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Feds Resist Intervention in Power Crisis by Kevin Galvin, Washington Bureau Seattle Times, March 16, 2001

WASHINGTON - Federal regulators would be forced to impose price controls on the skyrocketing electricity markets in the West under a surprise bipartisan agreement announced yesterday at a Senate hearing.

The Bush administration immediately dismissed the approach, frustrating Western officials who complain federal inaction is exacerbating the region's energy crisis.

"The real key to reducing outrageously high energy costs is for the federal government to repair the broken wholesale market structure," said Gov. Gary Locke. "We need short-term temporary wholesale price caps or the Western economy will remain in jeopardy."

Locke pressed his case before the Senate Energy and Natural Resources Committee on the same morning that Sen. Dianne Feinstein, D-Calif., and Sen. Gordon Smith, R-Ore., unveiled a compromise to force the Federal Energy Regulatory Commission (FERC) to set Western electricity prices until the market stabilizes.

Pacific Northwest spot-market prices soared last fall and have remained high through the winter. Power sold on the Mid-Columbia spot market on Tuesday, for example, ranged from $200 to $215 per megawatt hour, according to PowerTrax, a newsletter that tracks transactions. That compares to a trading range of $27 to $28.50 on the same day last year.

Smith, who had been at odds with Feinstein over similar legislation, said he is convinced federal intervention is necessary to protect Western states' economies.

The legislation would require FERC to temporarily impose caps or cost-based pricing when it finds that market prices have become "unjust and unreasonable." Smith's support indicates a willingness by some Republicans to accept stronger federal intervention in the energy crisis.

But divisions were obvious even among Republicans on the committee, and both the new Energy secretary and the acting FERC chairman warned that the Smith-Feinstein approach could undermine conservation efforts and discourage development of new power supplies.

"Any action we take must either help increase supply or reduce demand," Energy Secretary Spencer Abraham told the panel. "Price caps will not increase supply or reduce demand. In fact, in our view, they will seriously aggravate the supply crisis, since they will discourage investment in new generation while eliminating incentives to reduce demand."

Abraham said California and other parts of the West could still face blackouts when energy demand peaks this summer. But he insisted FERC's announcement last week that it would seek rebates from electricity suppliers who sold into California, where the commission said prices were not "just and reasonable" in January, is the best approach to combat profiteering.

And Curt Hebert Jr., the acting FERC chairman, said a decision regarding prices charged in February would be announced within a week, and an investigation into December pricing was proceeding apace.

"Market prices are sending the right signals to both sellers and buyers," Hebert said. "A price cap imposed through regulation or legislation will have exactly the opposite effect."

Feinstein told Abraham she was "really surprised by the ideological hardness" of the administration's response.

Locke, miffed that FERC has yet to rule on prices being charged in Washington and neighboring states, said Hebert's testimony indicated "they're content to allow these high prices to continue."

Throughout their testimony, Abraham and Hebert said the priority should be sufficient power supplies to cool homes and run businesses in California and other hard-hit states this summer.

But Sen. Maria Cantwell, D-Wash., said the administration was missing the point by working to avoid blackouts while failing to counter soaring electricity rates.

"The reality is that with triple-digit increases, there will be people in the Northwest sitting in the dark. There will be aluminum facilities that will be shut down. There will be small businesses that will be shut down," Cantwell said.

"While we're talking about protecting people from blackouts, inaction is going to cost us those same consequences."