U.S. Regulator Vows Action in Power Crisis
The chairman of a federal commission investigating California’s electricity crisis described the power market as “dramatically out of sync” at a public hearing here Tuesday and promised quick action to remedy it.
Among the options the Federal Energy Regulatory Commission is considering is to set tougher price limits on wholesale electricity sold throughout the West by generators and power marketers alleged to be “gaming,” or manipulating the market to their advantage.
FERC last month ordered an investigation into the practice, which many blame for the current dysfunctional market, along with higher natural gas prices, stagnant generation supply and surprisingly fast growth in Internet-driven electricity demand.
“I assure you that this commission is prepared to do whatever it takes,” James Hoecker told panelists, who included state and local politicians, utility executives and representatives of independent power generators.
FERC has the right to set wholesale prices of electricity--an interstate commodity--and to order refunds and even overhaul the California Power Exchange, the daily market in which most of the state’s electricity is bought and sold.
Even with current caps of $250 per megawatt-hour, prices on the California Power Exchange have risen sharply this summer. The price spikes have been even more pronounced when the state’s Independent System Operator, which maintains the state’s electricity grid, must seek last-minute supplies of power to avoid rolling blackouts.
But Hoecker and fellow FERC Commissioner Curt Hebert, among others, expressed reservations about “re-regulating” California’s energy market by setting wholesale prices. They warn that any such moves would discourage investment in the additional power plants that most industry experts believe are the best long-term solution to the crisis.
Although FERC’s investigation of California’s problems is not scheduled for completion until Nov. 1, it could be wrapped up by the end of this month, because of the urgency of the situation, sources said. In an interview, Commissioner William Massey said the agency would act on the report “shortly thereafter.”
FERC met in San Diego because this is ground zero for the state power crisis. San Diego Gas & Electric, the first utility to fully deregulate after the 1996 state law setting the process in motion, was the first to pass along the big spikes in wholesale electricity costs directly to consumers. Bills this summer have doubled and even tripled from year-earlier levels.
Although residential and small-business customers saw their rates reduced by legislation signed into law by Gov. Gray Davis last week, bigger businesses and some public entities in San Diego are still getting clobbered. Representatives of those agencies and businesses also were on hand Tuesday, pleading with FERC to take action.
Leon Williams, chairman of San Diego’s Metropolitan Transit Development Board, operator of local trolleys and buses, said the $5.1-million increase in anticipated energy costs this year could force the MTDB to raise fares by 50 cents. Escondido Mayor Lori Holt Pfeiler said a mushroom farmer there has seen his refrigeration bill grow to $60,000 from $20,000, making his produce noncompetitive.
“I agree with you that [electricity] prices are not just and reasonable, and that we need to fix that,” Commissioner Massey said in response to a panelist. “We must assure that competition produces reasonable prices.”
How to fix it is the rub, and the subject of intense debate among panelists Tuesday. Almost all those speaking agreed that getting more power plants built in California is the soundest approach to easing the crisis, blaming an electricity supply-and-demand imbalance. But significant additions to the state’s generation capacity are at least two years away, leaving the question of what to do in the meantime.
“No one in San Diego can see any light at the end of the tunnel,” Mayor Susan Golding told the commission.
Many panelists saw an answer in the federal agency setting “directed” price caps on generators wielding “market power”--that is, the ability to influence the price of energy above and beyond the cost of producing it.
John H. Stout, vice president of Houston-based Reliant Energy, denied any such manipulation and said that setting prices on wholesale power would only keep power developers away from California at the very time it needs new plants. Reliant bought and operates several power plants totaling 4,000 megawatts of power--not quite 10% of the state’s needs on a summer day--after the traditional, investor-owned utilities divested them as a requirement of deregulation.
