McClintock Voiding of Energy Contracts

McClintock Website ^ | August 2003 | McClintock Campaign

[DiamondDon1]

California's Corrupted Contracts

At the height of California’s electricity purchases in March 2001, the Wall Street Journal quoted a trading floor manager for the Bonneville Power Administration. The expert was incredulous as he watched California traders bid on electricity, “at times offer(ing) to pay $50 to $100 per megawatt hour more than the available market price.” He said, “They agree to prices that make you wonder. You’d at least think they’d check to see what the prevailing price is before throwing out their offer.” At the same time, California officials were also committing consumers to long-term energy contracts at unprecedented prices. Californians are now paying an estimated $14 billion above the market price for this power – unnecessarily adding about $1,400 to an average consumer’s electricity bill.

How could the interests of California consumers be so completely compromised? The answer to that question may free them from the contracts.

In the winter of 2000-01, Southern California Edison and other utility monopolies tottered on brink of bankruptcy. Caught in a vortex of bad policy, they were losing billions of dollars – and were desperate to be relieved of their burdens.

In January, the Governor declared that a cornerstone of his energy policy was to prevent utility bankruptcies. To do so, he substituted taxpayer funds for the utilities’ capital – plunging the state into the power-buying business on behalf of those utilities.

Davis hired Vikram Budhraja, a former senior vice president with Southern California Edison, to oversee the purchases. Budhraja and his colleagues ignored state law that requires public officials to disclose outside sources of income, and began a frenzied and reckless buying binge that stunned veteran traders.

Southern California Edison’s finances improved dramatically, with the utility posting a profit of $121 million last quarter. California’s state finances were devastated, and consumers’ electricity rates soared.

It was not until July 12, 2001 that Budhraja finally filed the required financial disclosures, revealing that he had received “over $100,000,” from Southern California Edison’s parent company while overseeing California’s negotiations. (He also purchased between $10,000 and $100,000 of Edison stocks just four days after signing his contract with the state, selling them eleven days later for a 44 percent profit.)

Shouldn’t there be a law against that kind of conflict of interest? There already is. Government Code section 1090 is unambiguous: “(State) employees shall not be financially interested in any contract made by them in their official capacity.” Specifically, if that public official has received more than five percent of his income from an entity affected by that contract, the contract is void.

The Davis administration defends Budhraja’s conduct by contending that he never negotiated directly with his financial benefactor. State Schools Superintendent Bill Honig unsuccessfully tried the same defense against conflict of interest charges in 1992. California courts have consistently ruled that the financial interest “may be direct or indirect” and even include “the contingent possibility” of benefit. In Budhraja’s case, the very purpose of the contracts was to shore up Edison’s finances.

There is no question that Budhraja was involved in the long term power contracts, that the contracts affected Edison’s finances and that Budhraja received “over $100,000” from Edison while he was involved. The only question remaining is, did Budhraja’s Edison payments exceed five percent of his total income? If they did, the contracts are void.

The two parties who know for sure – Budhraja and Edison – aren’t talking. The Davis administration isn’t asking. And the Attorney General, responsible under the state constitution for enforcing the law, isn’t acting.

Last week, a non-profit legal group, the U.S. Justice Foundation, filed suit in superior court seeking to do what the Administration hasn’t: to enforce California’s existing anti-corruption law.

Will Californians be locked into sky-high electricity prices for years to come? Without a fundamental change in California’s current regime, the law’s last line of defense is again the courts.

[DiamondDon1]

This is response to Torie, Sinkspur, etc., wondering about the voiding of contracts...

There is a provision noted that the perp must have received more than five percent of his income from an entity affected by that contract in order to void the contract.

Not independently verified...

DD

[DiamondDon1]

FYI

DD

[heleny]

Let's say we void those contracts. If the CA economy rebounds, won't we have a shortage of electricity again? After all, Davis and the democrats have discouraged any new power plants from being built or coming on line, and the main reason we don't have rolling blackouts anymore is CA's economic recession has resulted in decreased demand.

[Carry_Okie]

One should also note that John Bryson was a college chum of Gray Davis at Stanford. Bryson, a lawyer, went on to help found the Natural Resources Defense Council (NRDC). The NRDC was instrumental in closing down the Rancho Seco nuclear power plant, 980MW.

Where is John Bryson today? He's Chairman and CEO of Edison International. Now, for twenty points: what's a RICOnut lawyer doing running a power company, and why have they contributed over $200,000 in campaign funds to... Bray Davis?

[DiamondDon1]

We are marginal in the short term with respect to energy, mainly because power plants already approved under Wilson came online recently. However, with the price controls back in place, no one of sound mind and body would build a power plant here, especially with all the regulations (including by not limited to EIR, and public hearings).

From here on out, everyone's emergency kit include flint.

DD

[DiamondDon1]

Nice post...did not know that...(I have been in the dark, since this whole power thing started...)

DD

[Brad’s Gramma]

bttt for later

[Political Junkie Too]

Back in 2001, Davis insisted on complete secrecy when negotiating with the power companies.

Energy Brokered In Secret - STYMIED: No public scrutiny of bid process

State Taxpayers In Dark on Details Of Energy Deal

Davis' Right To Stay Mum On Contracts Doubted - Attorneys say law favors disclosure

Davis' Top Negotiator Reveals Some Details of Power Deal

Davis Justifies Power Pact Secrecy With Obscure Code Public agencies using it more and more

Judge OKs $3.3 billion Edison rescue - Consumer groups irate over secret deal to keep utility out of bankruptcy

Legal group's suit seeks to overturn power deals

Power Purchases - Lockyer calls for full disclosure State's contracts need airing, he says

-PJ

[kellynla]

Western Power Trading Forum - Ojai, California

Senator Tom McClintock
Date: June 21, 2002
Publication Type: Speech or Statement Print Version

I appreciate the opportunity to join you to discuss California’s continuing energy woes. It is a welcome relief from discussing California’s continuing budget woes.
I will begin by stating that California’s energy crisis is not cured. It is in remission only. Not only is it not cured, but the minimal efforts everyone agreed were necessary to avert future disasters have not been made. Very little has actually been done to address the root cause of last year’s rolling blackouts and sky-high prices: a catastrophic shortage of electricity.

At the peak of the crisis, on February 8, 2001, Gov. Davis promised– and I quote – to bring on 5,000 new megawatts of power this summer, (and) 5,000 more next summer. – end quote.

So how are we doing? From the date of that speech to the end of the summer of 2001, we brought on not 5,000 new megawatts, but only 2,700. And instead of bringing an additional 5,000 new megawatts on line by the end of this summer, we now expect to bring on just 2,900. Put another way, we have added just over half the power we were supposed to. Meanwhile, a reported 62 powerplant projects have been postponed, canceled or withdrawn since last winter.

This administration reminds me of Churchill’s description of Clement Atlee as someone whom “occasionally stumbles over the truth, but always picks himself up and carries on as if nothing has happened.” Eighteen months ago we stumbled over a problem of potentially catastrophic proportions, but have simply picked ourselves up and carried on as if nothing has happened.

Perhaps it will take yet another electricity emergency before we realize that there is only one way out of our energy woes, and that is to restore an era of clean, cheap and abundant energy.

We once enjoyed governments that clearly understood that simple fact. When my family moved to Thousand Oaks in 1965, I remember the newest, most modern homes in the neighborhood had an emblem near the front door proclaiming that the visitor stood on the threshold of a “Gold Medallion, All-Electric Home.” California itself stood on the threshold of an era of limitless electricity so abundant that meters would soon be obsolete, or so they said.

As delusional as those times seem today, there was every reason for optimism. The state and federal governments had embarked upon an ambitious program of hydroelectric dam construction, promising absolutely clean and reliable electricity in vast quantities. The electricity generated by the Castaic dam alone powers one and a half million homes. The cost of generating power from these dams is minuscule: as low as a half cent per kilowatt-hour today. At that price, the electricity bill of an average home would come to $31 -- a year. And plenty more were planned.

But electricity was just a byproduct of the dams, whose principal mission was to tame the environmentally ruinous cycle of floods and droughts that tormented California, and to conserve enough water to complete the greening of the entire state from the resources within the state.

The real promise lay in the nuclear facilities then under construction. The San Onofre plant opened in 1968, and today generates electricity for more than two million homes with steady efficiency and stunning economy: about 3-cents per kilowatt-hour (or $16 per month for an average home). California has only two nuclear plants now operating, but together they generate 16 percent of all the electricity in the state. By contrast, nuclear power produces 76 percent of France’s electricity, with an unblemished safety record.

Had these programs continued, the optimism of the 1960’s would have been realized long ago.

But in the 1970’s, a radical ideology entered California public policy. Its chief protagonist, Jerry Brown, summed it up as “the Era of Limits.” The construction of new dams halted so abruptly that the Auburn site in Northern California literally was abandoned in mid-construction. The newly created California Energy Commission became a graveyard for power plant applications. If just the three Stanislaus nuclear plants proposed in 1977 had been approved, there would be 7,200 megawatts of additional power on the grid today, and there would have been no energy shortage.

Meanwhile, California’s existing power plants labor under increasingly draconian operating restrictions. In 1998, a four-stack gas-fired power plant in the South Coast Air Quality Management District spent an average of $22,000 per day purchasing “pollution credits” to avoid vines. Today, that has risen to over $4.8 million per day. On the day Gov. Davis doused the Capitol Christmas tree and urged all Californians to do the same, enough power for two and a half million homes sat off line solely because of environmental restrictions.

We are told it was not a supply problem. It was all those Enron-type robber barons gaming the system. Well, duh. But what makes it possible for them to game the system? A shortage. A seller’s market.

Why is this so completely beyond the understanding of California policy makers? When something is scarce, it becomes expensive. When something is abundant, it becomes cheap. Sellers always jack up their prices in times of scarcity. Ask anybody selling a home today. In times of abundance, they can’t do that. And the only way genuinely to reduce our electricity costs is to increase the supply – the one thing we continue to be reluctant to do.

In a free society, California’s electricity problems would have corrected themselves long ago. A shortage develops, electricity becomes relatively scarce, and prices rise. As prices rise, consumers reduce their demand while producers develop more generation. Consumption declines, production increases, prices fall. The result: low prices and abundant electricity.

In California’s society, a simple shortage became catastrophic. As prices rose, the government began heavily subsidizing electricity purchases. This drove prices still higher while it hid the reality of those prices from consumers. Meanwhile, government officials threaten producers with the seizure of their assets and imprisonment if they set foot in California. The result: consumers will see surcharges tacked onto their power bills and taxes for years to come to pay for the subsidies, while investors who planned to come to California to build more power plants decide to invest elsewhere.

There is a very simple truth that California’s governor just can’t seem to grasp: governments can hide prices, but they cannot set them. When Gov. Davis bought power for 50-cents per kilowatt-hour and sold it back to consumers for 7-cents, consumers weren’t spared the other 43-cents. It simply ended up on their tax bill. And now, it has been shifted to their future electricity bills.

It is ironic that at a time when the wholesale price of power has fallen 95-percent from its highs a year ago, consumers are paying 40 percent more for their electricity – and will do so for the indefinite future.

There are five principles that our government should restore to the electricity policy of this state.

The first and most important is this: IT’S THE SUPPLY, STUPID. Energy surpluses are to the consumers’ advantage. Energy surpluses create a buyers market. Energy surpluses make it impossible to game the system. But energy surpluses can only exist where people are willing to build new power plants. And they’re only willing to build new power plants when they’re allowed to do so. We must welcome new power plants to this state with open arms – rather than with threats of criminal sanctions, omnipotent and omnipresent government inspectors and the constant threat of expropriation and confiscation.

There is an old adage that this regime does not understand. If you whip a dog, you won’t know where he’ll be, but you’ll know precisely where he won’t be. The more we whip the people who make electricity, we don’t know where they’ll be, but we can be very sure they won’t be in California.

The second principle is freedom of choice. In 1996, consumers won the right to choose the provider that offers them the best deal for electricity. Although the state’s electricity supply collapsed before those choices materialized, the fact remains that the ultimate defense against price gouging is the ability to take your business elsewhere. Gov. Davis and the legislature took that right away from consumers. They should give it back.

The third is fairness. When the price of electricity falls, so should our rates. But they won’t, because of billions of dollars in surcharges Gov. Davis has added to our future electricity bills.

The fourth is the truth. Consumers deserve to know the price they’re paying for electricity when they buy it. This is the only way they can decide how much they need and what they’re willing to pay for it. The Governor’s policies have denied them this information. He has instead bought power at absurd prices and stuck taxpayers and consumers with the bills, without those consumers ever having the chance to say, “No thank you, the price is too high, I’ll do without.”

The fifth is justice. In a just society, a consumer would pay only for his or her own consumption -- no more and no less. When politicians intervene, the politically favored always end up benefiting at the expense of the politically weak. It shouldn’t surprise anyone that family electricity bills have been subsidizing businesses for years.

[DiamondDon1]

Very Nice....

We need some environmentally sensitive camp fires, ice houses, and bicycles, yeah that's the ticket...

Who was it the posted "Gray Davis, Building a Bridge to the 1800's"???

DD

[NormsRevenge]

[snopercod]

While I sympathize with the miserable Californians who elected this gang of crooks, the contracts were signed in good faith. Davis begged the producers to sign, and crowed about it afterwards.

It is contrary to all principles of Western law to abrogate these contracts because they didn't turn out to be a good deal.

Californians need to suck it up - admit they are a bunch of saps - and spend a little more care in the future about whom they elect to represent them.

[Political Junkie Too]

The courts agree.

Top court rebuffs state on electricity - Earlier ruling against seized contracts stands

State stuck with energy deals - U.S. rejects plea for relief from market manipulation

-PJ

[DiamondDon1]

Assuming the McClintock reference to California law is true, once the fact of conflict-of-interest has been established and if the prep receives more than 5 percent from the company doing business with the State, it is a slam dunk.

In this case, as noted above, the only question is: Did Vikram Budhraja receive more than 5 percent of his income from Southern California Edison’s parent company? If so, contracts are void (at least in this State).

DD

[DiamondDon1]

The courts agree.

Davis tried to say that the contracts were not fair due to market manipulation not conflict-of-interest citations. If he would have stepped up the plate and said, "My energy advisor had a conflict-of-interest in that he was paid $100000 from Edison's parent company" and that was what the suit was based, things may have (you can never be sure) different.

DD

[G Larry]

Just a few points to clarify.
1) There is a California law that prohibits these costs from being passed on to the consumer. (Yes, that's stupid, but it's real.)
2) The state signed the contracts. If they are violated, the power companies will; a) not build any more power plants in CA., b) Walk away from "peaker" plants and reserve plants that are losing money now., & c) sue the state and prevail in higher court.
3) These contracts have not contributed to the current CA budget deficit, because they were paid for by bonds, not addressed in the current budget.
4) There are other unmentioned "crooks" here, and most are in Sacramento.

[DiamondDon1]

Not to out clarified so here goes:

1. Energy bills have gone up. Except when the State charges more, it is somehow okay (just as long as it is not those pesky energy companies getting the money...).

2. Power plants? News flash- there not building no stinkin' power plants...due to low cost of return and high regulations.

3. These contracts (excess costs in everything that goes on in California) have contributed a great deal to the California budget problem. The State pays (actually we pay) for its power too.

4. Looking for Crooks??? The easiest way to find them is check out the ones with a "D" after their name (a few "R"s as well). Netting all the "D"s is a good approximation of the crooks (just apoligize to the few innocent "D"s errrr innocent "D").

With regard to suing and winning in higher court, not if they were involved in committing a fraud on the State, using a man placed by Davis as an insider...we do have a law against it (probably one of the few laws I agree with around here...).

Have a nice day!!!

DD

[snopercod]

It's hard to envision Davis being that smart, but someone on FR questioned whether Vikram Budhraja was put in charge of the energy contracts specifically because he was tainted. That way, Davis had a way out if things turned sour.

I don't recall who the FReeper was that posted this (over a year ago), but he or she was pretty smart.

[snopercod]

Good links. Here's a couple more:

[California] State Energy Consultant is on Edison Payroll

California:Attorney general clears advisers - Probe revealed no conflicts of interest