Regulators order limited price controls to ease West's power crisis

Thursday, April 26th 2001, 12:00 am
By: News On 6

WASHINGTON (AP) _ Responding to growing political pressure, federal regulators are ordering limited price caps during California electricity emergencies in an attempt to head off severe price spikes this summer when the state is expected to face critical power shortages.

The Federal Energy Regulatory Commission voted 2-1 late Wednesday to regulate prices whenever California's electricity reserves fall below 7 percent, triggering a Stage 1 power alert.

FERC chairman Curtis Hebert, a Republican, said the order seeks to ``balance'' the need to encourage investment in power plants and boost badly needed supply, but also protect against unreasonable prices when supplies tighten.

California has a three-stage power alert system with Stage 1 warning of potential supply problems and Stage 3 signaling a requirement to curtail demand and prepare for likely rolling blackouts. California this summer is expected to be short at least 3,000 megawatts of power even if temperatures are normal. State officials have warned of likely frequent power disruptions.

FERC's order is aimed at preventing the most severe price spikes during those emergency periods, the commissioners said.

Wholesale electricity prices this winter frequently have been 10 or more times what they were a year ago with prices regularly exceeding $200 per megawatt hour. Some futures prices for this summer delivery in the West have been more than $400 per megawatt hour.

A megawatt hour is enough electricity to serve 1,000 typical homes for one hour.

In pushing through the order after a day of intense negotiation among the three commissioners, Hebert reiterated his strong opposition to broader price controls based solely on producers' cost of generation. Echoing the White House, he said he continues to believe ``the best solution to California problems are market-based solutions.''

He was joined in support of the order by commissioner Linda Breathitt, a Democrat. She said the decision marked a breakthrough because for the first time ``we have reached a consensus that price mitigation should occur'' in the California market.

But another commissioner, Democrat William Massey, called the commission's action ``paltry'' and a ``half a loaf solution'' because it is too restrictive. He said price limits should be imposed all the time and not just during emergency declarations.

``The evidence is persuasive that the problem (of unfair prices) exists 24 hours a day, seven days a week,'' said Massey, who for months has criticized Hebert and Breathitt for rejecting more sweeping price controls.

He has argued the commission has failed in upholding provision of the Federal Power Act to ensure fair and reasonable prices in wholesale electricity markets.

The three commissioners grappled with the price cap issue all day Wednesday, postponing a public hearing on the matter three times. Finally they emerged Wednesday evening and approves the measure 2-1 with Massey objecting.

The commission, operating with two of its five seats vacant awaiting Senate approve for two of President Bush's nominees, has come under intense pressure to do something about soaring wholesale power prices throughout the West.

Earlier in the week, a group of Senate Democrats and one Republican introduced legislation to require FERC to impose broader price caps on electricity markets in the West and peg them to the cost of power production.

The FERC order falls short of that, focusing on California with no price mitigation program for the Northwest where wholesale electricity costs have been just as high as in California.

The FERC order ``ignores the Northwest, like we floated out to sea,'' complained Rep. Jay Inslee, D-Wash., who sat in the audience during the proceedings.

Rep. Peter DeFazio, D-Ore., said he had hoped Breathitt might join Massey in voting for broader price caps, but she did not. ``We'll still have price gouging and blackouts,'' he said.

However, FERC did direct that an agency investigation into potential refunds should be extended from California to other parts of the West including Washington and Oregon. Massey maintained that investigation is far too narrow and will be ineffective.

And even the price restrictions for California could be short lived. The price mitigation requirements are contingent on California agreeing to submit by July 1 a Western regional transmission organization plan, something the state has opposed.

``The order turns into a pumpkin and will have no effect'' if California does not join in a regional transmission organization, said Massey.