Bryson’s Troubled Part in CA Electric Crisis
By WAYNE LUSVARDI
As I was spinning my legs on an exercise bicycle in a gym class in Pasadena last year, I noticed the face of one of those in the class looked like a photo I saw on the Internet of John Bryson, the former CEO of Edison International, the parent company of Southern California Edison. I inquired and sure enough that is who it was.
Bryson impressed me as a person with a penetrating gaze and a grim, humorless and aloof exterior demeanor, something like the image of a technocrat depicted in Robert Musil’s novel, “The Man Without Qualities.” Bryson played a major role as one of those deeply involved in the California electricity crisis of 2000-01, especially spinning what happened.
Bryson’s Nomination and Background
On May 31, 2011, President Barack Obama nominated Bryson to serve as secretary of the Department Commerce. U.S. Senator John Inhofe, R-Okla., vowed in July 2011 to block the nomination. The Natural Resources Defense Council, an organization Bryson co-founded in 1970, naturally supported his nomination.
Bryson was appointed to the California Water Resources Control Board in 1976 and then as chairperson of the California Public Utilities Commission in 1979, both by then-Gov. Jerry Brown. From 1990 to 2000, Bryson was CEO of Southern California Edison. After Edison split the holding company into two parts so it could pull assets out of Southern California Ediston before it almost went bankrupt due to the California electricity crisis, in 2000 he took over as head of Edison International.
Former Gov. Gray Davis, who in 2003 was recalled from office in a large extent due to bungling the electricity crisis, received $350,000 in campaign contributions from Edison in 2000, ostensibly to secure a bailout of Edison from near bankruptcy. The state of California agreed at one point of the electricity crisis to purchase Edison’s electric transmission grid for $3 billion, purportedly twice the system’s book value, to save Edison from bankruptcy. This bailout later became unnecessary, as will be explained below. By 2008, Bryson was able to retire from Edison with a $65 million severance package.
What I Learned About the Electricity Crisis
In 2000, this author was employed at a large regional water district that was incurring huge spikes in the electricity spot market to pump water across the Mojave Desert and over the Tehachapi Mountain Range to thirsty cities in Southern California due to electricity deregulation. I suggested to my supervisor to approach the then-CEO of the water agency with a proposal to create an energy crisis task force to fend off anticipated inquiries from its board of directors as to the spiraling electricity bills. The suggestion took off and I found myself appointed to be secretary of the Energy Crisis Task Force.
What followed was a steep learning curve about what the cause of the California electricity crisis was. I soon learned that it wasn’t what the media and the official spin doctors said it was. I found several holes in the narrative propagated by government agencies, the union-controlled The Utility Reform Network (TURN) and the media that Enron had caused the electricity crisis by “gaming the system” for higher prices.
Here’s what I discovered:
* A tape widely disseminated by the media of an Enron trader asking an operator on January 17, 2001 to shut down a 52-Megawatt power plant in Las Vegas at the peak of the crisis was not to “game” the system for higher prices but to reduce congestion in the electric grid and, thus, to reduce prices.
* Private energy providers such as Mirant Corp. were the unsung heroes of the electricity, putting out more electricity from “spinning reserves” from their power plants during the crisis, contrary to headlines that they also manipulated the power market. Sure, Mirant agreed to pay $750 million in a legal settlement after it was re-organized. That wasn’t a penalty for wrongdoing but the resolution to the question of who got electricity ratepayers’ monies held by Mirant.
* In another curious event, I discovered that the California Department of Transportation has no authority to regulate or issue a shut down order on an interstate natural gas pipelines. Yet it ordered a shutdown of an interstate natural gas line to conduct adjacent freeway repairs during the peak of the electricity crisis. This spiked natural gas prices and thus electricity prices.
Regulations at Fault
I believe that government environmental regulations coupled with risky gambling schemes were much worse than Enron’s overblown gaming of the energy trading system during the electricity crisis of 2001.
Enron charged less on average for electricity than most of the municipally owned utilities in the Pacific West during the electricity crisis. Enron committed securities and accounting fraud with derivatives and corporate shell games that were not uncovered by regulators, but by investors who learned Enron was a house of cards. Enron’s house of cards collapsed prematurely more due to a change of political regimes in California that pulled the plug on open-access energy grid regulations than due to its malfeasance.
No Energy Shortage in 2001
The California electricity crisis was not initially caused by gouging energy companies but by the federal Environmental Protection Agency threatening to cut off federal funds to California by 2000 if it didn’t shut down its old power plants to reduce air pollution in smoggy California cities.
How to pay off the $42 billion in unpaid bonds, called “stranded assets,” on mothballed power plants was the real crisis behind the bogus California electricity crisis.
To get out of this mess, both Democratic California state legislators and Republican Gov. Pete Wilson initially devised a gambling scheme that was incorrectly called “deregulation” that bet on the weather and lost. This was called “the Perfect Storm” because, in 2000-01, California faced a crisis fueled by a number of factors:
* The coldest winter weather in over a century occurring in November 2000 and January 2001, resulting in demands for natural gas for home heating.
* Thin backup power supplies due to the mothballing of old power plants.
* Drought in the Northwest, resulting in less availability of backup hydropower.
* A curious shutdown order by Caltrans of an interstate natural gas line that they had no jurisdiction over to complete freeway repairs at the peak of the electricity crisis.
When the electricity blackouts struck, consumer advocates and the mainstream media charged natural gas suppliers with price manipulation. But they failed to understand was that what was behind the fourfold spike in natural gas prices in 2000 was that demand for natural gas jumped as hydroelectric power came into short supply in the Western United States.
Price Controls Caused a Bubble
In 1998 the Democratic Party won the governorship of California, while retaining control of both houses of the Legislature. The plug then was pulled on so-called electricity deregulation. The Democrats came up with their own gambling scheme of price controls, which also failed. Price controls prevented price increases at the retail level, but created an energy pricing fever — or bubble — at the wholesale level of energy prices.
Employing an Enron-like tactic that might coincidentally be called an “Endrun” around full public disclosure and accountability, the California Public Utilities Commission mandated that a “competitive transition charge” (CTC) be loaded into the price cap to pay for the stranded costs on old power plants.
Price controls failed when wholesale electricity prices predictably exceeded the capped retail price in order to pay off the stranded debt. The only way merchant energy traders could play in California’s highly re-regulated energy market — while loading the “competitive transition charge” into their pricing structure, reducing rates to consumers and reaping any profit — was to deploy some of the risky trading tactics made infamous by Enron. In other words, the legislators programmed speculative “gaming” into the system of deregulation in the hopes that merchant energy companies could pull off a miracle and protect legislators from getting thrown out of office for raising electricity bills to consumers.
The resulting energy price bubble forced regulated utilities such as Southern California Edison, San Diego Gas & Electric and Pacific Gas and Electric into bankruptcy or near-bankruptcy. Pacific Gas and Electric declared bankruptcy while Edison escaped bankruptcy but split up their holding company and divested into international energy.
After Gov. Davis was recalled in 2003, the unpaid debts and bonds on mothballed polluting power plants were rolled into a $42 billion general obligation bond to be paid off by long-term energy contracts at above-market electricity prices. When those long-term energy contracts expire in 2012, the electricity purchased under those contracts will be diverted into renewable energy under AB 32, the Global Warming Solutions Act of 2006.
In 2001, some school and water districts were going bankrupt due to huge electricity bills; some industries highly dependent on electricity were looking at insolvency; and tragically some people lost their lives at unlit traffic lights during rolling electricity blackouts. All of this was the price paid to reduce air pollution.
Meanwhile, monopoly utility companies like Edison and municipal power agencies were crying poverty while they made out like bandits. Edison got $10 billion in overcharges to pay off their stranded costs and legally to pass through money from their subsidiary to their parent company to create other startup companies. And the municipal power agencies, such as the Los Angeles department of Water and Power, were legally reaping a windfall reselling their cheap hydropower, provided at taxpayer’s expense, to electricity customers across the state.
California hoodwinked electricity consumers into believing that mainly a financial crisis, resulting from clean air mandates, was an electricity crisis. This financing crisis evolved into an electricity crisis of sorts, but this wasn’t the real reason for the crisis. By not fully disclosing this to the public, government has allowed a falsehood about Enron to cover for the actions of government energy regulators.
John Bryson has gone from an appointee of Gov. Brown to the CPUC and head of Edison to the head of the largest solar project in the world. Today Bryson serves as CEO and President of BrightSource Energy and is on the board of Coda Automotive, both heavily dependent on government subsidies. BrightSource Energy is the recipient of a $1.37 billion Federal loan guarantee to build a seven square mile solar energy project in the Mojave Desert.
In these days of general technocratic bumbling, it’s typical that a “Man Without Qualities” like Bryson now would be tapped to head the gigantic Department of Commerce and its $9 billion budget.
May 18, 2013