San Diego Union-Tribune

April 25, 2001

FERC to weigh limited curbs on electricity prices
   Caps would apply in Stage 3 shortages


WASHINGTON -- Federal regulators are expected to consider limited wholesale price curbs for California's chaotic electricity market today, but the approach falls far short of the controls sought by many state officials.

Federal Energy Regulatory Commission staffers have proposed limiting the price that power sellers can charge for wholesale electricity in California only during the most severe shortages, known as Stage 3 emergencies. The "price mitigation" would be pegged to "the marginal cost of the highest-priced (generating) unit called upon to run," according to a staff report.

Producers also would be required to sell their excess power to the state's grid operator.

The price controls would last one year and would not apply to other Western states suffering from gyrations in power costs and electricity shortages.

FERC Chairman Curtis Hebert has been an implacable foe of price controls, but is under considerable political pressure to do more to help California as the peak power-consuming summer months approach. Commissioner William Massey has advocated far-reaching price limits, while Commissioner Linda Breathitt has wavered on the issue.

Gov. Gray Davis and other California officials have called for broad price controls that also would include 10 other Western states. Yesterday, Sen. Dianne Feinstein, D-Calif., formally introduced legislation that would require FERC to impose regional price limits through March 1, 2003.

Feinstein said the FERC staff proposal was inadequate.

"Once you put the cap just on Stage 3, you force the heavier pricing on stages 1 and 2," she said.

Other critics have noted that wholesale power prices in California are abnormally high during periods other than Stage 3 emergencies.

Feinstein's legislation, first outlined in March, would require FERC to set price caps or impose "cost-based" rates that would limit prices to the cost of producing the power, plus a set profit margin. New generating plants and power bought through long-term contracts would be exempt.

However, any state covered by the price controls would have to allow utilities to recover their wholesale power costs from consumers. The clause helped draw a Republican co-sponsor to the bill, Sen. Gordon Smith of Oregon.

Smith and other Western lawmakers have complained about the reluctance of California officials to raise retail rates while consumers in neighboring states have seen their power bills soar. In recent months, the California Public Utilities Commission twice has increased rates for customers of Southern California Edison and Pacific Gas and Electric, the utilities hit hardest by skyrocketing wholesale power prices.

The FERC staff proposal rejected price caps or cost-based rates.

It would be hard to devise price caps that are low enough to provide price relief, but high enough to adequately compensate generators, the proposal said.

The Bush administration and top congressional Republicans are opposed to price controls, so it is uncertain how far Feinstein's legislation will get.