Limited price controls ordered to ease West's power crisis

H. JOSEF HEBERT, Associated Press Writer

Wednesday, April 25, 2001, ©2001 Associated Press

URL: http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/04/25/state2301EDT0320.DTL&type=news

(04-25) 20:45 PDT 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 7.5 percent, triggering an emergency alert by the state's power grid managers.

California Gov. Gray Davis said earlier Wednesday that he had urged FERC to extend the price controls so they would take effect when a Stage 1 alert was declared by the California Independent System Operator. A Stage 1 alert means electricity reserves have fallen below 7 percent.

After the order, however, Davis' spokesman Roger Salazar, said the governor would not comment until he had a chance to review it in detail. ``All along we have been asking for meaningful relief. However, in order to provide real assistance to the West, federal regulators should impose meaningful temporary price caps this summer and next, fulfilling their responsibility while California continue to bring additional power plants on line,'' Salazar said Wednesday evening.

``It doesn't bode well that the one commissioner who knows California best, Commissioner (William) Massey, voted against this proposal. We'll be looking carefully at this in the morning.''

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

But Massey, a Democratic commissioner, 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. Assemblyman Fred Keeley, D-Boulder Creek, called the ruling a mixed blessing. `The most important element of the plan is yet to be determined and that is the price which is forthcoming in 15 days,'' Keeley said.

Keeley said he was concerned that the order continues the ``single market clearing price'' policy, which means the highest bid during the day is the price that all the contracts are paid. ``That's what we have in California right now and it's of considerable controversy,'' he said. ``Having that as a Western states' policy is exporting a bad idea.''

The order also requires all wholesalers who use the grid to sell their power into the market during emergencies, which Keeley said could greatly help fend off blackouts.

Mirant spokesman Brian O'Neel and Duke Energy spokesman Tom Williams said their company officials were still reviewing the order. Enron spokeswoman Karen Denne called FERC's decision ``unfortunate.''``Price caps will not help California's problem going into summer,'' Denne said. ``They neither increase supply or decrease demand. What they will do is exacerbate the situation and create additional shortages.''

Denne pointed out that power emergencies, such as Wednesday's Stage 2 alert, are becoming routine in California, and will only become more common with summer's heat. That would mean price caps could be in effect most of the summer.

Sen. Debra Bowen, chairwoman of the Senate Energy Committee said the order is movement and she likes to be optimistic about it. ``It's not the pot of gold at the end of the rainbow, but it's a help,'' said the Marina del Rey Democrat. ``It's a good thing to have done now, in April, so we have a little time to see how it operates before we get into the summer.''

Bowen said tying price caps to perilously low electricity supplies may also spur generators to get hundreds of small power plants back on line to avoid the caps. 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 an emergency because electricity reserves fell to below 7.5 percent. The FERC staff earlier had recommended that price controls only occur in so-called Stage 3 emergencies in which there is only a 1.5 percent reserve and rolling blackouts are imminent.

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.

``I think we need price caps all the time not just when we're in an emergency. It's the lack of price caps that puts us into emergency situations,'' said Mindy Spatt, a spokeswoman for The Utility Reform Network, a consumer watchdog group in San Francisco.

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.

``Since it's California only, I'm not sure what happens if other states are experiencing shortfall and are willing to pay more than the proxy price,'' Bowen said.

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. ``We're inventing all of these market manipulations as we go. We'll know after a month's experiment what actually happens to price and availability,'' Bowen said.

On the Net:

Federal Energy Regulatory Commission: www.ferc.gov

©2001 Associated Press

-- Swissrose (cellier3@mindspring.com), April 26, 2001