APRIL 25, 22:18 EST

Calif. Energy Prices Limited

By H. JOSEF HEBERT Associated Press Writer

WASHINGTON (AP) — Federal energy regulators directed limited price controls on California's wholesale electricity markets Wednesday, but the order fell short of the sweeping price caps California officials have wanted.

The Federal Energy Regulatory Commission voted 2-1 to order that wholesale prices be capped in California when electricity reserves fall below 7 percent, triggering an emergency alert by the state's power grid managers.

FERC chairman Curtis Hebert, a Republican, said the order seeks to ``balance'' the need to protect against unreasonable prices and still encourage investment in power plants and promotion of conservation measures.

But another commissioner, Democrat William Massey, said the commission's requirement is a ``half a loaf solution'' to the electricity crisis plaguing California and the rest of the West. He said the price controls apply too narrowly and are dependent on California's agreeing to join a regional power transmission group, something the state has not wanted to do.

``The order turns into a pumpkin and will have no effect'' if California does not join the northwest in a joint power transmission system, said Massey.

The three-member commission struggled all day to craft a price-mitigation plan. Three times, a public hearing on the measure was postponed as behind-the-scene negotiations continued. Finally, the three commissioners emerged and approved the measure, with Massey opposing it.

Hebert, the Republican chairman, was joined in support of the order by commissioner Linda Breathitt, a Democrat.

Breathitt said that despite Massey's criticism, overall ``we have reached a consensus that price mitigation should occur'' in the California market.

Under the order price, controls would be triggered only if California grid managers declare a Stage 1 emergency because electricity reserves fell to below 7 percent.

The FERC staff had recommended that price controls occur just in Stage 3 emergencies — the most severe — in which there is only a 1.5 percent reserve and rolling blackouts are imminent.

Massey said the price controls should not be triggered by an emergency declaration but should be in effect all the time. ``The evidence is persuasive that the problem (of unfair prices) exists 24 hours a day, seven days a week,'' Massey said.

In issuing the order, Hebert reiterated his strong opposition to broader price limits based on producers' cost of generation. Reflecting the views of the Bush administration, Hebert said he continues to believe ``the best solution to California problems are market-based solutions.''

However, the commission's action reflects growing pressure on both FERC and the Bush administration to take additional action to ease the West's power problems, which are expected to become worse this summer as electricity demand increases and supplies continue to lag.

Rep. Jay Inslee, D-Wash., said Wednesday night that some price action was a step in the right direction but complained that the FERC order ``ignores the Northwest, like we floated in the sea.''

Earlier this week, a group of Senate Democrats and one Republican from the Northwest introduced legislation to require FERC to impose broader price caps on electricity markets across the West and peg them to the cost of power production. FERC continues to reject such caps.

The FERC order focuses primarily on California and none of the price- mitigation requirements would apply to the Northwest, where some wholesale electricity prices have in recent weeks been even higher than those in California.

However, FERC did direct that an agency investigation on whether some prices have been unreasonably high should be extended from California to other parts of the West. Massey said that investigation is far too narrow and will be ineffective.

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-- Martin Thompson (mthom1927@aol.com), April 25, 2001