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Energy price caps likely

WASHINGTON (AP) – Under growing political pressure, federal regulators are preparing new but still limited price restrictions for electricity in California and other Western states, according to government officials.

Congressional and private industry sources said the Federal Energy Regulatory Commission is almost certain, at a meeting next week, to expand a price mitigation directive to cover all transactions in California and expand it to other states, including the Pacific Northwest.

The limited price caps, announced in April, now apply only to California and only to periods when a supply emergency is in effect because power reserves have fallen below 7.5 percent. California Gov. Gray Davis has called them inadequate and full of loopholes for power generators to skirt controls.



Sen. Dianne Feinstein, D-Calif., told a Senate hearing ”it now appears” that the April order will be broadened. She said it was ”another step forward” but far short of the cost-based price caps she and other congressional Democrats have sought.

Several other sources, speaking on condition of anonymity, also said they expected the FERC to broaden the April order.



At a meeting of the California Public Utilities Commission on Wednesday, chairwoman Loretta Lynch said she is ”very encouraged” that FERC is reconsidering its earlier decision but said the result would be ”absolutely inadequate” because the FERC would cap prices at a relatively high rate.

The commission chairman, Curtis Hebert, said price mitigation issues will be discussed at FERC’s Monday meeting.

The five-member commission of three Republicans and two Democrats has come under attack from Democrats in Congress and from Davis. They contend the agency has been far too timid in curtailing price gouging in the wholesale Western power markets.

The commission regulates wholesale electricity markets and interstate natural gas pipelines. Under a 1934 law, it is required to ensure prices are just and reasonable.

Hebert, a Republican named as chairman by President Bush in January, defended the agency at an energy forum Wednesday.

”Our price mitigation plan is working,” said Hebert, citing recent declines in electricity and natural gas prices in California and elsewhere in the West. Acknowledging the criticism, he said of the FERC: ”We’re not the most popular people in town right now.”

This week, electricity prices on the spot market in California fell to below $100 a megawatt-hour for the first time this year. Natural gas prices also eased. Earlier year prices have frequently surpassed $300 a megawatt hour, ten times what they were in pre-crisis 1999.

A megawatt is enough electricity to serve about 600 homes.

California officials have said it is too early to tell how the FERC’s April order has affected prices.

The reason for the price drops is unclear, Feinstein said. She noted that California’s attorney general this week announced plans for a grand jury to consider criminal charges against some power generators and marketers.

Also Wednesday, several economists told a Senate hearing that temporary price controls, if structured properly, should not impede electricity investments and supplies as Republican lawmakers and the administration repeatedly have argued.

”It is incorrect that regulation necessarily interferes with supplies,” Cornell economist Alfred Kahn, a prominent deregulation advocate, told the Senate Governmental Affairs Committee.

It was the Senate’s first hearing on California’s energy crisis since Democrats recently took power.

Kahn said that if price caps were temporary, exempted new power plants, and provided sufficient profits, ”there will be no shortage of people interested and willing to build new power plants.”

”The greatest danger is continued chaos,” said Paul Joskow, an economist at the Massachusetts Institute of Technology. He, too, urged some price controls based on costs of production.

Sen. Fred Thompson, R-Tenn., said the economists were painting ”a rosy picture.” He read letters from several Wall Street analysts who insisted that price controls would be a ”recipe for disaster” and make investors reluctant to enter the California power market.

Senate Democrats have promised to move forward with legislation to require the FERC to act unless the commission takes additional steps to address allegations of price gouging in California.

”If we ignore these problems, we put our economy at risk,” said Sen. Joseph Lieberman, D-Conn.

On the Net:

FERC: http://www.ferc.gov/

Senate committee witness list: http://www.senate.gov/(tilde)gov-affairs/061301witness-list.htm


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