California won't see any price break on power soon
LOS ANGELES AND NEW YORK — California residents won't be seeing any immediate relief on their utility bills as a result of federal action this week to control electricity prices in the West.
But the stricter controls imposed by the Federal Energy Regulatory Commission (FERC) should prevent the kind of price spikes that hit the Golden State last winter.
Longer term, residents could see overall reductions on their bills if the plan succeeds in reducing the cost of electricity now being purchased by the state - a prospect that remains a matter of some dispute.
"I think it will be beneficial to California because it tends to stabilize rates and make them more predictable," says Erle Nye, the chairman of TXU, one of the nation's largest utilities. "And it buys time for California to put its market and infrastructure in order."
But consumer groups are not as enthusiastic. "It will rein in wholesale prices. It does not address the fundamental issue that there is inadequate competition," says Tyson Slocum of Public Citizen in Washington.
Under the plan announced Monday, FERC will impose round-the-clock price limits on electricity in California - and is extending the controls throughout 11 Western states.
By making the limits apply for 24 hours, instead of just during declared power emergencies, the agency is hoping to cover all electricity sales on the "spot" market that supplies about 20 percent of California's needs.
At the same time, by extending the controls throughout the West, FERC was trying to prevent the practice of "megawatt laundering." Although the agency said it knew of no instances of "laundering," it acted to prevent generating companies from sending their power out-of-state and then moving a comparable amount back and claiming it was produced out of California. Electricity produced out of the state had no price controls, thus it could be wholesaled at a higher rate.
Mr. Nye says it's common for markets to move electricity back and forth. "You may have to take more than you want, and then maybe the demand does not develop. So it's not uncommon for one package to be transacted more than once," says Nye, who is also the chairman of the Edison Electric Institute in Washington. But, he says, if electricity was being moved just to raise prices it ought to be investigated. "Quite frankly, until yesterday, we had never heard this term before."
The move by FERC also shows how the political dynamic is shifting on an issue likely to be crucial throughout the West through next year's mid-term elections. The plan doesn't go as far as some Democrats in Washington - and California Gov. Gray Davis - had wanted. They have sought strict price caps.
Nevertheless, the move does mark a significant expansion of FERC's earlier efforts to control prices in the region, reflecting the growing political sentiment in the nation's capital for stronger federal intervention.
While many conservatives decry any government involvement in the energy market, Democrats - and even some Republicans - have been pushing for some relief for the Golden State and the West in the face of blackouts this summer and congressional elections next year.
Even the White House appears to be softening its stance. While President Bush remains opposed to strict price controls, he gave a guarded endorsement to the FERC decision this week, saying he could support it because it didn't involve "firm price controls."
Behind the scenes, though, the White House has been under pressure from some Republicans to do something. With the power crisis spreading to other states - beyond just Democratically dominated California - they were concerned that the GOP could lose crucial seats in the House of Representatives.
For Governor Davis, who has been badly wounded by the energy crisis, the FERC decision marks a temporary victory. While he still wants to see strict price controls applied, analysts say the agency's move represents at least a tacit acknowledgement that some sort of intervention was needed to calm the electricity market. Polls in California show that voters overwhelmingly support price caps.
Yet, in the end, Davis's fortunes, and those of other politicians, will ride on the long-term solution to the crisis - and rate-payer bills.
(c) Copyright 2001. The Christian Science Monitor