Officials Call Price Stability Plan Illegal

Two top state energy officials said Friday that a federal plan to stabilize electricity prices in California could increase the odds of blackouts this summer and most likely is illegal.

In a barrage of complaints attacking the Federal Energy Regulatory Commission, the state’s top power regulator and the head of the board overseeing California’s transmission grid said they might challenge the federal order in court.

The order was approved on a 2-1 vote Wednesday and released to the public late Thursday.

“We’re going to take whatever actions we can to oppose this to the extent our lawyers tell us it’s illegal,” said Michael Kahn, an attorney named by Gov. Gray Davis to head the board overseeing the California Independent System Operator. Cal-ISO manages the transmission grid reaching three-quarters of the state.

In a conference call with reporters, Kahn and Loretta Lynch, president of the California Public Utilities Commission, said the order also seems to indicate that FERC is unwilling to force power sellers to rebate any of the extraordinary profits earned before last October in California’s market, where wholesale electricity prices began soaring last May.

And, according to Kahn, the federal order illegally ties limits on power prices to a requirement that California link its transmission grid with those of other states.

“It’s not within their authority to have this kind of linkage,” he said.

The federal order is scheduled to take effect May 29. Though it is not clear how the order will play out in the state’s electricity market, Lynch and Kahn said they do not believe it will bring down power costs or help the state avoid blackouts, as intended.

“They’re creating a whole new, wholesale blackout system,” said Lynch, referring to a section of the order that allows large customers, such as steel mills and food processors, to get paid to shut down when grid operators are struggling to find enough electricity to meet demand.

Though a somewhat similar program has helped California avoid blackouts, the federal order requires state power buyers to name the price to which electricity must rise before they shut down customers.

The requirement of naming a price could lead to more blackouts, said Stanford University economist Frank Wolak, because it prevents power buyers from paying more if that’s what it takes to keep electricity flowing.

“Stating your price and sticking to it means that somebody could call your bluff,” Wolak said. “The generators just say, look, we can’t supply all you want at the price you want to pay.

“So they supply everything they can at the price we’re willing to pay--and no more--and we have rotating blackouts,” he said.

Lynch said that no matter how this aspect of the FERC order unfolds, “it ain’t for Washington bureaucrats to decide when the lights go out in California.”

Grid operators at Cal-ISO must quickly buy batches of electricity to constantly match supply and demand on the transmission system serving most of the state, excluding the city of Los Angeles. When Cal-ISO cannot find enough power, it must order Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric to trigger rotating blackouts.

The state suffered such controlled outages on four days in January and March, and many such days are predicted for this summer as air conditioning drives up demand for power.

In other energy news Friday, Gov. Gray Davis announced in Los Angeles that electricity use in California state office buildings dropped by an average of 20% in the first two months of this year, compared to the same months of 2000. State workers have been under orders since late last year to turn off nonessential lights, computers, printers and other electrical appliances. Some agencies have even changed workers’ schedules, eliminating “flextime” so that everyone works the same hours and the offices can open later and close earlier, shortening the energy-using day.

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Times staff writer Mitchell Landsberg in Los Angeles contributed to this story.