States say federal government needs to act to stem energy crisis

Wednesday, April 11th 2001, 12:00 am
By: News On 6

BOISE, Idaho (AP) _ A six-hour brainstorming session between federal and state energy regulators ended with a clear message: Western states want more help from Washington to corral the region's deepening power crisis.

The three members of the Federal Energy Regulatory Commission flew to Idaho for what Chairman Curtis Hebert called ``frank discussions'' with officials from 11 Western states about the astronomical electricity prices that have spread from California to almost every corner of the region.

And the Washington regulators got an earful.

``Montana is taking a hell of a hit because of this market,'' declared Gary Feland, whose job it is to approve requests by the state's utilities to pass wholesale price increases on to their retail customers.

``Politically we're getting beat up,'' added Feland.

In many states, retail electricity sales are still regulated, but wholesale markets are not. The state officials warned that many of the electricity rate increases, stemming from wholesale price run-ups, have yet to reach consumers, but will in the coming months as states have no choice but to approve them.

Much of the discussion focused on whether FERC, which regulates the wholesale power market, should temporarily impose price controls to ease the impact of what one of the commissioners, William Massey, called ``a looming disaster'' this summer if nothing more is done.

Afterward, Hebert tallied up the results: Five states opposed such controls, three wanted them desperately and three others were not sure. Previously, the latter three had lined up in the ``no'' column.

Hebert has made clear his opposition to renewed price regulation _ even temporarily to address an emergency _ because he argues that a free market is the only way to get people to build more power plants and transmission lines and create the ``price signal'' to foster conservation.

His position drew support from Vice President Dick Cheney in a telephone interview with the Associated Press in Olympia, Wash.

``The problem with price caps is that they don't solve the problem,'' said Cheney. ``Just look at California, where they had caps applied at the retail level that, coupled with the requirement to buy power on the spot market, has driven PG&E into bankruptcy.''

Pacific Gas & Electric, California's largest utility, said last week it had debts of $9 billion and filed for Chapter 11 bankruptcy protection.

Like the state officials, FERC is deeply split on the issue of price controls.

``It is wrong to put the entire Western economy in harm's way solely to protect a price signal arising from a dysfunctional market,'' Massey said. ``Our passion for the market must be tempered with commonsense.''

A contingent from California submitted a proposal calling for cost-based price caps for 18 months on wholesale electricity and natural gas sales across the West. Only FERC can impose such caps.

``We have done our part. We cannot do it alone,'' Bob Herzberg, speaker of California's Assembly, told the three FERC commissioners. The Californians listed the state's response to its power problems so far: Actions to boost conservation, increase retails electricity rates and speed up power plant construction. Still, they bemoaned that California this year was expected to spend $65 billion on electricity, nearly 10 times its power bill in 1999.

Hebert insisted that the FERC ``is doing everything it can'' to ensure just and reasonable prices and cited the commission's action to seek $124 million in refunds on California power sales. He also said the commission plans soon to approve a new system of tracking market abuses.

Officials from Washington state and Oregon joined California in the plea for temporary price regulation. The Northwest has been hit by a severe drought, making less hydro-generated electricity available and forcing greater reliance on the high-priced spot market. On Monday the Bonneville Power Authority said it may have to nearly triple what it charges for its power if demand doesn't drop sharply and reduce the need of spot market purchases.

But in a surprising development, Wyoming, Utah and New Mexico said they no longer were sure that price controls would be such a bad thing. And even those opposed to price caps, like Montana's Feland, criticized FERC for not being more aggressive in challenging prices _ many of them now 10 times what they were a year ago _ as unreasonable.

``In the real world, in the world of the West, the ideal market doesn't exist,'' Marilyn Showalter, a Washington state utility regulator said. She disputed the contention that price caps would discourage investment, arguing that the uncertainties brought to soaring prices already were doing that.

``The lack of action (from FERC) is threatening to undermine the commission's own credibility'' and eroding political confidence in electricity deregulation and competition, she said.