The California power market meltdown of a decade ago is remembered as much for its fallen leaders as it is for tough lessons on energy trades and traders gone bad. Among the high-profile casualties of that time were former Enron CEO Ken Lay, former California Gov. Gray Davis (D) and a handful of decisionmakers and traders who saw their careers evaporate as the state grappled with near fiscal collapse.
But one corporate executive at the center of it all lived to tell about it and effectively came out clean, if not stronger for the experience. That man is John Bryson, former CEO of Edison International and now the White House's nominee to head the Commerce Department.
In the weeks since Bryson's nomination, much has been made of his role in helping to start the Natural Resources Defense Council in 1970, especially as Republicans attempt to paint the Yale Law graduate as an environmental extremist who is unfit to drive the president's agenda on job creation. Yet those close to Bryson's career in California, where he was the youngest ever to serve as president of the state's Public Utilities Commission in addition to his 18 years in charge of Edison, say his mark was felt far more widely in electricity circles.
Bryson took the reins at Edison, the parent company of Southern California Edison, in 1990 and stayed on to lead the company all the way through the electricity crisis in 2000-2001 until his retirement in 2008. The period marked the state's most turbulent era ever when it comes to the power sector, when words like price cap, rolling blackout, deregulation, Enron and even Federal Energy Regulatory Commission became common fixtures in the media's daily coverage of the crisis.
Bryson himself was at the vanguard of a deregulation movement in the mid 1990s that many critics blame for the worst of the power crisis, which saw SoCal Edison barely avoid insolvency, Pacific Gas and Electric Co. file for bankruptcy and freewheeling speculators like Enron erased from a perch that was so influential that Lay was once considered a kind of right-hand-man energy adviser to President George W. Bush.
The record shows that Bryson was an avid and eager architect of freeing utilities from their monopolistic structure and clearing the way for competition. In 1994, during a PUC hearing in Los Angeles, Bryson had this to say about ending what many regarded as outdated monopolies and bringing more players into the field, according to an account in The Sacramento Bee: "Competition will work to drive down costs."
Less than two years later, largely at the behest of Bryson and other power brokers, California had voted to approve a deregulation plan that saw the state's investor-owned utilities selling off power plants to a new breed of energy companies like Enron, Reliant Energy and AES Corp., to name a few key players.
But the experiment went south in 2000 and 2001 when traders were able to manipulate the market to drive up wholesale power prices by as much as 800 percent by December 2000. Costs, in other words, cascaded in exactly the opposite manner as predicted by Bryson and others, leading to a two-year state of emergency in California, widespread supply shortfalls, blackouts for millions and ultimately as much as $45 billion in additional costs, much of it borne by taxpayers.
The crisis hit a peak for Bryson personally when he was forced to film a television commercial in which he pleaded with his customers to stop consuming electricity. Yet Bryson, unlike executives at PG&E, also managed to keep his company above board after negotiating with Davis for weeks during the worst of the crisis on a deal that would save Edison International from bankruptcy.
This was the key factor that saved Bryon's job and reputation, sources said. Just as crucial was the tenor of the time, when state politicians and industry executives managed to turn much of the blame on federal regulators at FERC and bad-guy traders who were cast as sneaky manipulators of what had until then been a stable industry.
"Bryson's Southern California Edison came very close to technical insolvency but managed to stay out of bankruptcy court," said Arthur O'Donnell, an independent energy industry reporter who covered the crisis. "And even though most of the Edison International unregulated subsidiaries failed or faded, he did not suffer any consequence. I can only observe that the Edison International board of directors maintained confidence in his leadership during that time and saw no reason for a change at the top."
Bryson himself saw no reason to backtrack on his deregulation position at the time and, according to an account published in the Los Angeles Times in December 2000, directed much of the blame at FERC and state regulators for how deregulation had been crafted. Like many in the state, he was particularly upset at FERC for not capping wholesale power prices and at state regulators for their decision to divorce Edison from its generation facilities.
"This is fundamentally a challenge for public decisionmakers, and we regrettably find ourselves in the middle," Bryson was quoted as saying in the December 2000 piece, adding that perhaps he should have made more noise about the dangers associated with ceding control of power supply to speculators and not giving utilites the authority to raise retail rates in response to wholesale spikes.
"I suppose, in retrospect, we should have pushed all those points harder, louder and more insistently, and for a longer period than we did," Bryson said.
Politicians get the blame
But did Bryson deserve more of the blame for putting California in a vulnerable position? Steven Weissman, director of the energy and cleantech program at the University of California, Berkeley, law school, says the answer is simple: Yes.
"If you go back to California Public Utilities Commission policy papers in the the early '90s, you will see the commission openly thanking the utilities for their cooperation in developing the deregulation plan -- acknowledging that without their support, the changes would never happen," Weissman said. "Nonetheless, utility executives have never been called to task for their involvement in setting up the new rules. It was largely the utilities, Enron and industrial utility customers that drove that conversation."
Weissman said it was the utilities that demanded compensation for what they perceived to be "stranded investments." And this was a big reason why the deregulation program left the industry at the whim of the spot market for four years, he said.
Yet the scapegoats in the heat of the crisis were men like Lay, Davis and Curt Hebert, the embattled former FERC chairman from Mississippi -- and protege of former Senate Majority Leader Trent Lott (R-Miss.) -- who initially rejected California's call for price caps. Weissman notes that those figures were "either vulnerable political figures or, in the case of Lay, a lightning rod based on later revelations related to his behavior."
"On the other hand, no one is spending much time talking about utility executives," he said.
Still, Bryson did manage to separate himself from other corporate executives by dealing directly with Davis. This made Edison "the quieter of the three major California utilities" during the crisis, Weissman said, as Bryson was working behind the scenes to pay off its debt, avoid bankruptcy and generally keep "a lower profile in terms of affiliate transactions in California power markets."
Contrast that example with PG&E, whose executives alienated many in the Davis administration for announcing their bankruptcy plans without informing the governor. Ralph Cavanagh, a senior attorney at NRDC, credits Bryson for his management style and willingness to stick out the crisis.
"Bryson's intact reputation today ... reflects dramatic results, swiftly achieved, and strong follow-up efforts that restored utility responsibility for long-term resource procurement," said Cavanagh, giving Bryson credit -- along with former Davis aide Susan Kennedy and executives at Sempra Energy and PG&E -- for leading a statewide energy efficiency campaign that helped end the crisis.
"It was the most effective initiative of this kind ever devised, resulting very swiftly in the largest sustained reductions in electricity needs ever achieved by an advanced economy," Cavanagh said.
At the same time, the contrast between the fortunes of Bryson, who now finds himself fighting for a Cabinet post, and Davis, once thought of as a presidential contender but replaced in a recall election by Republican Arnold Schwarzenegger, is pronounced and perhaps telling. Former Gov. Pete Wilson (R) was the political figure most responsible for pushing free markets, but the Democrat Davis was caught holding the bag and suffered when he may have been too slow to react. Bryson, on the other hand, lived to fight another day.
"Shareholders were hurt," O'Donnell said, "but their anger was more directed at outside forces, especially the marketers and politicians."
Criticism from other corners
The complex nature of the power crisis could mean criticism of Bryson during nomination hearings is likely to come from other corners. If early doubts about Bryson are any indication, more attention will likely be paid to the NRDC connection and Bryson's more recent affiliation with renewable energy companies, namely Oakland-based BrightSource Energy.
The Wall Street Journal, for instance, in a recent editorial called Bryson the "Secretary of Subsidy" for having been the chairman of BrightSource, a solar power developer that has benefitted from U.S. Energy Department loan guarantees. The Journal called Bryson a "renewables darling" who is likely to continue subsidies for unproven industries if approved by the Senate.
"President Obama nominated John Bryson to head the Commerce Department on Tuesday, praising the Californian as 'a business leader who understands what it takes to innovate, create jobs and to persevere through tough times,'" the Journal wrote on June 2. "That's one way of describing someone with a talent for scoring government subsidies."
A day earlier, Forbes.com ran a similar editorial on Bryson by Gary Shapiro, the president and CEO of the Consumer Electronics Association, titled "Bryson Pick: Anti-Jobs President Strikes again." Shapiro says the nominee reflects the president's "hostility to job creation and pro-business policies." Republicans like Wyoming Sen. John Barrasso have been drawn to the arguments and have already been hammering Bryson for the NRDC connection.
In a news conference last week, Barrasso called Bryson an "extremist," noting that the Commerce nominee had once described a cap-and-trade market for greenhouse gases as "a good way to hide a tax" (E&ENews PM, June 7).
Will this criticism stick? In California anyway, the consensus is probably not, largely because Bryson's connection with NRDC -- as one of several attorneys who created the group with a Ford Foundation grant -- is fairly thin when compared to his body of work as an executive.
"If Bryson is an environmental extremist, then Sarah Palin is a historian," said Bill Magavern, director of Sierra Club California. "He's held senior corporate positions for over 20 years with Edison, Boeing and Disney. He hasn't exactly been throwing monkey wrenches into the gears of big business, and he's supported by the Chamber of Commerce."
Others have noted that Bryson's relationship with NRDC ended in 1974. And some tried to turn the table on Republicans when the question was raised about Bryson's support for renewables and BrightSource specifically.
"Given that the Republicans won't vote to repeal subsidies to the oil industry, I don't see how they can complain about subsidies for clean tech," said Daniel Farber, director of the California Center for Environmental Law & Policy at University of California, Berkeley.
Alice Kaswan, a professor at University of San Francisco School of Law, also took issue with the Journal's editorial for equating financial success at BrightSource -- which so far is bleeding money -- with Bryson's record of achievement.
"The concerns about Mr Bryson's company's short-term profitability need to be assessed in light of where the company stands in its development," Kaswan said. "If most of its investments are still in the construction phase, then one wouldn't expect profitability until the investments become operational. I don't know whether they are good or bad investments; it's just that one shouldn't jump to the conclusion that he is a 'bad' business person based on the absence of profits to date."
Sullivan is based in San Francisco.