Extension of Power Price Caps Urged
California could again experience blackouts and runaway power costs unless federal regulators extend temporary price limits on electricity imposed throughout the West last year, state officials warned Congress Thursday.
Gov. Gray Davis initially had given a cool reception to the flexible price limits set by the Federal Energy Regulatory Commission, saying that they fell short of his call for direct price-setting.
But California Public Utilities Commission President Loretta Lynch and California Power Authority Chairman S. David Freeman told the Senate Commerce, Science and Transportation Committee that the price limits have proven effective and that the state’s economic stability depends on extending them beyond their Sept. 30 expiration date.
“If the price caps come off, it will endanger the health of the utilities,” Lynch said. “Enron and its followers will roar back with a vengeance Oct. 1,” leading to blackouts and price increases.
“It is impossible for California alone to control how power plants throughout the West operate,” said Freeman, a top energy advisor to Davis. “These controls have worked reasonably well. There is no basis to stop them on Sept. 30.”
Lynch and Freeman testified at a hearing on the role played by Enron Corp. in the California energy crisis. Several witnesses said the now-bankrupt energy trading giant did have the means, motive and ability to manipulate the California market. However, they conceded a lack of conclusive evidence to blame the state’s woes on the company’s actions.
No Enron representatives were invited to the hearing. The company has denied any manipulation, saying that California’s experience was due to the structure of the market, not Enron’s influence.
The federal price limits represent a rare example of appointees of President Bush setting aside free-market rhetoric to wield the government’s regulatory clout. Though FERC has the power to set prices for wholesale electricity, the agency remained aloof from California’s troubles last year. But under pressure from both Republicans and Democrats in Congress, it finally limited price spikes and required power generators to sell upon demand.
Extending the price limits “is something we have to home in on,” said Sen. Barbara Boxer (D-Calif.), who requested Thursday’s hearing. “If they don’t preserve these, we could be back in deep trouble.”
A spokesman for Rep. Doug Ose (R-Sacramento) said Republican members of the state’s congressional delegation would support an extension of the price limits. Ose was one of several lawmakers who urged FERC to act last summer.
What FERC will do this fall, however, remains unclear. Agency head Patrick H. Wood III has publicly said that he would like to see a deregulated market restored in California, but the threat of a political backlash in the West during the congressional midterm elections may force FERC to maintain the basic framework now in place.
Establishing Enron’s part in the California energy crisis remains an elusive goal. Investigators would have to establish that the actions of traders were part of a strategy led by top corporate officers.
State Sen. Joe Dunn (D-Santa Ana) told the committee that Enron has impeded the efforts of the California Legislature to gain access to internal documents that could answer some questions.
“Do we know whether Enron exercised its market power in an attempt to increase prices during the market crisis that occurred between May 2000 and July 2001?” asked energy consultant Robert McCullough, a critic of the company. “No.”
What is known so far raises concerns, Lynch said. The company had aggressively pushed for deregulation of California’s market under terms that would give power marketers maximum flexibility. Once prices began soaring, Enron used its clout in Washington to argue against federal intervention.
In late 2000, Enron accounted for about 30% of sales and purchases at major California power trading hubs. That stake certainly gave the company the ability to influence markets, McCullough said.
Around that time, Lynch said, five Enron subsidiaries bought and sold nearly 12 million megawatt-hours of electricity from each other, artificially driving up the price with each sale. Since Enron also operated an online system used by most energy sellers, the transactions among affiliates probably helped drive the broader market higher.
“They used us as a cash cow to keep that company afloat so that insiders could sell their stock,” Boxer said.
But other members of the panel remained skeptical. “I haven’t seen much in the way of evidence that [Enron] derived much in the way of earnings from trading energy,” said Sen. Peter Fitzgerald (R-Ill.), an Enron critic. “Most of it seems to come from [accounting] Ponzi-scheme operations.”
