San Diego Union-Tribune

16-Mar-2001 Friday 

Page A-3

CALIFORNIA POWER CRISIS 
Abraham rules out power price caps | 
Energy chief says other help possible 


Toby Eckert 
COPLEY NEWS SERVICE 

WASHINGTON -- Energy Secretary Spencer Abraham left no doubt yesterday that the Bush administration would continue to oppose power price controls in the West, igniting an angry response from Sen. Dianne Feinstein and other price-control advocates.

Abraham said blackouts in California "appear inevitable" this summer -- contradicting one state assessment -- and added the administration would do
what it could to help the state out of the crisis, including not standing in the way of Gov. Gray Davis' plan to have the state purchase utility
power lines.

"The only action the administration will not take is the implementation of price caps," Abraham told the Senate Energy and Natural Resources Committee at a hearing on the region's power crisis.

Feinstein, who moments earlier had trumpeted a new bipartisan proposal for wholesale price controls, denounced the administration's opposition as
"ideologic hardness."

"They're going to be charging $5,000 a megawatt this summer. What does California do about that if it isn't going to get any help to provide (price) stability and reliability over that period of time?" asked Feinstein, D-Calif. "You're sending a signal that it's OK to charge $5,000 a megawatt-hour."

Huge increases in wholesale power prices in California have driven two of the state's utilities to the brink of bankruptcy because they were prevented from passing on the full cost to consumers. Several California members of Congress have introduced legislation that would require the Federal Energy Regulatory Commission, or FERC, to impose price caps or give the energy secretary authority to limit prices.

But Abraham insisted price controls would only make power shortages in the region worse. Power providers will be reluctant to sell electricity or build generating plants in the West if their wholesale prices are limited,
he said.

Large amounts of power sold in the region by state and municipal utilities, rural cooperatives and federal entities would be beyond the reach of the caps because FERC cannot regulate their sales, he added.

"Our position is not a hard ideological position. It's a commonsense position," Abraham said. "I don't think that we should impose . . . the kinds of price controls that will make the (gulf) between supply and demand
worse. And that's exactly what I think will happen."

Sen. Gordon Smith, R-Ore., said price limits could be set high enough to avoid the scenario Abraham laid out. Smith and Feinstein are co-sponsoring legislation that would impose temporary wholesale price controls in Western states that agree not to limit what retail consumers pay for power that is subject to the controls.

"I'm afraid this summer we're going to be in the middle of a dry lake bed explaining to very angry farmers and homeowners and former factory workers the lessons of supply and demand. I don't think they're going to listen," Smith told Abraham.

But other Republicans on the committee, including Chairman Frank Murkowski of Alaska and Larry Craig of Idaho, continued to oppose price caps.

On another front, Abraham said the administration would not oppose Davis' plan to take over the power lines of California utilities -- provided the
transmission system remains open to competition.

If it is ever finalized by the state, the plan would require the approval of FERC, whose chairman has voiced concerns about its impact on open access and regional management of the power grid.

Davis has expressed hope that Abraham's endorsement will encourage FERC to approve the plan, which he says would help restore the financial health of the utilities.

In a written statement, Davis said he was grateful for the administration's decision, but differed with Abraham's prediction of summer blackouts.

"We are moving at warp speed to put more generation online and aggressively practice conservation to avoid any major disruptions this summer," Davis said. "Earlier this week, the independent Legislative Analyst's Office issued a report showing we would have just enough power to avoid
blackouts."

Abraham defended the Bush administration's overall response to the crisis, citing its temporary extension of emergency orders that had kept power flowing to California during shortages.

FERC Chairman Curtis Hebert, another foe of price controls, said recent action by his agency "proves our vigilance and intolerance" of power price gouging. He cited FERC's threat last week to order $69 million in refunds for overcharges in California in January and a Wednesday order requiring two companies to justify the temporary shutdown of power plants in the
state last year or face $10.8 million in refunds.

FERC will decide by the end of this week on potential refunds for power sold in February, Hebert added.

"The commission is working very hard to respond to these problems. We've almost issued something on a weekly basis," said Hebert, who is the subject
of speculation that President Bush will nudge him out of the chairman's job and replace him with an ally from Texas.

But a California utility executive says FERC hasn't gone far enough.

"While after many months of inaction we are heartened by FERC's attention to this crisis, the commission's action is far too little and far too late," Sempra Energy President Stephen L. Baum told the committee.