Price Caps Excluded in FERC Plan

SAN JOSE —  The wholesale power price cap California politicians sought will not be included in an upcoming federal plan to stabilize the state’s electricity market, the chairman of the Federal Energy Regulatory Commission said Wednesday.

Speaking in San Jose before a congressional panel, Curtis L. Hebert Jr. said his agency is moving swiftly to help California--but not with price caps because they would only lead to more blackouts.

“The energy is going to go to where the caps are not,” said Hebert, whose commission has regulatory authority over roughly half the power consumed in the state. “The energy is going to go where the money is.”

He appeared steadfast in his opposition to a ceiling on power prices across the West even as another member of his commission, Linda Key Breathitt, said she is willing to consider price caps.

Breathitt told reporters after a hearing on Western electricity troubles in Boise on Tuesday that the prospect of market power prices soaring even higher this summer makes her willing to consider short-term limits on how much private generators can earn. She has previously rejected price caps.

The third member on the federal commission--there are two vacancies--said Wednesday that he was heartened by Breathitt’s apparent shift in thinking.

“I look forward to working with her to assure just and reasonable prices,” said William Massey, the lone Democrat on the commission and a proponent of price caps.

The commission cannot cap prices without first launching an investigation of the wholesale electricity market across the West, Massey said.

“Until there are enough votes to open that formal investigation,” he said, “it’s just talk.”

But even if Massey and Breathitt agreed to support price caps, it is not clear that Hebert would let a proposal come to a vote.

“The chairman of this agency has almost exclusive authority to control the agenda,” Massey said.

President Bush has nominated two state utility regulators to the commission, Pat Wood of Texas and Nora Mead Brownell of Pennsylvania, but they have yet to be confirmed by the Senate.

Gov. Gray Davis spoke to Wood, a Bush loyalist, on Wednesday to lobby him on the need for price controls in the West. Hebert testified before a bipartisan panel of six members of Congress at San Jose State. Headed by Rep. Dan Burton (R-Ind.), the House Committee on Government Reform scheduled three days of hearings on California’s electricity crisis this week in Sacramento, San Jose and San Diego.

Political leaders in California, Washington and Oregon have beseeched the federal commission to push down soaring prices that have forced utilities to raise their customers’ rates and triggered a bankruptcy filing by California’s biggest private utility. State leaders argue that only the federal government can control wholesale electricity prices, because power is bought and sold across state lines.

But the commission has so far resisted those pleas, and the governors of other Western states are not pushing for caps.

By May 1, Hebert said, his federal agency will release a plan to stabilize prices in California.

A draft released last month would limit the prices power sellers can earn only when power reserves are so low in California that grid operators have declared a Stage 3 emergency. Then prices would be capped at roughly what it costs to run a small, inefficient, rarely used power plant.

Gary Stern, director of market monitoring for Southern California Edison, criticized the draft plan for considering only those times of Stage 3 emergencies, while power sellers earn excessive profits at plenty of other times. There were no Stage 3 alerts last summer, for example, he said, when the profits of power companies soared.

Stern also rebutted Hebert’s argument that price caps will lead to blackouts. Last summer, when price caps were in place, he said, the state did not suffer blackouts. Only after December--when the federal Energy Regulatory Commission lifted the cap--did supplies shrink to dangerous levels, with four days of rotating blackouts.

Stern said he believes that’s because generators and marketers have no reason to withhold their power from the market once the price reaches the cap, the maximum price they will earn. Without a cap, he said, sellers can push prices up by not offering electricity for sale and creating a shortage.

“‘As long as you can drive the price higher and higher,” said Stern, “there’s a strong incentive to withhold.”