the film forum library tutorial contact

Panel OKs Electricity Price Limits by Tom Detzel, The Oregonian staff The Oregonian, April 26, 2001

A federal commission's decision to impose controls on California wholesale rates
falls short of calls for regionwide action

WASHINGTON -- The federal commission that regulates electricity rates voted Wednesday to enact limited price controls in California while calling for more aggressive monitoring of prices in Oregon and other states in the West.

The decision falls short of calls from Gov. John Kitzhaber, other Western Democrats and Sen. Gordon Smith, R-Ore., for the Federal Energy Regulatory Commission to impose wholesale price caps regionwide.

Instead, the panel voted 2-1 to adopt what it termed "price mitigation" measures in California, where power shortages and skyrocketing prices have helped fuel double-digit rate increases in Oregon and Washington.

"California consumers can rest assured that the commission has been attentive to their problems," said FERC Chairman Curt Hebert, who has come under intense criticism from politicians and consumer groups for not aggressively investigating charges of price gouging by big energy suppliers.

Hebert, a staunch opponent of price caps, insisted that the commission's action Wednesday was neither a retreat nor a response to political pressure.

But critics of the plan disagreed, including Commissioner William Massey, who cast the dissenting vote and said the plan didn't go far enough.

Massey, a Democrat and the panel's strongest price-cap advocate, said the commission had failed to live up to its responsibility under the law to ensure that power rates are "just and reasonable."

"We face the second summer of out-of-control electricity prices out West. This may be our last chance. We should nail it down," Massey said.

Rep. Peter DeFazio, D-Ore., said the plan offered no help to ratepayers outside California and only "scant help" in that state, where a repeat of last winter's rolling blackouts is forecast for this summer.

"We'll still have blackouts, brownouts and price gouging all summer," DeFazio said. "There's no protection for the Northwest."

Hebert, a Republican, joined Commissioner Linda Breathitt, a Democrat, in approving the plan.

Breathitt said she did so because "the flawed electricity markets that exist in California and elsewhere are not at all what proponents of electric restructuring had in mind" when deregulation was on the drawing board.

Price controls would take effect only when California's power grid operator determines that electricity reserves are below 7.5 percent of demand.

At that point, a "proxy price" would be used to set the cost of wholesale power instead of the price bid by suppliers on the market. The proxy would be based on the cost of the least-efficient plant that had made a bid.

Commission members said they had not tried to estimate how much this method would have cut costs had it been operating in California. Wholesale power prices there and elsewhere are 10 or 15 times higher than two years ago.

Elsewhere in the West, the commission would investigate power sales in spot markets when electricity reserves fall below 7 percent of needs. Refunds could be ordered if it's determined that prices are unreasonable.

The price controls in California would be effective at the end of May for up to one year. They are contingent on the state's power grid operator submitting a proposal for a regional transmission organization to FERC, a condition that Hebert demanded.

The commission believes such organizations are necessary to maintain the open and reliable transmission systems that are needed to sustain free markets in electricity.

Whether price controls will actually work as intended is hotly debated.

The Bush administration and most of the major electricity generators and marketing companies say price controls remove the incentive to conserve and make it less likely that investors will want to help finance the new power plants.

Backers say that price controls, while not a preferred strategy, are the only way to protect consumers and restore their confidence in the wake of runaway power markets and allegations of price gouging by energy companies.

On Tuesday, Smith and Sen. Dianne Feinstein, D-Calif., jointly sponsored a bill that would require FERC to set price caps and force power marketers to sell electricity, when they have it, to meet shortfalls.

Neither the bill nor FERC's order would apply to consumer-owned utilities -- municipal utilities, cooperatives or public utility districts -- or to the Bonneville Power Administration, the federal agency that markets 46 percent of the wholesale electricity in the Northwest.

The commission postponed its meeting three times Wednesday as Hebert, Massey and Breathitt negotiated behind closed doors.

Hebert insisted that the plan doesn't amount to a "price cap" because there is no price that FERC would disallow if justified, even if it exceeds the proxy price.

"It's not even similar to a price cap," he said, calling the approach "about as free market as it gets when you're trying to mitigate pricing."

But Massey disagreed. "You can call it a cucumber if you want," he said. "It just doesn't go far enough."

Massey said the controls should be in place 24 hours a day, seven days a week, not just when reserves are low.

DeFazio called the plan "damage control for the Bush administration."

"They are in extraordinary jeopardy here. Even people like Gordon Smith are telling us they are in danger by writing off the entire West Coast economy to a few predatory energy companies," he said.

But Hebert said the plan would "absolutely" prevent prices from soaring out of control this summer and wouldn't create a disincentive for new power plant investment in the West.

He said the order also responds to the testimony the commission heard in Boise earlier this month from Republican governors, who oppose price caps. Kitzhaber and Democrats Gray Davis of California and Gary Locke of Washington all have appealed to FERC to put a ceiling on wholesale rates.

"When eight governors of 11 Western states say they want market answers . . . and they don't want price caps, that means something to this commission," Hebert said.