Abraham says price caps won't prevent California blackouts

With a 5,000 Mw shortage, electricity blackouts appear inevitable in California this summer, US Energy Sec. Spencer Abraham said Thursday. He told a congressional hearing the administration opposes price caps on wholesale power because they would be ineffective in resolving the crisis that has dogged California for nearly a year and threatens to spread throughout the West.

By Kate Thomas
OGJ Online

HOUSTON, Mar. 15�With a 5,000 Mw shortage, electricity blackouts appear "inevitable" in California this summer, US Energy Sec. Spencer Abraham said Thursday, during congressional hearings on legislation that would impose prices caps on wholesale power transactions in the West.

He told the Senate Energy and Natural Resources Committee the administration opposes price caps because they would be ineffective in resolving the crisis that has dogged California for nearly a year and now threatens to spread throughout the West.

He also said the administration is reviewing California Gov. Gray Davis's rescue plan to "insure the health of the California utilities." Robert Glynn, chairman of PG&E Corp., and John Bryson, chairman of Edison International, also testified. Their two utility units, Southern California Edison Co. and Pacific Gas & Electric Co., are teetering on bankruptcy.

In California, supply this summer is expected to be 56,000 Mw, while peak demand is projected to be 61,125 Mw. Abraham noted experts have predicted California could experience 20-200 hr of blackouts this summer.

"The clear cause of this electricity crisis is an imbalance between supply and demand," he said. "Any action we might take must increase supply or reduce demand."

Some western lawmakers, three governors, and California utility executives have asked the Federal Energy Regulatory Commission (FERC) and the Energy Department to cap wholesale prices. But the administration has resisted.

Abraham said price caps would deter new power plant construction and discourage Canada and Mexico from selling electricity into the US. Furthermore, he said, even if price caps were imposed FERC has jurisdiction over just 47% of the wholesale power market in the West. More than half the market�principally municipal utilities and federal power authorities�would not be subject to a price cap, Abraham said.

Such a bifurcated market would "induce cheating and circumvention as when oil prices were controlled," he said. "Some unscrupulous parties could take capped power and sell it as uncapped power."

Earlier Thursday, Sens. Gordon Smith (R-Ore.) and Diane Feinstein (D-Calif.)�both panel members�introduced a bill that would force regulators to impose price controls when wholesale electricity costs are judged unjust and unreasonable.

Amendments added by Smith would prohibit caps in states that freeze retail rates and prohibit the federal government and the courts from requiring generators to sell electricity into a state where prices are capped, unless there is a guarantee the seller will get paid for his product.

Chiding the administration, Feinstein said she was "really surprised at the ideological hardness of your statement." All California asks is help from the federal government in insuring a "period of reliability and stability in prices," she said.

"I agree we will be 5,000 Mw short. That is a lot of shortness. California is expediting peaking plants. What do we do right now, when they [generators] will charge $5,000/Mw-hr this summer?"

Abraham denied having a "hard ideological position," saying the administration is taking a common sense approach that "we should not impose price controls" that will only worsen the differential between supply and demand.

He said a FERC order requiring wholesalers to justify or refund $69 million in alleged overcharges sent a message to electricity suppliers that they can't charge unjust and unreasonable prices.

"That is the way to address the problem," Abraham said. "An artificial cap will make matters worse and send a signal they don't want to build in the West."

Contact Kate Thomas at kthomas@pennnet.com.

More in New Plants