FERC commissioners split over price controls

Ann de Rouffignac
OGJ Online

PORTLAND,ORE., Feb. 2�Despite opposition by Chairman Curtis Hebert, his colleagues on the Federal Energy Regulatory Commission (FERC) declined to take wholesale electricity price caps off the table during an energy summit called by the Western Governors� Association.

As principal overseer of the wholesale power markets, the FERC standoff is sure to heighten interest in President Bush�s appointments to fill two vacancies on the commission. Some groups with a position on the issue have already lobbied to fill the posts.

In comments Friday, Curt Hebert was sympathetic about the pain high wholesale prices have inflicted on the region, but he insisted markets are functioning.

Commissioner William Massey disagreed. �A hands off approach is not acceptable,� he said. Commissioner Linda Breathitt said she will consider �all options� if the crisis deepens. Earlier, the governors of California, Oregon, Washington, and Idaho called for price controls.

But Hebert was adamant no regional price caps or cost-plus pricing system based on cost of production plus a certain profit margin be imposed on the wholesale market.

�There is no evidence to suggest that outages were planned to manipulate price,� he said. �The generators were run very hard to meet the demand. Prices were run up because of temperature, water levels, and supply-demand imbalance in California.�

Short-term or even temporary price caps do damage to the market that is contrary to what FERC is trying to accomplish, he said. Price controls will inhibit new supply and stifle competition.

Just as the supply side should be addressed, the demand side must also attention. Hebert said consumers must get the proper signals to reduce their consumption of power.

�If we move away from price caps and send signals to producers and consumers we will have a functioning grid,� he said.

Massey argued FERC must play a more aggressive role in this �runaway crisis.� He suggested temporary cost-plus pricing should be based on variable operating costs plus $25/Mw-hr. If some kind of pricing controls are not enacted, the �economic calamity will spread,� he warned.

He also called for a formal investigation into wholesale prices throughout entire western region because the area needs relief now.

�Our job is to insure just and reasonable prices,� Massey said. �We must work with participants and the governors to get prices reasonable. Otherwise, consumers will lose faith in competition and turn their back on competitive markets.�

Commissioner Linda Breathitt said she has not ruled out imposing some kind of regional cost-plus pricing yet. But she is not ready to act yet. Breathitt said she will monitor new California legislation that authorizes the state to buy power under long-term contracts to see if that reduces wholesale market prices and insures more reliability.

�I am willing to look at all options. California took the step to move power to long-term contracts,� she said. �If that doesn�t work, I will look at other options.�

Meanwhile, the governors of the Northwest want solutions now.

�Chairman Hebert, if after 4 or 5 months prices are still too high, just what is Plan B?� asked Democratic Gov. John Kitzhaber of Oregon.

Wyoming Gov. Jim Geringer, a Republican, said relying on FERC might not be the only way to solve the problem.

�It is misleading to say that only the federal government [FERC] can take that role on managing the wholesale prices,� he said. Democratic Gov. Gary Locke of Washington said his state will definitely pursue the issue in Congress.