Three western governors ask FERC for electricity price cap

By the OGJ Online Staff

HOUSTON, Mar. 13�Governors of California, Oregon, and Washington requested Monday that the Federal Energy Regulatory Commission (FERC) institute a price cap on the spot market for electricity effective for 1 year.

The three western states are short of electricity and have been fighting skyrocketing wholesale prices because of tight generation and escalating demand. Summer is expected to put even more pressure on prices.

The governors called for a �cost-based� price cap that would recover all generator costs and provide a profit of $25/Mw-hr. The price cap would only apply to spot market purchases. All bilateral and long-term contracts would be exempt from the cap.

�While we fully recognize the benefits of a free market, our problem is that we have a shortage of electricity,� the governors wrote in the letter. �In spite of our aggressive and urgent efforts, the problem will only get worse throughout the year and particularly this summer. This shortage has enabled generators to receive unjust and unreasonable charges for wholesale energy.�

The governors requested that the cap be applied throughout the Western grid that encompasses all states west of and including Colorado, New Mexico, Wyoming, and the Canadian states of British Columbia and Alberta.

Earlier division
The subject of a regional cap divided member governors of the Western Governors� Association during a conference in February. Although specific states opposing price caps were not mentioned, Idaho Gov. Dirk Kempthorne, chairman of the Western Governors� Association, said resolutions had to be unanimous, preventing a call for price caps from that group.

Washington Gov. Gary Locke, Gov. John Kitzhaber of Oregon, and California Gov. Gray Davis asked FERC to approve the price cap proposal for all entities subject to FERC jurisdiction in the West. Other power agencies not subject to FERC jurisdiction such as the federally owned and operated Bonneville Power Administration and municipal utilities would be requested to voluntarily adhere to the plan.

FERC Chairman Curtis Hebert is on record opposing price caps. He has said price caps discourage new power supplies perpetuating shortages and high prices.

Earlier this month, Gov. Locke spoke personally with President Bush who denied any help in the form of price caps.

The relief requested by the governors would only applied in an emergency and only for this year, they said. The governors fear the crisis will be much worse this summer when California�s huge demand for air conditioning puts new strain on the power grid already stretched to meet existing demand.

Contact [email protected]