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Western States Fail in Plea to Cap Electricity Prices by Kristi Heim San Jose Mercury News, December 21, 2000

Governors of five western states, meeting in emergency session, urged California and the federal government to take immediate action to stem a mounting regional energy crisis.

But amid indications that the governors disagree on the best course, the group failed to persuade federal regulators to impose regional caps on skyrocketing wholesale electricity prices.

In the meeting Wednesday in Denver, U.S. Energy Secretary Bill Richardson extended by a week his order for electricity companies in the region to supply power to California. The producers have been reluctant to supply California because they are worried about receiving payment from the state's two biggest utilities, Southern California Edison and Pacific Gas & Electric Co., both financially troubled.

Governors from Colorado, Oregon, Washington, Utah and Wyoming said Wednesday that the energy crunch in California — precipitated by unanticipated problems with the state's electricity deregulation policy — is being felt well beyond its borders. But the governors' inability to reach a consensus on regional price caps illustrates the challenges of developing a regional energy solution.

They did, however, agree that energy shortages and escalating prices threaten the economic success the West has long enjoyed.

"The prosperity we worked so hard to achieve in the last decade could be undermined in just a few months," said Washington Gov. Gary Locke. "We need immediate relief now."

Gov. Gray Davis of California did not attend the meeting, staying in Sacramento to deal with the state's mounting power crisis.

In Denver, Locke and Oregon Gov. John Kitzhaber again urged the Federal Energy Regulatory Commission to impose temporary regional caps on the price of wholesale electricity, a move that Richardson, California officials and many utility companies support.

Last week, the commission had rejected such requests, saying such a move wouldn't address the supply shortage and could discourage investment in new plants.

The commission, however, has approved a California-only flexible rate cap of $150 per megawatt hour that lets suppliers charge more if they can prove a higher price is warranted. But Davis and California's major utilities have derided the flexible cap as ineffective.

On Wednesday, FERC Chairman James Hoecker suggested he would consider a temporary, regional cap as part of a larger solution.

"Price caps would not solve California's problem in our estimation," he said. "But could it be part of an interim solution if part of a comprehensive package? It's certainly worth talking about."

But governors from Colorado, Wyoming and Utah raised questions about the consequences of regional price caps and the group asked FERC to prepare a report before taking action.

"We have to know where the money is going and exactly what effect a cap would have," said Mike Leavitt, Utah's governor.

Some expressed frustration with the commission's lack of action.

"Under existing law, you've got to create rates that are just and reasonable," said Joshua Bar-Lev, chief counsel for PG&E. "Our problem is there are many ways they could impose that right now and they're not doing it."

The crisis in the West comes at an awkward time, with the administration in Washington in the midst of a transition. President-elect George W. Bush has yet to appoint a new energy secretary. The governors called on Bush to convene a task force to work on the energy issue while waiting for appointments to be made.

The governors also called for a federal investigation into why electricity prices in the West have been so high, who has profited from them, and whether generating capacity has been deliberately held back to drive up prices.

The group said it would begin a coordinated, voluntary conservation plan by Jan. 1 to free up more electricity in the region. The plan would encourage consumers to reduce demand and ask public service commissions to pay users for forgoing power during peak times.

Even with regional conservation efforts, some governors said if they were expected to convince their own citizens to share the burden, California would have to do more.

"The governor of California isn't here today," said Peggy Fowler, CEO of Portland General Electric. "They can't just sit back and put the blame on other people."

Some participants said that retail prices in California should be raised to more accurately reflect the cost of electricity, since consumers might use less if they had to pay more for it.

Such changes may be painful but necessary for California as it re-evaluates its energy policy, governors said. "When California catches a cold the rest of the West sneezes," said Colorado Gov. Bill Owens.