Barron Stone doesn’t like to be called a whistleblower. The CPA, who alleges that his employer, Duke Energy Corp., kept the price of electricity artificially high in the Carolinas with questionable accounting, says he prefers to be called an “informant.” “The word ‘whistleblower’ has a negative connotation,” he explains.
Indeed it does. Stories like that of Sherron Watkins, who has been praised for speaking out against fraud at Enron, are rare. More often, those who try to bring to light unethical or illegal practices by their employers are criticized, treated like outcasts, fired, or worse. “It almost always turns out badly for the whistle-blower,” says James Fisher, director of the Emerson Center for Business Ethics at Saint Louis University. “Often they regret it. They lose their jobs, they have family problems, or they’re shunted off to the side.”
It’s not surprising, then, that the most common reactions of those who discover dubious employer practices are to either leave or look the other way. And while the public has continually asked, “Why didn’t anybody come forward?” during the recent scandals, the fact that so few did indicates that systems designed to protect whistleblowers often don’t work.
Stone’s decision to blow the whistle at Duke was not an easy one: it took two years after first noticing what he calls irregular accounting entries before he came forward. “My wife was against it. She was afraid for my personal safety and the family’s well-being,” says the father of two. Although he says personal safety was never an issue, he was prepared for hostility. “If you go into it thinking people are going to pat you on the back, you are kidding yourself,” warns Stone.
In its Duke Power unit, which runs its regulated utility business, Duke Energy is allowed to earn a maximum rate of return on electricity it sells — 12.5 percent in North Carolina and 12.25 percent in South Carolina. If the company is earning more than that, regulators can cut the rate it charges to customers.
Stone alleges that from 1998 to 2001, the company reclassified some accounting items to make its returns lower so state regulators wouldn’t cut rates. For example, he says Duke often gets rebates from insurers of its nuclear plants based on safety records. Although the cost of the premiums is expensed to the electricity business, he claims the rebates — approximately $26 million to $30.5 million each — were not booked back to the same accounts. On a number of occasions, “they were booked below the line in a nonelectric account,” says Stone. The moves, he says, kept Duke Power from exceeding its allowable returns and kept the states from reducing electricity rates. (CFO PeerMetrix: Look into working capital for the last three years at Duke and at its Richmond rival, Dominion Resources.)