Headline: Bush Administration Says California Blackouts Inevitable

Source: Associated Press, 15 Mar 2001

URL: http://ap.tbo.com/ap/breaking/MGA0BCTNCKC.html

WASHINGTON (AP) - The Bush administration warned that electricity blackouts in California "appear inevitable" this summer but issued its strongest opposition yet to addressing the problem with federal controls on wholesale power prices.

Energy Secretary Spencer Abraham said Thursday that price caps on wholesale energy suppliers will "discourage investment in new generation at a time when it is most needed" and drive power producers to other regions of the country.

"Let me be clear on this," he told a Senate hearing on price control legislation, "Any action we take must either help increase supply or reduce demand. ... Price caps will not increase supply or reduce demand."

Legislation proposed by Sens. Dianne Feinstein, D-Calif. and Gordon Smith, R-Ore., would require federal regulators to impose price controls if they find wholesale electricity costs unjust and unreasonable.

The two senators - as well as California Gov. Gray Davis - have for months argued that wholesale power generators have used the tight supply situation across the West to charge exorbitant costs that require intervention.

"I believe in the free market," said Smith, but in California and the rest of the West "what we now have is a broken market and a duty to do something." The legislation would also require California regulators to pass additional electricity costs onto consumers.

But Abraham, testifying before the Energy and Natural Resources Committee, said the administration will not be swayed to price controls.

"Price caps will not increase supply or reduce demand. In fact, they will aggravate the supply crisis," he declared. He said that California has had limited price controls and they "gave generators every incentive to sell power out of state" and "the higher average electricity prices rose."

The chairman of the federal agency which has authority to impose price limits on wholesale power sales also weighed in against caps. "Price caps will deter supply and discourage conservation," argued Curtis Hebert, the Republican chairman of the Federal Energy Regulatory Commission.

He said in prepared testimony that "market-based solutions offer the most efficient way to move beyond the problems confronting California and the West."

Abraham acknowledged that the West's energy crunch, which has resulted in sporadic power interruptions in California and soaring electricity prices across the region, will not ease anytime soon.

"The problem will get worse, and blackouts this summer appear inevitable," said Abraham. He projected that peak demand for electricity this summer will outpace supply in the state by 5,000 megawatts.

One megawatt is enough electricity to power 1 million homes. Abraham said the talk of price caps is diverting attention from assuring adequate power supplies this summer. He said the administration's priority is to assure that this summer "California does not start a wave of blackouts that go beyond its borders."

At a news conference, Feinstein and Smith expressed hope other Republicans from the West might support their legislation after provisions were included requiring the state to pass some additional costs on to California consumers in the form of retail rate increases.

Soaring wholesale power prices have brought California's two major utilities close to bankruptcy.

Southern California Edison and Pacific Gas & Electric, the two utilities, have accumulated nearly $13 billion in losses because the state's 1996 deregulation law prevented them from passing most of the higher costs of wholesale energy onto its customers.

The state has assumed electricity purchases because no one has been willing to sell to the cash strapped utilities.

On Friday, the state released another $500 million to buy electricity, bringing its spending to some $3.2 billion since early January. Feinstein said the state's power purchasing budget of $10 billion could well be depleted by the end of summer.

AP-ES-03-15-01 1046EST

-- Andre Weltman (aweltman@state.pa.us), March 15, 2001