FERC Move Short-Circuits Push for Hard Price Caps
The Federal Energy Regulatory Commission’s decision to impose full-time price ceilings on wholesale electricity in California and the West appears to have deflated the congressional drive for a return to traditional utility regulation.
Sen. Dianne Feinstein (D-Calif.), calling the “price mitigation” system FERC unveiled Monday “a giant step forward,” announced Tuesday that she is pulling back her bill to force a return to the “cost of service” pricing system that prevailed before deregulation. Republican Sen. Gordon Smith of Oregon, a co-sponsor, agreed, as did Sen. Jeff Bingaman (D-N.M.), chairman of the Senate Energy Committee.
House Democrats vowed to fight on for tougher controls, but they were given little chance to succeed.
As a result, although the political blame game will rage on, the reality of a long, ugly summer for California appears to have arrived: at least several months of tears, toil, sweat--and fast-rising electric bills.
California consumers are likely to face an unpleasant paradox, energy analysts said: Given present power shortages, blackouts are virtually inevitable this summer. And, since state authorities are beginning to let high wholesale prices flow through into retail bills after months of subsidies, many consumers could face higher charges at the same time their lights begin to flicker.
Even if FERC’s order succeeds and wholesale prices fall, as they have begun to do in recent weeks, consumers’ bills are likely to rise. Since retail charges lag well behind wholesale prices, closing the gap will probably mean a period of higher costs for consumers, regardless of what happens in wholesale markets.
There is light at the end of the tunnel, energy analysts said, but it is probably a year away. And reaching it, they said, depends in part on government officials taking no action that might spook investors and disrupt present plans for expanding the region’s capacity to generate and deliver more power.
The new FERC system, which its designers said would provide temporary price relief while preserving incentives for energy investment, imposes cost-based curbs on wholesale prices throughout the West and covers all such sales, not just those during periods of extreme shortages, as did the order issued in April.
FERC Chairman Curtis L. Hebert Jr. told the committee the new system will prevent “megawatt laundering” and other potential abuses. He said his agency is “committed to ferreting out any forms of market misbehavior 24 hours a day, seven days a week.”
With the apparent collapse of demands for more intervention, Congress now seems ready to give FERC a year or more of leeway to see whether its plan will curb wholesale prices and create what FERC member Linda Breathitt, a Democrat, called “a breathing spell” in which California and the West can “repair their dysfunctional markets.”
“It still remains to be seen whether there can be manipulation, but I think we should wait and see,” Feinstein said Tuesday at a Senate Energy Committee meeting attended by all five FERC members. The commissioners call their new system “price mitigation,” not price caps, but Feinstein said it amounts to the same thing.
“Whether you call it price mitigation or something else, a rose is a rose is a rose,” said Feinstein, a member of the energy committee.
And Sen. Barbara Boxer (D-Calif.), appearing before the committee as a witness, said: “I was very pleased with [Monday’s] about-face by FERC. I believe they have a new tone.”
Democrats on the other side of the Capitol pledged to keep fighting for traditional regulation, but with Republicans in control of the House, the struggle appears to be largely symbolic.
House Democrats wanted to introduce amendments on price controls and other energy policy to a mid-year supplemental appropriation bill due to come before the House today. However, GOP leaders expected to block Democrats from even offering the amendments on procedural grounds.
The most sweeping of the amendments would set cost-based limits on wholesale energy prices in the West. Rep. Henry A. Waxman (D-Los Angeles) and other sponsors insisted that the measure is still needed in spite of the FERC action, which he said would continue to provide windfall profits to generators, encourage suppliers to withhold power and do too little to restrain the price of natural gas.
He called the FERC policy an “experiment” that is using California and other Western states as subjects.
Similarly, Rep. Nancy Pelosi (D-San Francisco) said: “Although the FERC decision [Monday] is a step in the right direction, I am concerned it does not remove incentives for energy suppliers to withhold power, drive up prices and gouge consumers.”
The commission went as far as it did in part because of the specter of broader price control legislation, Pelosi said. “They felt the heat, they saw the amendments coming and decided to act.”
And Rep. Bob Filner (D-San Diego), in an interview Tuesday, said he will press ahead with legislation to impose hard price caps. “I would advise the senators that after a year of dealing with these price gougers that they will easily manipulate this latest order,” he said, calling it a “Swiss cheese order--full of holes.”
Feinstein’s shift put House Democrats in an awkward political position because it came just as they prepared to make their big push for tougher controls. But the Democrats tried to minimize the differences in legislative strategy.
“She too is waiting to see if the FERC experiment works,” Waxman said. “I’m a little more skeptical, but we’re both watching carefully.”
As a political matter, a Democratic leadership aide acknowledged, the FERC order muddies the debate at a time when Democrats have been working hard to make it a defining issue--and one they had hoped would help them win control of the House in the 2002 elections.
“It’s hard to describe to people what the difference is between what we want and what FERC has done,” said the aide.
And Republicans said FERC’s action had clearly taken the wind out of the sails of price control efforts that some GOP strategists feared might have passed the House.
“I would have thought [it would pass] last week,” said John Feehery, spokesman for House Speaker J. Dennis Hastert (R-Ill.). “But now, with what FERC did, it takes a lot of air out of the balloon.”
“I think the FERC action will dissipate that strong push,” agreed Emily Miller, a spokeswoman for House Majority Whip Tom DeLay (R-Texas). “It will take the heat off.”
House Majority Leader Dick Armey (R-Texas) said the message to Democrats was, “It’s time to come off your political high horse.”
He said he wanted to keep Democrats from offering their price control amendment to Wednesday’s supplemental appropriation bill because the proposal is “a political statement, not a policy statement.”
*
Times staff writers Megan Garvey and Richard Simon contributed to this story.
