U.S. Unwilling to Impose Power Price Caps, Officials Say

Gov. Gray Davis is unlikely to get what he wants when he meets with federal officials today: immediate and substantial help to restrain the soaring electricity bills of California’s consumers.

Government officials indicated Monday that there is no appetite in Washington for a grand, government-orchestrated solution to California’s woes. And federal regulators have made it clear that they will not impose the kind of tough price caps on wholesale electricity rates that are being sought by Davis and other state leaders.

About the best the state can hope for immediately, according to people familiar with the Clinton administration’s thinking, is that federal officials will agree to a role similar to the one they are attempting to play in the strife-torn Middle East, that of mediators helping to hammer out a compromise that nobody likes, but that everybody potentially can accept.

Officials signaled that any intervention from Washington is likely to come only under circumstances that would lead to substantially higher utility bills for residential and business consumers.

They said there will be no offer of a federal financial bailout at the meeting with Davis, other state officials and representatives of utility and power generating companies. Federal officials attending the closed session, set to begin at 5 p.m. EST, include Treasury Secretary Larry Summers, Energy Secretary Bill Richardson and Gene Sperling, director of the White House’s National Economic Council.

Moreover, the head of the federal agency that oversees part of California’s power system has said that his panel would avoid the “facile, short-term ‘fix’ ” of federal price caps on wholesale electricity, the solution being sought by Davis.

James J. Hoecker, chairman of the Federal Energy Regulatory Commission, said in a recent written opinion that his agency might agree to impose temporary price caps to give the participants in the dispute time to reach a compromise. Any such compromise would involve trading more stable wholesale electricity prices for higher retail rates paid by California consumers, Hoecker said.

Hoecker said in his statement that the kind of price caps sought by Davis “tend to be arbitrary and potentially confiscatory.” Caps, he said, “create uncertainty for investors, discourage entry into the market or even drive resources elsewhere . . . and they could lead to outages.”

Non-government experts agreed that a federally financed rescue is not in the cards.

“Californians are going to pay for this one way or the other,” said UC Berkeley economist Severin Borenstein. “They are either going to pay for it as consumers, or they are going to pay for it as taxpayers” if the utilities go bankrupt.

And the prospect of higher electricity rates has Davis angry.

In his State of the State address Monday night, Davis blasted the regulatory agency headed by Hoecker. The agency “has shirked its responsibility to protect ratepayers from . . . legalized highway robbery,” he said.

Davis was especially withering in his description of the agency’s decision to remove restraints on power suppliers in December. He said it caused prices to rise 900% over the year before. “That’s like paying $25 for a $3 gallon of milk,” Davis said.

Hoecker and other federal officials are convinced that California consumers should be able to absorb significant increases in electricity rates as their contribution to a solution. But Davis and other California leaders continue to insist otherwise.

Sen. Dianne Feinstein (D-Calif.) said Monday that she plans to introduce legislation that would do precisely what the federal regulators have so far refused to do: impose a firm price cap on wholesale electricity prices in the West.

Her bill would require federal regulators to impose a cap in 11 Western states or set “reasonable” rates for power supplies. The legislation would permit governors to opt out of a price cap, a provision designed to head off potential political opposition to the measure.

Similar legislation was introduced late in last year’s congressional session, but died. But as California’s electricity crisis has persisted, pressure has grown for congressional action.

Feinstein said, “We’ve got to get past whose fault it is and do what’s right, and there is only one way that I know of that gives us time to sort it out, and that’s the price cap.”

In his statement, Hoecker said his agency might impose a cap to provide “a short timeout” during which state officials, the utility companies and power generating firms strike a deal that trades more stable wholesale prices for higher consumer rates.

He said in a recent statement that the only other circumstance in which the panel might consider caps would be if wholesale prices reached a level more than double those seen so far in the California crisis.

“What he’s saying is there is no simple solution,” said Harvard economist William W. Hogan. “There is not anything that can be done in the next month to make things better,” Hogan said.

The crisis has generated a drumbeat of accusations against power generating companies, and more recently federal officials. “The spotlight should be on the villains: the wholesalers,” U.S. Rep. Bob Filner (D-San Diego) said Monday. Filner said he had sought to attend today’s meeting but was told he could not.

“They’re negotiating a bailout,” he said. “I think that’s a sellout of the consumer. They ought to be figuring out ways to put the focus on the wholesaler and get behind legislation like mine that forces FERC to not only lower wholesale prices but lower them retroactively and order refunds.”

Harry Snyder, senior advocate of Consumers Union, sent a letter to the White House complaining about the exclusion of ratepayers and others who are “most likely to pay for a solution arrived at” at today’s meeting.

Times staff writer Richard Simon contributed to this report.