Saturday Mar 3, 2001 Showdown on energy prices

By Nick Driver Of The Examiner Staff

The federal government may not honor California's request to cap prices generators charge utilities and the state for electricity. That would mean the state gets nothing back from what it has already pledged to pay for electricity during the current crisis. Washington also is cool to letting California take over transmission lines to save electric utilities from bankruptcy. The showdown is expected today.

In a move with deep implications for consumers' pocketbooks, California's Independent System Operator filed a far-reaching complaint against wholesale power suppliers Thursday. The ISO and its nominal local regulator, the Electricity Oversight Board, filed the motion with the Federal Energy Regulatory Commission requesting a hearing on whether wholesalers' prices were "just and reasonable" and asking for information on how much money generators spent to produce electricity.

ISO contends the costs did not rise as high as had been claimed, even though prices for natural gas -- which powers most state plants -- soared.

"We are very concerned, and feel that we need to examine the rates to make sure wholesalers' costs are justified," said Anjali Sheffrin, ISO director of market analysis.

She said FERC's current soft caps, or flexible limits, on wholesale energy prices had actually worked against purchasers, causing "excessive" charges of about $550 million on electricity sold to utilities in December and January.

"Gaming" clients

"FERC's soft caps have been an ineffective way of dealing with the situation," Sheffrin said, adding that an FERC-imposed "hard" cap -- or fixed limit -- would trigger a refund of some of the huge costs utilities paid wholesalers on the spot market. ISO contends the release of cost-of-production data would prove that wholesalers have been "gaming" their clients, charging exorbitant rates because they control the supply of electricity.

Costs soar in two months

Backing up its figures, ISO estimates that total California energy costs for December and January reached $11 billion. That number is 50 percent greater than the figure for all power production in 1999.

Officials at FERC, under both the Clinton and Bush administrations, have been cool to ISO complaints. In December, FERC suggested a far-reaching reorganization of the ISO and the state's electricity purchases. Gov. Gray Davis agreed to this request in January, naming five new independent members to the ISO board.

He also asked FERC to reinstate price caps on wholesalers. So far, those requests have fallen on deaf ears, but Davis expects at least an answer to another piece of the puzzle today when he meets again with Energy Secretary Spencer Abraham.

Davis and the California Legislature have outlined plans to purchase the state's transmission lines from PG&E, Southern California Edison and San Diego Gas & Electric. Davis has said he is optimistic that FERC will not use its veto power over his plan, which would buy all 32,000 miles of interstate transmission lines, then turn it into a separate authority governed by the state.

He may be in for an unpleasant surprise. Abraham is scheduled to respond to Davis' request today. Given the FERC's past intransigence on California's power crisis -- and the budding political rivalry between Bush and Davis -- the president may direct his energy secretary to turn down the request.

"Troika" at work

The most recent tussle comes as local businesses and ratepayers grow increasingly angry at federal authorities. A majority of small businesses surveyed called for federal limits on wholesale energy prices, while 61 percent called for a temporary re-regulation of energy, up from 44 percent last week.

"This latest survey confirms what we have been saying all along," said poll-taker Martyn Hopper, California director for National Federation of Independent Business. "Energy deregulation was a big mess created by a troika of big government, big business and big utilities with the small guys bearing the brunt."

Poll numbers for Davis' handling of the crisis, by contrast, remain high. Still, despite the partly political nature of this standoff, there is little likelihood that will affect FERC's decision.

Davis also met this week with Wall Street financial analysts to promote his plan, in which the state would buy all high-voltage transmission lines -- everything except for low-voltage lines that run through neighborhoods. The plan is still a rudimentary framework, and analysts so far are taking a wait-and-see attitude.

http://www.examiner.com/news/default.jsp?story=n.energy.0302

-- Martin Thompson (mthom1927@aol.com), March 03, 2001