Black Out

How the Reg helped screw up Californias power industry

Photo by Mike McGillNormally staid John E. Bryson, chairman and CEO of Edison International and Southern California Edison, was unmistakably jovial when Republican Governor Pete Wilson approved California's controversial multibillion-dollar electrical industry deregulation plan in 1996.

"It was," Bryson told OC Metro's Craig Reem in an October 1996 interview, "a great day for us."

No surprise there. It was Bryson and a team of his industry's Sacramento lobbyists who wrote the controversial law behind closed doors with several pliable state legislators. The sweetheart deal was made sweeter when consumers were forced—without a single public hearing—to pay more than $28.5 billion to Edison, San Diego Gas & Electric (SDG&E) and Pacific Gas & Electric (PG&E) for their past bad investments. In industry lingo, the bad investments are called "stranded costs," expenses that include closing down unprofitable nuclear-power plants. In exchange for that lucrative arrangement, the companies promised not to raise electric rates.

To help sell the public on his deregulation plan, Bryson promised lower consumer bills —"for the average homeowner, a 10 percent drop by Jan. 1, 1998," he said. "That will precede what we believe will be at least a 20 percent drop by the end of 2001."

In summary, Bryson asserted that deregulation would mean "rapid real declining costs" for power consumers.

It all sounded so good that voters rejected Proposition 9, the statewide 1998 initiative put on the ballot by consumer groups that correctly called the industry's so-called reforms and claims of lower costs an outrageous fraud.

Orange County voters were encouraged by the mainstream media, particularly The Orange County Register, which shamelessly assisted Bryson in his sales pitch. On April 9, 1995, Cathy Taylor—then a business columnist, now editorial page editor—ran a story called "Deregulation Hard to Resist." On Dec. 21, 1995, the paper published another pro-deregulation article with the sensational headline, "At Stake Is the Economy." An Aug. 26, 1996, news story carried the unequivocal headline, "Power Will be Cheaper."

But the most egregious Register propaganda piece was "Power of Deregulation," a Sept. 26, 1996, editorial in which the Reg claimed without elaboration that rate savings under deregulation would be "obvious." Though self-described libertarians, the paper's opinion writers had no problem with the fact that the new law would hit consumers with a mammoth $30 billion tax—the price of subsidizing the highly profitable companies' stranded costs. And strangely, nowhere did they sing the praises of an unpredictable free market in power. Instead, the Reg—in another of its countless conservative, elitist rants—said the subsidy was critical because it would provide utility-company shareholders "safety and surety of promised rates of return" as they emerged from a monopoly.

Pooh-poohing valid concerns by consumer groups such as the Los Angeles-based Foundation for Taxpayer and Consumer Rights, Edison's Bryson also promised consumers that the utilities would themselves eat any rate hikes on the cost of power until deregulation was complete. His words were unambiguous, even a bit cocky: "We'll take the risk of the reality that electricity price varies by the hour of the day, season of the year and all sort of stuff."

Today, Bryson surely wishes he had not been so loquacious. He and his company's shareholders have learned an Economics 101 lesson this year: the road to a competitive market is not paved with certainty. Despite industry predictions, deregulation has brought drastically higher electricity costs, and some now fear the market is out of control. Predictions of future power outages have been splashed across the daily papers. There have been cries even from anti-government Republicans for the federal government to step in and issue 1970s-style price controls.

Ironically, the biggest cheerleaders for intervention have not been liberals and environmentalists, but rather the power companies themselves. Edison, for example, claims it needs assistance because higher prices have cost the company more than $20 billion this year. They are now busy looking for ways to violate the 1996 deregulation plan they wrote and pass the unexpected costs on to consumers.

It's safe to say that Bryson's gung-ho, free-market swagger has vanished along with his joviality. On Dec. 14, the Register buried on Page 3 the incredible news that Edison now favors a speedy return to the safe harbor of a monopoly.

"It is time to break from this failed policy," Bryson—the architect of the policy—told the Register's Kate Berry and Dena Bunis. "We need to reform and, where necessary, re-regulate California's electrical system."

He did not mention whether his industry would return their nearly $30 billion windfall to consumers, and apparently neither Berry nor Bunis thought to ask.

 
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