California Sees Power Meltdown Without Price Cap March 22, 2001 11:16 am EST

By Patrick Connole WASHINGTON (Reuters) - Amid reports that California may have been overcharged by $5.5 billion for wholesale power in recent months, state and utility executives urged Congress on Thursday to set a temporary cap on electricity prices to avoid a summertime meltdown.

The chronic power crisis in the nation's richest and most populous state, which has already pushed two big utilities to the brink of bankruptcy, is expected to trigger more blackouts as temperatures soar this summer.

The operator of California's power grid accused wholesale electricity suppliers of overcharging $5.5 billion for power during the past 10 months, the Los Angeles Times reported on Thursday. The California Independent System Operator (ISO) told the newspaper its analysis of market transactions showed some wholesale power suppliers manipulated the market for huge profits.

PG&E Corp. and Edison International -- which must purchase wholesale power to meet demand -- are not allowed to pass through higher costs to consumers under a landmark state law that deregulated the power industry.

A PG&E executive warned a House of Representatives Energy subcommittee that California and other western states were headed for a power market "meltdown" this summer because of tight supplies of electricity.

"There is a very good chance that California and possibly other western states are heading for a meltdown where -- due to short supplies -- the price of power could increase from today's already historically high levels to sustained stratospheric levels for the summer," said Steven Kline, vice president of governmental relations for PG&E Corp.

Kline said the U.S. energy secretary or the Federal Energy Regulatory Commission (FERC) must order a temporary price cap on wholesale power to stabilize the California market.

He estimated the average wholesale power price was $228 per megawatt hour in California last month, compared with about $30 per megawatt hour one year ago.

The Bush administration has repeatedly rejected a western price cap on wholesale power transactions, saying price controls would only discourage construction of new generating plants badly needed in California.

The chairman of FERC, which regulates interstate electricity markets, has also refused to adopt a regional price cap.

A California state official, however, told the House subcommittee that if FERC refuses to restore price stability it was up to Congress to "do it for them."

California Energy Commission Chairman William Keese said the state would face "serious economic harm" unless federal regulators adopt stronger measures to rein in soaring wholesale electricity prices.

Keese said while the state was aggressively pursuing ways to increase power generation, reduce electricity demand and lower prices, FERC must also act to help California resolve its worst energy crisis.

"In addition to the serious economic harm to California and other western states that will likely continue if stronger mitigation efforts are not adopted by the FERC, I want to emphasize that the 'unjust and unreasonable' prices being charged by generators serve absolutely no useful end," Keese said in testimony to the House Energy subcommittee.

The California Energy Commission licenses thermal power plants and plans for statewide energy emergencies.

http://www.iwon.com/home/news/news_article/0,11746,110259|top|03-22-2001::11:13|reuters,00.html

-- Martin Thompson (mthom1927@aol.com), March 22, 2001