Feds May Restrict Energy Prices

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Will the political pressure be sufficient to avert California's otherwise mathematically certain insolvency and bankruptcy? Link: http://dailynews.yahoo.com/htx/ap/20010423/bs/power_prices_1.html

Monday April 23 3:01 PM ET Feds May Restrict Energy Prices

By H. JOSEF HEBERT, Associated Press Writer Copyright, Associated Press, Fair Use for Education and Research Only

WASHINGTON (AP) - Federal energy regulators are reviewing a proposal to restrict wholesale electricity prices in California during the severe power shortages expected this summer.

The proposal, which is to be taken up at a Federal Energy Regulatory Commission meeting Wednesday, also would require producers to sell power for California's grid during power emergencies.

The commission has faced growing political pressure to find new ways to address allegations of price gouging in the Western power markets, where wholesale costs have been ten times what they were a year ago, and likely will go higher in the coming months.

The agency, reflecting the views of its Republican chairman, Curtis Hebert, has refused repeated requests by West Coast officials to impose price caps on wholesale electricity sales in the West.

The staff proposal aims to avoid the term ``price caps'' and views the plan as limited ``price mitigation'' that would seek to blunt severe price increases but not threaten supplies, according to a staff summary.

The proposal ``recognizes that (power) scarcity ... will exist for the near term and that, during such periods, some extraordinary measures must be considered,'' said the summary provided to commissioners.

It proposes that price restrictions be limited to California and only at times of so-called Stage 3 emergencies, when electricity reserve margins virtually disappear, raising the prospects of rolling blackouts.

At the same time, the commission is expected to discuss a proposal to officially endorse plans where industrial power users curtail or close facilities and sell back electricity during severe shortages.

The commission has reviewed thousands of wholesale power transactions during the first three months of this year and has singled out $124.5 million in alleged overcharges. California officials say many times that amount should be recovered in refunds because of price gouging. A recent California report put alleged overcharges during the past year at more than $6.2 billion.

The new ``price mitigation'' plan is aimed at preventing the most severe price run-ups ahead of time, instead of having to seek refunds later, according to several of the commissioners.

But the staff proposal is short of what even some members of the commission have wanted, since it limits price intervention to only the most severe emergency periods. It also does not address escalating prices elsewhere in the West, particularly Washington and Oregon, where prices at times have been higher than in California.

While Hebert, the Republican commission chairman, has stood firm in his opposition to price controls, he has indicated he might go along with some very limited form of price mitigation if it can be shown not to inhibit producers from expanding power supplies.

At the same time, Linda Breathitt, one of two Democratic commissioners, has indicated in recent weeks that she is increasingly leaning toward some price intervention.

It is ``important that we place all options on the table for serious consideration,'' including some ``price mitigation plans,'' she said during a recent FERC meeting with state utility regulators from Western states.

The third commissioner, William Massey, also a Democrat, has all along argued for across-the-board price caps, based on cost of production, and said they should apply to all 11 states in the Western power grid.

The FERC has been operating with three commissioners and two vacant seats. President Bush has announced two nominees to fill the vacancies, but both still await Senate confirmation and are not likely to be on board before the summer's power crunch hits.

When the two nominees - Pat Wood of Texas and Nora Brownell of Pennsylvania, both state utility regulators - come up for confirmation, they are expected to be questioned sharply by Senate Democrats about their views on price controls and the free market.

Last week, Democratic Sens. Joe Lieberman of Connecticut and Jean Carnahan of Missouri asked the General Accounting Office to investigate whether FERC has complied with its duties under the Federal Power Act to ensure that wholesale electricity prices in the West are fair and reasonable.

-- Robert Riggs (rxr.999@worldnet.att.net), April 24, 2001

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