Price Cap Sought on Electricity

Wednesday, December 20th 2000, 12:00 am

By: News On 6

SAN FRANCISCO (AP) â€” With an electricity market meltdown flickering on California's horizon, Western governors and Energy Secretary Bill Richardson are gathering in Denver to lobby federal regulators for a region-wide cap on wholesale energy prices.

The Federal Energy Regulatory Commission, a proponent of deregulation, so far has resisted establishing a firm cap, but several governors are hoping a show of unity Wednesday will change the tide and avert rolling blackouts in Southern California as early as next week.

``We need to hit FERC over the head about this,'' said Steve Maviglio, a spokesman for California Gov. Gray Davis.

California's electricity generators, marketers, utilities and regulators also planned to continue negotiating Wednesday in Washington, focusing on long-term contracts designed to avoid volatile price fluctuations.

Davis said he would stay in California to address the state's worsening energy crisis, but two key allies, Washington Gov. Gary Locke and Oregon Gov. John Kitzhaber, will be in Denver to lead the argument for a uniform price cap in as many as 14 states.

FERC last week approved a flexible rate cap of $150 per megawatt hour that allows power suppliers to charge more if they can prove a higher price is warranted. Davis and California's major power utilities ridiculed the flexible cap as ineffectual.

Davis wants a rock-solid, regional price cap of $100 per megawatt hour, a concept that appears to be winning favor among some Western states worried that California's energy woes could become contagious if a remedy isn't found soon.

Wholesale electricity prices peaked at $1,400 per megawatt hour this month in California after a $250 per megawatt hour price cap was dropped.

The California-only price cap exacerbated the state's energy shortage because suppliers stepped up their sales to other Western states willing to pay higher rates, leaving less energy for California.

The concept of a regional price cap isn't universally popular.

Energy suppliers, who have been raking in record profits, are fiercely opposed to price caps. They warn that the restrictions could hurt California in the long run by discouraging energy suppliers from building desperately needed new power plants.

``You can't hide behind a rate cap and say that's the answer to the problem because it isn't,'' said Bill Brier, a vice president for the Edison Energy Institute, an industry trade group.

New Mexico Gov. Gary Johnson, a Republican, said Tuesday that he won't support a regional price cap because ``if you just give it time, the market will correct these problems.'' California also has been warned that Wyoming is vehemently opposed to a price cap, Maviglio said.

The imminent changing of the guard in the White House also could prove nettlesome. Davis, a Democrat, may find a less sympathetic reaction from President-elect Bush, a Republican whose Texas roots and ties to the oil industry make him a more natural ally of energy suppliers than President Clinton.

``We are going to be dead ducks if we don't get a solution before Bush takes office. Davis could find himself in an ugly partisan fight,'' said Nettie Hoge, executive director for The Utility Reform Network, a consumer watchdog group.

The regional price cap concept is winning some powerful political support.

Richardson and Sen. Dianne Feinstein said they believe a regional price cap may be the best way to ease a crisis that has pushed California's two biggest utilities to the brink of bankruptcy.

``What we want is ... a regional solution, not just a California solution,'' Richardson said.

Southern California Edison and Pacific Gas and Electric have accumulated more than $8 billion in debt to buy high-priced electricity they must resell to households and businesses at dramatically lower prices under a 3-year-old rate freeze.

Of the two utilities, SoCal Edison appears to be the closest to financial calamity.

Both Feinstein and Davis said Tuesday they have been warned that cash-strapped SoCal Edison will have to start cutting off power to millions of customers as early as next week. The power would likely shut down in four- to six-hour intervals and affect about 5 million customers â€” nearly half of Edison's service area.

Without financial help, ``we would have to make deep cuts in our electric service,'' and hundreds of their 14,000 workers could lose their jobs, said Tom Higgins, a senior vice president for Edison International, SoCal Edison's holding company.

Even if Davis is able to persuade all the Western governors to support a regional price cap on electricity rates, there could be logistical problems making it a reality.

Perhaps the biggest hurdle is the rapidly rising price of natural gas, which fuel many power plants in the West. Energy suppliers might be reluctant to produce market in a market that caps their prices without also limiting their expenses for natural gas.

FERC Chairman James Hoecker also said his agency faces a potential problem enforcing a regional rate cap. That's because at least two major energy providers, the Bonneville Power Administration in Portland, Ore., and the Western Area Power Administration in Lakewood, Colo. fall outside FERC's jurisdiction.

Offices from Bonneville and Western Area Power said they didn't see any problems adhering to a regional price cap of $100 per megawatt hour.

``The commission has not come to terms with this issue,'' Hoecker said. ``As you might suspect, though, we see it is important to consumers in the West.''