Regulators vote electricity price restraints across West
WASHINGTON (AP) – Federal regulators unanimously ordered market-based price ceilings on electricity sales across the West on Monday, saying the restrictions would ”provide breathing room” for the markets to correct themselves.
The Federal Energy Regulatory Commission in a 5-0 vote directed that limited price caps imposed on California during power emergencies be extended to all power sales seven days a week and also to 10 other Western states from Washington to Arizona.
The action came amid growing pressure for the five-member commission to aggressively address allegations of price gouging in the Western power markets where electricity prices soared to 10 times what they were in 1999, although prices have eased in recent weeks.
FERC Chairman Curtis Hebert, a Republican and strong free-market advocate, said the price mitigation plan, which is expected to take effect Wednesday, will protect consumers while providing continued incentives for power production.
It provides ”every incentive for suppliers to reduce costs … and assure prices are reasonable for consumers,” he said.
Under the FERC order the mandatory ceiling price for wholesale electricity would:
-Be established by the price charged by the most inefficient, most expensive power generator in the bidding process. That price would include consideration of fuel, maintenance and operational costs.
-Apply fully during emergency supply periods when reserves fall below 7 percent, but drop to 85 percent of that amount during non-emergency periods.
-Be extended to cover 10 other states where the price ceiling would be pegged to the California price, although California sales would be allowed a 10 percent surcharge because of increased market risks.
California Gov. Gray Davis called the action ”a step in the right direction” but said it fell short of what the federal government should do to ensure spot prices are reasonable and past overcharges are addressed.
”Californians have been overcharged billions of dollars for electricity. To date, they have received not one cent in refunds,” said Davis in a statement in Sacramento.
The order came as California officials were issuing warnings of possible rolling blackouts Monday and Tuesday as a heat wave threatened to send temperatures to 100 degrees or above in some areas of the state.
The 10 states other than California covered by the order are all participants in the Western power grid: Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington and Wyoming.
There was no immediate response from the White House on the FERC action.
White House press secretary Ari Fleischer said that Bush might embrace a ”market based” approach to price mitigation, although the president earlier in the day reiterated his strong opposition to price caps.
All five commissioners expressed their support for the plan, including two recent appointees of President Bush who took office just last month, and both of the panel’s Democratic members.
”This order moves sharply in a direction that I have advocated for eight months,” said Commissioner William Massey, a Democrat. ”It eliminates any opportunity for megawatt laundering” – the practice of a power generator selling to a marketer outside of California who then sells into California, thereby avoiding a price ceiling.
Massey said he would have preferred tougher caps based on each power generators’ cost of service, but a majority of the panel did not support that approach.
”This provides breathing room for the markets to correct themselves,” said Linda Breathitt, the commission’s other Democrat.
Nora Brownell, one of Bush’s new appointees to the commission, said the plan maintains market incentives, while protecting against soaring price spikes and now ”the blame game should end.”
The five commissioners were to testify Tuesday before a Senate committee. The action appeared to head off Democratic attempts to order more stringent price controls through legislation.
”This is a giant step forward,” said Sen. Dianne Feinstein, D-Calif., co-author of a bill requiring cost-based price controls on Western electricity markets. ”They may not call it cost-based rates, but it is very similar to what Sen. Gordon Smith (R-Ore.) and I ask for in our bill.”
But Feinstein said she remains concerned the restraints will provide opportunities for market manipulation.
As for the power generators, who have reaped huge profits from Western power sales, initial reaction to the FERC order was critical.
”Price caps don’t work. FERC is ignoring a lot of lessons of economic history. These price caps will only intensify the supply shortfalls plaguing California,” said Joe Bob Perkins, president of Reliant Energy, one of the major electricity generators in the California market.
EDITOR’S NOTE: AP writer Mark Sherman contributed to this story.
On the Net:
Federal Energy Regulatory Commission: http://www.ferc.fed.us/
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