How Bush Became a Believer

TIMES STAFF WRITERS

Four months ago, when Californians first asked the Bush administration to cap the soaring price of electricity, the answer was a flat no. Two months ago, when the Federal Energy Regulatory Commission imposed "soft" price controls in power emergencies, Vice President Dick Cheney denounced the decision as "counterproductive."

But on Monday, even before FERC expanded its price regulation to apply 24 hours a day, President Bush was sounding a new, more flexible note. "They're not talking about firm price controls," he told reporters. "They're talking about a mechanism . . . to mitigate any severe price spike that may occur, which is completely different from price controls."

What changed between April and June? According to White House spokesman Ari Fleischer, nothing: "Our position today is consistent with where the president has been all along."

But other administration officials and members of Congress said the White House altered its position in response to three political realities:

First, the power crisis was spreading to other Western states, most of them governed by Republicans--making the problem more painful than when it was confined to Democratic-majority California.

Second, Republicans in Congress warned that the administration's opposition to price caps was a political blunder that could endanger GOP control of the House, and appealed to the White House for change.

And third, California Gov. Gray Davis, by demanding even tougher price caps than FERC was planning to impose, gave Bush something he could continue to denounce even as he embraced limited price controls.

"They have been listening," Rep. Jerry Lewis (R-Redlands) said of the White House. "And frankly, I think it's because a lot of logic has been applied, not just emotions."

For most of the year, the pleas of Californians seemed to have little effect on the administration. Bush and Cheney shared what appeared to be a firm philosophical opposition to any brand of price regulation. And some California Republicans said they detected a certain standoffishness between the new president and his brethren from a state he lost by more than a million votes.

"Many people giving advice to the president and vice president early on had the opinion that the problems in California were a direct result of California's own mistakes and [the state] had to get over that itself," Lewis said.

California Republicans acknowledged that there is "an awful lot of truth to that," Lewis said. But they also worried that if the federal government stood by in seeming indifference as the state suffered a calamitous summer, their own jobs might be on the line. So, one by one, they began telling the White House that just because California had sinned didn't mean the federal government had no role to play.

Among the first to lobby for help was Rep. Duncan Hunter (R-El Cajon). Hunter, one of only four California Republicans to break with the White House and call for price caps, buttonholed both Bush and Cheney. When the president visited Camp Pendleton last month, Hunter was there and seized the opportunity to complain about the high transport cost of natural gas, the main fuel for electricity generation.

"[Bush] said: 'Hunter, I know what you're talking about,' " the congressman recounted. ' "It costs seven times as much to move natural gas from the oil fields to the California border as it does to move it from the oil fields to the New York border. That's not right and we're going to do something about that.' "

In addition to expanding price limits on electricity, FERC's directive Monday calls for monitoring the price of natural gas to determine whether it is fair.

Hunter, who described himself as a rock-ribbed "free-market Republican," said he nonetheless told Bush and Cheney that he believes electricity "shouldn't be traded like pork bellies on the open market." And he was so upset by FERC's inaction that he asked the Library of Congress to research FERC's mandate, to see whether the commission was doing enough to make sure energy rates were "fair and reasonable."

"I sent them copies of case law that showed them the duty is a mandate, not an option," Hunter said.

How important has the energy crisis been for the members of California's congressional delegation? One Republican aide said they have talked of "little else."

Still, others noted that it wasn't until other Western states weighed in--as well as a growing chorus of executives from industries affected by energy prices and blackouts--that the administration said it was open to more action from FERC. (The commission is officially an independent agency, with members appointed by the president. The White House says it doesn't lobby FERC, but members of Congress lobby the commission vigorously.)

Last week, reflecting the growing sentiment in the House, Rep. W.J. "Billy" Tauzin (R-La.), chairman of the House Energy and Commerce Committee, asked FERC to do more to "ensure reliable power supplies at just and reasonable prices for consumers in California and the West this summer and thereafter."

Tauzin's letter to FERC was also signed by Lewis, Hunter and Rep. William M. Thomas (R-Bakersfield), the powerful chairman of the House Ways and Means Committee, along with eight other California Republicans.

But congressional aides said it was noteworthy that Tauzin, whose state is a major energy producer, took the lead and that members from Oregon, New Mexico and Texas also joined.

An administration official who refused to be identified said the letter had a significant effect in the White House. Bush spokesman Fleischer refused to confirm that but acknowledged: "The president was aware of the letter."

Fleischer emphasized, instead, that the FERC price regulations that Bush endorsed are much milder than the more direct price caps that Davis has requested. Davis has said generators should be permitted to charge their cost of production plus a profit of up to 50%.

"In Gov. Davis' plan, a bureaucratic official is making arbitrary decisions on what the price should be. Those are price controls," Fleischer said, arguing the administration's new distinction with the fervor of a convert.

"But FERC is talking about market-based incentives," he explained. "If the price is set by the least efficient producer, then what determines where the price is set? The market.

"If something is market-based, it is working within the market to create the greatest efficiency so that the suppliers and the producers have an incentive to keep developing their supplies," he said. " . . . If they don't have an incentive to produce supplies, then, of course, you're going to have a diminution of the supply and therefore the price will go even higher."

Asked why the administration had not voiced its enthusiasm for FERC's price regulations earlier, Fleischer said: "It never came up."

In fact, after FERC introduced its initial market-based price caps in April, the White House gave the idea a wary reception at best.

Back then, Fleischer said Bush worried that the commission action would turn out to be a price cap. "To the extent that FERC's action would represent a price cap, the president has a long-held belief that price caps don't work."

Cheney, in an interview with The Times, was even blunter. "If I had been at FERC, I never would have voted for short-term price caps," he said of the commission's April ruling. " . . . I've never seen price regulations that I've felt very good about."

On Monday, the White House resolved the apparent contrast between its earlier skepticism and its newfound enthusiasm by issuing "talking points" emphasizing that the new rules aren't "price caps."

As for Cheney, "he is where the president is," spokeswoman Mary Matalin said.

"He is not against what FERC did, because they are market-based incentives," she said. "To the extent anything is a price cap, he's against them. But these are not price caps."

Hunter, though, still refers to them as "price caps."

"I don't care what you call it," he added. "I think they're necessary, and I think it's a good step."

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