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Feds Cap California Power Rates by Wire Reports The Oregonian, December 16, 2000

The regulators' decision could help calm
uneasy electricity markets in Oregon, Washington, Idaho and Montana

WASHINGTON -- Federal regulators ordered an overhaul of California's electricity market Friday in a push to control skyrocketing prices and curtail supply shortages that have pushed the nation's most populous state to the brink of blackouts.

The Federal Energy Regulatory Commission's order will set a "soft" price cap on wholesale rates and let the state's investor-owned utilities keep the power they generate rather than sell it on the open market, as required under California's 1996 utility deregulation law.

The state Public Utilities Commission will set the price the utilities may charge customers.

"Today's order will stanch the hemorrhage and begin the process of rehabilitation" of California's power market, FERC Chairman James Hoecker said.

All involved in the $220 billion U.S. electricity industry are watching the commission's reaction to the California crisis. More than half the states have moved toward a more competitive electricity market, and uneasiness is growing that the industry is running too close to the edge in providing electricity when it is most needed.

Although the commission order applies exclusively to California, other Western states will feel the affects of the changes. The entire region has been rocked by chaotic electricity markets, and greater stability in California could mean quieter markets in Oregon, Washington, Idaho and Montana, among others.

A March study by the Department of Energy concluded that the transition to competition in California has strained transmission and distribution lines and caused some utilities to focus on competing for markets, cutting costs and maximizing prices instead of assuring that power keeps flowing.

"The rest of the country is going to school on California. They're looking at what kinds of mistakes they made," said Jim Owen, spokesman for the Edison Electric Institute, a trade group for the utilities industry. "I think people will be looking very closely at how far FERC will go."

Some expressed relief that federal authorities had come to California's aid, but others questioned whether the order would actually improve conditions.

"It's difficult to judge at this point," said Roy Hemingway, energy adviser to Oregon Gov. John Kitzhaber. "It's trying to stabilize California's power market, but I'm not at all sure that's what will result."

Regional price cap urged
California Gov. Gray Davis, Sen. Dianne Feinstein, D-Calif., and consumer advocates had urged the energy board to order a regional price cap for California and 13 other Western states.

Kitzhaber and Washington Gov. Gary Locke also have called for regional caps on wholesale electricity prices.

Instead, the commission kept its focus on California and ordered a "soft cap" on wholesale electricity prices of $150 a megawatt hour. Suppliers offering to sell power in California at more than that price would have to file paperwork with FERC defending the higher price.

Commissioner Curt Hebert supported the order but predicted the cap will discourage power suppliers from selling power in California or building desperately needed power plants in the state.

"This is precisely what California does not need," he said. "I am a little bit disappointed by today's order."

All three of California's privately owned utilities have been hit hard by soaring wholesale electricity prices, blamed in part on tight supplies and rising natural gas costs.

San Diego Gas and Electric customers have seen their bills double and triple since summer; Southern California Edison and Pacific Gas and Electric, operating under state-imposed rate freezes as they move toward deregulation, say they are in financial danger.

Hunting for megawatts
Meanwhile, the Independent System Operator, keeper of California's power grid, has found itself in an almost-daily scramble this month to find enough megawatts in the West to prevent rolling blackouts. Friday marked the first day in almost two weeks that the state had enough electricity to avoid a power alert.

To encourage investor-owned utilities to avoid last-minute buying, the commission ordered them to buy 95 percent of their power more than a day ahead its need.

The energy commission also allowed them to enter into contracts with generators outside the state Power Exchange, which had been set up to oversee all power sales within the state.

The commission may take on the concerns of the entire Western region in a "power summit" requested by Kitzhaber.

Kitzhaber hopes to hold the meeting early next week, possibly Wednesday.

"We know they're interested," Hemingway said of the commission. "But we don't know yet if we can pull it off."