- The Washington Times - Tuesday, June 19, 2001

Federal energy regulators yesterday put tighter caps on electricity prices in California and extended current limits to 10 other Western states, hours after President Bush eased his opposition to price restraints.
The Federal Energy Regulatory Commission voted unanimously to expand its "price mitigation" plan, adopted in April, which triggers electricity price limits in California when state officials declare a supply emergency.
The state has suffered from soaring energy prices and rolling blackouts since last year. Growing demand for power has outstripped supply in California, which has not built a power plant in years.
The five-member commission agreed to expand its plan on the heels of warnings of possible rolling blackouts in California today. A heat wave threatens to send temperatures to 100 degrees or higher in some areas of the state, officials said.
"It is precisely because the plan is working that the commission is able to expand its … scope," said Curtis L. Hebert Jr., the commissions chairman.
Under the plan, wholesale power prices are based on the amount that regional generators can charge to produce power at their least efficient plant.
The plan will take effect tomorrow with an initial price ceiling of $107.95 per megawatt hour for wholesale power in the region, commission staffers told reporters after the panels meeting ended.
The price is for power sold during non-emergency supply hours and does not exceed 85 percent of the highest hourly price, $127 per megawatt, that was in effect during Californias most recent power emergency.
Generators can sell above that threshold but must justify the extra charge to the commission.
All power sold in California will have a 10 percent surcharge added because of credit risks that out-of-state generators must incur, commission staffers said. The soaring prices charged to Californias utilities by generators forced Pacific Gas and Electric Co. to file for Chapter 11 bankruptcy protection from creditors April 6. The states other main utility, Southern California Edison, is billions of dollars in debt.
Several industry spokesmen declined to comment yesterday, saying they had not had time to review the commissions plan.
Duke Energy Corp., a North Carolina company that trades and markets electricity in California and other Western states, said federal price mitigation could "be helpful in this extreme marketplace," said spokeswoman Jennifer Hillings Epstein.
"But it is not the ultimate solution in the long term," she said.
Consumer watchdog groups yesterday called on regulators to allow power companies to charge market-based rates in California, saying rates based on fuel and production costs would be a better way to bring prices under control.
California Gov. Gray Davis, a Democrat, has urged the commission — an independent agency whose members are appointed by the White House — to adopt tight price controls.
Congressional Republicans have encouraged the commission to expand its price mitigation plan as a way to stem the growing pressure from Democrats for broader cost-based price controls on electricity. Some Republican lawmakers have feared that high energy prices could cost them politically in next years congressional elections if prices are not contained.
A few hours before the commission met yesterday afternoon, the president told reporters he still opposes "firm price controls," saying they will "not solve the problem."
But Mr. Bush hinted he would go along with the commissions decision to expand its existing plan.
"Theyre not talking about firm price controls. Theyre talking about a mechanism … to mitigate any severe price spike that may occur, which is completely different from price controls," he said.
The commissions order, which is effective through September 2002, expands price restrictions the agency imposed in April on wholesale electricity sales in California during peak demand periods when blackouts were threatened. It also covers power transactions around the clock in 10 Western states and in California.
The 10 states that participate in the Western power grid are Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington and Wyoming.
The price cap is pegged to the cost of production at the least efficient electricity generating plant in the region. It also closes several loopholes that have allowed power generators to circumvent the April order.
The commission is "committed to ferreting out and eliminating any sort of market manipulation," Mr. Hebert said.
All five commissioners voted for the plan, including recent Republican appointees of President Bush and both Democrats on the panel.
Linda K. Breathitt, one of the Democrats, said the order should "provide breathing room for the markets to correct themselves."
Mr. Hebert, Mississippi Republican, said the commissions primary goal is "to get California and the western markets under control."
Restoring tight electricity regulation in California would be a mistake, he said. It could take years to put the states regulatory laws back on the books and would result in much legal wrangling, he said.
"Certainly the lawyers would be better off, but the consumers would not," Mr. Hebert said.
This story is based in part on wire service reports.

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