentry that plays down science, has abandoned its regulatory role and suffers from politicized decision-making.

McCrory’s apparent use of public office to advance the interests of Duke goes back more than 15 years. In 1997, while mayor of Charlotte, he testified before a Congressional committee in opposition to tougher air-quality standards that would have required Duke to install costly new emission controls at its coal-burning plants. Then he flew home on Duke’s corporate jet. The North Carolina Supreme Court once raised ethical questions about McCrory’s actions in connection with a decision by Charlotte to condemn a tract of land to help Duke Power obtain an easement.

Throughout his political career, McCrory has insisted that there was no conflict of interest between his position as a manager at a major corporation and his role as a public official. The recent coal ash controversies are stretching that dubious contention to the limit. The governor has been forced to take a more positive stance toward regulation while insisting that he has not had direct communications with his former employer about its coal ash problems. The new image took a hit when it came out that the lawyer hired by DENR to represent it in the federal criminal investigation once represented Duke. Echoing McCrory’s frequent refrain about himself, an agency spokesperson insisted that this was absolutely no conflict of interest.

The coal ash spills have created a serious health problem for the people of North Carolina, but they have also served the useful purpose of debunking the corporate paradise that McCrory and his allies have tried to create. Along with the remarkable Moral Monday protests against the retrograde policies adopted by the state legislature, the new awareness of environmental carelessness on the part of companies like Duke is making it more difficult for business interest to masquerade as the public interest.