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.