Thursday, April 06, 2006

It Wasn't Just Enron

Everyone has heard about Enron.  However, there were a lot of other murky events that happened in the utility industry during the “Enron Era” of faux-deregulation.

David Wittig was the CEO of Westar Energy.  Westar Energy is a fancy newfangled name for Kansas Gas and Electric (KGE), the utility that serves cities in Kansas including Topeka.  Once upon a time most of the utilities had names that described what they did (i.e. sell gas and electric services in the state of Kansas) but, with the help of “branding” professionals, they all changed their names into unrecognizable crud the likes of “Exelon” and “Westar”.

Back to Mr. Wittig.  Wittig was convicted of various crimes related to looting Westar assets, and sentenced to 51 months in prison for bank fraud in 2004.  He has another pending trial for 39 more serious counts.  His appeal failed and he was recently sent to prison.  I sent an email to The Smoking Gun web site requesting that they find his mug shot – it would give me great pleasure to see that face and know that he is going to a very, very bad place.

Wittig not only essentially looted the company, he did an even bigger disservice to the good people of Kansas.  Back in the late 80’s and early 90’s (before Wittig’s time, to be fair) the rage was for utilities to get into “deregulated” businesses.  Deregulated businesses are basically defined as anything that isn’t the standard gas, electric, or telephone businesses.  The utility makes a guaranteed return on the utility business, so after they pay dividends they have money left over to invest.  When the utility wants to raise money for capital purchases, the ratepayers (you) essentially paid for it through incorporation into the “rate base”, so they don’t have to keep that much money around for capital expenditures.

I worked at a utility in Iowa that purchased and built a very high end golf course in a city of under 100,000 people that was pretty much a dismal investment (a nice course, though).  Why in a million years would a utility think that this was a good idea or that they would be good at running a golf course, I literally have no idea.  But these types of inept business decisions were common-place.

Westar got into the security / home monitoring business.  This business is tangentially related to utility services in that there are customers (homes), trucks, and service areas, along with monitoring and customer services.  This link was tried by a few utilities, generally with abysmal results.

The security business was sold at a big loss (article here).  However, all of that energy and capital could have been redeployed in the business.  If you read the 10-K for Westar Energy, you can see that their coal plants are getting very old, and their only significant investment since the mid-80’s were gas fired plants, and some wind plants.  While it is pretty windy out on the plains, these types of investments were made mainly to pacify the liberals at the commissions that monitor the utilities (the regulators).  You aren’t relying on wind power to meet your peak load on a hot day, that is for certain.

I am sorry to keep harping back on the same theme but there are so many pathetic angles in how we wrecked our own utility industry, the industry that used to lead the world (after all, we invented it!)  Malfeasance (looting) and terrible deregulated investments only piled on top of horrible regulatory decisions and environmental NIMBY’s to send us back decades.
Even amongst the rubble and bad decisions, however, Wittig stands out, not only for looting the company, but for his terrible non-regulated investments that wasted even more corporate funds.  He is a mini-me for Ken Lay and Skilling.


Anonymous said...

Just found your blog. I live in Olathe, KS (suburb of Kansas City, MO).

If you have the time/interest, I think it would be very interesting to read and investigation into the composition of regulatory bodies. It is one thing to denounce them as "liberals." It would be truly informative to know how they are appointed, and what influence individual citizens have in such appointments.

I think that the general populace is of the opinion that regulatory bodies are looking out for their best interests -- I think the corporate accounting scandals and utility scandals are telling us this is not the case. But it is difficult to know at what junction we can influence these bodies, so that they look out for the interests of consumers.

Carl from Chicago said...

A good comment. I come from the industry and have experience with commissions in various states.

I wouldn't characterize most commissions as "liberal", but in the sense that commissions force utilities to purchase "renewable" (i.e. non-economic) power, they are forcing the utility to make bad economic decisions.

Often, unfortunately, the commissions are powerless to protect consumers' interests. I guess that would typically be a 'liberal' point of view, but since utilities are monopolies and can make whole industries un-economic by high priced electricity and gas delivery, as a conservative I want them to be run efficiently (cheaply). The commissions are often overturned by state law, such as in Illinois or California, where deregulation was forced on the state by the legislature and then the commissions had to "play the hand that they were dealt".

I will look into some of the commissions and give a report.

Thanks for posting.

Dan from Madison said...

My utility is Madison Gas and Electric. They have thus far remained seemingly squeaky clean as far as scandals go. Do you think it is because they are relatively small? They have very good PR as well, as they sponsor popular events like UW sports, charity outings, etc. They have even tried to improve transmission through new construction with very little hubbub around here and that is a major feat as liberal as Madison is. Thoughts?