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Kitzhaber Wages Power Struggle by Gail Kinsey Hill, Oregonian staff The Oregonian, December 21, 2000

At an emergency regional meeting, the governor calls for price caps
as a short-term solution to the electricity shortage

DENVER -- Govs. John Kitzhaber of Oregon and Gary Locke of Washington on Wednesday urged federal authorities to immediately slap regionwide price caps on wholesale electricity, arguing that a failure to act quickly could devastate state economies.

"The dimension of this crisis demands that the federal government use every available tool -- now," Kitzhaber said during an emergency electricity meeting in Denver. The gathering was attended by five Western governors, federal and state officials, utility executives, electric power producers, and natural gas distributors.

The governors agreed on some short-term solutions, including aggressive conservation measures and better regional cooperation. But rifts quickly emerged on whether the most dramatic of solutions -- regionwide price caps -- was the best short-term answer.

The meeting, called at the request of Kitzhaber, brought U.S. Energy Secretary Bill Richardson and Federal Energy Regulatory Commissioner Jim Hoecker head to head with the governors of Oregon, Washington, Wyoming, Colorado and Utah. A representative from California Gov. Gray Davis' office also attended the meeting, held at the Renaissance Denver Hotel.

All five governors emphasized that soaring electric wholesale prices throughout the West, exacerbated by a bungled restructuring plan in California, threatened the region's economic stability.

They criticized the energy commission for taking inadequate steps to fix California's chaotic markets, they hammered Californians for wasting electricity at other Western states' expense, they called for conservation initiatives, and they demanded that federal authorities find out who, in fact, was profiteering from the sky-high prices.

"This is an issue of overriding critical importance," Locke said. "The Northwest in particular has been hit badly by unprecedented prices," which have experienced at least tenfold increases in the past year.

Kitzhaber and Locke warned that problems are certain to worsen next month when the Northwest faces a potential electricity shortage of 4,000 megawatts. In the past, the Northwest has made up for winter deficits by importing power from California. But Terry Winter, head of the agency that oversees California's electric power grid, grimly told governors that California likely would have no extra power to sell to other states through much of the winter.

On Wednesday, Richardson also extended for a week -- through Dec. 27 -- an order requiring Western generators to sell available electricity to California. The order involved 75 utility and power providers, including Portland-based PacifiCorp, Portland General Electric and the federal Bonneville Power Administration.

"I'm extending my order another week; I'm not going to do this forever," Richardson said.

All five governors agreed that state and federal officials need to take emergency short-term steps to bring prices down and conserve precious supplies of energy. They also asked President-elect Bush to create a team to work with them while he is forming his Cabinet. In the long-term, they agreed, utilities and developers must build additional generation.

During the past decade, Western states have been among the fastest-growing in the nation. But little additional electricity generation has come on line to deal with rising demand. Some power plants -- almost all natural-gas fired combustion turbines --are under construction, but most won't be ready to crank up for another two to three years.

"The key is investing in new power sources," Richardson said. "We're a nation with a booming economy and basically a third-rate electricity grid."

Governors focused on ways to bring immediate relief to the West, and they agreed on the magnitude of the crisis.

Although Kitzhaber, Locke and Davis avidly support regionwide price caps on wholesale electricity, Govs. Jim Geringer of Wyoming, Bill Owens of Colorado and Mike Leavitt of Utah did not. "I don't think price caps will work," Geringer said. "They might sound like the solution, but they're not necessarily going to solve the problem."

Critics of price caps argue that the artificial limits further tangle market reforms and discourage investment in new power plants.

Kitzhaber said he supported the caps only if they apply to all Western states and only if they are lifted once prices stabilize in California and elsewhere. He insisted that they be coupled with programs that encourage businesses and consumers to use less energy. "Doing nothing is not an answer," he said. "What we're looking for is a little breathing room."

Richardson said he supported the temporary caps, when coupled with conservation measures, and has told the federal regulatory commission so. The energy commission, an independent agency whose five commissioners are appointed by the president, holds the authority to regulate prices.

But Hoecker was a harder sell. "I don't think we understand the consequences" of price caps, he said. "Price caps are not a real solution."

Last week, the energy commission ordered California to change pieces of its restructuring plan. The order came after wholesale prices soared, blackouts were threatened and the state's main utilities, caught between the high prices and low regulated retail rates, teetered on the brink of bankruptcy.

The order attempted to free utilities from the spot market and encouraged purchases of more stable long-term contracts.

Davis and other California political officials have criticized the measures as inadequate, but Hoecker insisted more time was needed to allow the order to work.

If the crisis continues into mid-January, Hoecker said, the energy commission "will be open to additional discussions of more aggressive steps," such as price caps.

Kitzhaber and Locke said they were encouraged by Hoecker's willingness to consider the caps should other measures fail.

Meanwhile, the Western governors said they would put together by Dec. 28 a regionwide energy conservation plan for all types of consumers, from residential users to businesses.

In late January or early February, the governors will meet again to discuss long-term answers to the energy problems, which include soaring natural gas prices. Then the focus will turn to increasing supply.

Richardson said he was pleased by the spirit of cooperation among the states but also noted that relations between some parties has begun to fray, particularly under the strain of California's continued demand for imported power.

"The fact is, this entire region needs to work together," he said. "If we don't, we're going to all end up sitting in the dark."