Barton: Emergency power legislation decision by weekend

By Kate Thomas
OGJ Online

HOUSTON, Mar. 20�Federal regulators remained divided over price caps in the West during testimony Tuesday before the US House Subcommittee on Energy and Air Quality on the second day of rotating power outages in California.

They also were divided over whether the Federal Energy Regulatory Commission should be given emergency power plant siting authority to speed up construction. Commissioner Linda Breathitt said she favored the idea, while Chairman Curtis Hebert said he thought siting should remain a state matter. Commissioner William Massey was unenthusiastic.

The committee will hold more hearings Thursday and then determine over the weekend whether it should write legislation to intervene in the western power markets, said Chairman Joe Barton (R-Tex.). If the committee determines action is warranted, he said, it will have to be done quickly to be effective this summer.

Much of the testimony and questions by committee members turned on the issue of price controls. Hebert, who opposes price caps, said the idea is impractical because the controls would apply only to the 5% of transactions that take place in the spot market and would not apply to more than 50% of the wholesale market not under FERC jurisdiction.

"Price caps will penalize people who hedged forward," Hebert said, and discourage a shift to long-term contracts which the agency promoted as part of a Dec. 15 order. Moreover, he argued, price caps would discourage industry from building more power plants to supply the West.

Massey, an Arkansas Democrat, said there is reason to believe market power is being exercised in California and FERC has declared that market to be "severely dysfunctional." The situation will "not be remedied by summer and prices will soar higher," he said. Yet higher prices will not "get one more megawatt built" in time to service summer demand.

Calling the situation a looming catastrophe, Massey called for a temporary price cap with possibly a sunset date tied to creation of a reserve margin in the West. He advocated a price cap on a generator-by-generator basis at each generator's variable operating cost, plus a reasonable capacity adder, perhaps in the range of $25/Mw-hr. The California Independent System Operator adopted a similar approach at its Mar. 15 meeting.

"Without controls, I fear the worst," Massey said. Responding to the idea that power plant builders will not be attracted to California if price caps are instituted, he said, "If there is a political revolt out West that won't help investors either."

Massey said the region's entire economy was at risk. Power that cost California $7 billion in 1999 increased to over $27 billion last year. Costs for 2001 may exceed $70 billion,'' Massey told the subcommittee. He conceded FERC has not done a good job of defining market power and what it expects of sellers. Nor had the agency done a good job of defining "just and reasonable" in connection with wholesale prices.

In terms of price caps, Breathitt said all options should be analyzed before a decision is made and she noted the majority of western governors have opposed price caps. Instituting price caps in the three states where governors have requested such an action would be difficult to make work, she said. Breathitt added it would also be hard to put controls on a market that essentially is dominated by bilateral contracts.

But she said the California power crisis could create a "consumer backlash" putting at risk the entire concept of deregulation of the electricity markets. In the short-term, she said, the agency may have to make even tougher decisions to deal with the crisis.