Federal Panel May Extend Price Limits


The Federal Energy Regulatory Commission, responding to pressure from lawmakers, state officials and consumers, is considering a significant expansion of its plan to limit California electricity prices this summer, senior agency officials said Tuesday.

Commissioners and staff members are engaged in intense negotiations in advance of a key meeting Monday to finalize an emergency plan for California and the West.

According to several commission officials, the options being discussed include:

* Extending FERC's current price limits--now in effect only during power emergencies in California--to 24 hours a day, seven days a week. The limits, intended to prevent price spikes, were invoked during two emergencies last month and resulted in immediate cuts in the price of wholesale electricity. FERC is also considering applying such limits throughout the West.

* Requiring power generators in the entire Western region to sell available electricity to California or into their local power grids during emergencies, reducing the threat of blackouts.

* Establishing a regional framework for large power users to sell electricity back into the grid during peak usage times. Some companies that have long-term power contracts at low rates may be able to make money by scaling back their operations and selling electricity.

* Tightening rules on what energy marketers--firms that buy and resell power contracts much like stockbrokers trade shares--can charge for their electricity.

* Expanding an order issued last year that authorized refunds for excessive markups during the most extreme power emergencies. That refund order would now apply to excessive prices during all power emergencies.

The measures under consideration stop short of the price caps being sought by Gov. Gray Davis and California Democrats. But they may go far enough to provide an acceptable compromise.

"The whole thing is in flux, but it is moving toward a much more effective price mitigation plan, not only for California but for the West," said an agency official.

Strong political pressure from Senate Democrats and House Republicans appears to have galvanized FERC into taking a more decisive role. "We're sort of the last to get it," the official said.

FERC has been bitterly criticized by Davis for abandoning California. FERC Chairman Curtis L. Hebert Jr. has responded by citing dozens of modest FERC actions to assist the state.

But Hebert has resisted Davis' central demand that FERC use its legal authority to order a temporary return to fixed electricity rates. Such fixed rates, based on the cost of producing power plus an allowance for profit, were standard before deregulation.

"The politics of the situation have changed significantly, and commissioners are not immune to politics," said another senior agency official. "The message from Capitol Hill has gotten stronger with a Democratic Senate. Even the Bush administration is saying we should make sure there is no price gouging."

FERC members have been summoned to testify before the Senate Governmental Affairs Committee chaired by Sen. Joseph I. Lieberman (D-Conn.) a week from today. Meanwhile, Sen. Jeff Bingaman (D-N.M.), the new Senate Energy Committee chairman, has told FERC he will move legislation to cap electricity rates in the West unless it acts soon.

Agency officials said commissioners do not want to face Lieberman next week empty-handed.

House Republicans have also been prodding the agency. On Tuesday, Energy Committee Chairman W.J. "Billy" Tauzin (R-La.) wrote Hebert to urge Western-wide, round-the-clock price limits.

"We strongly urge the commission to implement a comprehensive plan to mitigate wholesale prices and aggressively monitor wholesale sales of electric energy . . . within the entire Western Systems Coordinating Council," wrote Tauzin, referring to the Western power grid.

FERC officials said a strong effort is underway to achieve a consensus on the five-member commission, lately riven by ideology but now bolstered by two new pragmatic commissioners who favor active oversight of industry.

Commissioner William Massey, who for months has been a lonely dissenter, is continuing to press for the traditional price caps sought by Davis, officials said. Once marginalized, Massey apparently is now being actively wooed by the other members.

S. David Freeman, an energy advisor to Gov. Davis, said Tuesday that expanding FERC's current price limits would be a positive step. But he added that the governor continues to advocate a return to traditional, fixed rates.

"Any strengthening of the [FERC] plan is in the public interest," Freeman told reporters at a Washington news conference.

FERC's price limits are not keyed to a particular dollar amount but are flexible.

When a power emergency is called by the state, FERC's plan limits the price that generators can charge to what it costs to produce power at the least efficient plant running at that time. (The costs of all the plants are determined beforehand by California's grid operator based on data filed by the generators.)

Another requirement of the FERC plan forces generators using the California grid to sell any power they have available during emergency conditions.

When the price limits were tested in two emergencies late last month, prices came down quickly. But power sellers complained that the limits were too strict. And by the second emergency, there was evidence that some sellers had started finding ways around the limits.

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