Federal action on electricity prices called weak

SACRAMENTO, Calif. - A federal regulatory commission's effort to stabilize California's electricity market is too weak to be effective and could come at the expense of other states, Western officials say.

The Federal Energy Regulatory Commission acted Friday after California power grid managers scrambled almost daily this month to find enough megawatts to prevent rolling blackouts.

Gov. Gray Davis said the commission has ''chosen to ensure unconscionable profits for the pirate generators and power brokers who are gouging California consumers and businesses.''

The commission set a ''soft'' price cap on wholesale rates and let the state's investor-owned utilities keep the power they generate rather than sell it on the open market, as required under California's 1996 utility deregulation law.

''Today's order will staunch the hemorrhage and begin the process of rehabilitation'' of California's power market, FERC Chairman James Hoecker said.

U.S. Sen. Dianne Feinstein, D-Calif., said the commission was ''either too timid, too weak or too uninspired to do what is necessary'' - impose strong price controls.

The cap sets wholesale electricity prices at $150 per megawatt hour, and suppliers that want to charge more would have to prove higher prices are warranted. Wholesale prices peaked at $1,400 per megawatt hour last week after the commission lifted a price cap to boost supplies.

Davis said he would order the Legislature to hold a special session to address the power problems.

The 1996 law was intended to drive down rates through competition. But this summer, when San Diego Gas & Electric became the first to fully deregulate, the opposite occurred.

Cold weather and short supplies in recent weeks have expanded the crisis statewide and pinched supplies of other Western states, which in previous winters imported California's surplus.

Washington Gov. Gary Locke said he was disappointed the commission didn't cap prices on the wholesale cost of electricity throughout the West.

''FERC's order today is at best incomplete, at worst ineffective,'' Locke said in a statement. ''While it falls short of providing California consumers the immediate relief they need from soaring energy prices, it ignores altogether that consumers and businesses in the Pacific Northwest are also being harmed.''

Locke has said power suppliers could try to raise prices elsewhere to make up for lost revenue if California's market were capped.

Officials at the Power Exchange, set up under California's deregulation law to oversee power sales in the state, said they had not yet reviewed the FERC order, but any move to allow utilities to keep their own power should bring down prices.

While the deregulated San Diego utility passed on the increased costs to its customers, the two biggest utilities, Southern California Edison and Pacific Gas & Electric Co., operate under state-imposed rate freezes as they move toward deregulation. Both say they are in financial danger.

SCE has bought ads in major newspapers, radio and television stations calling for rate stabilization. The chairman and chief executive officer of parent company Edison International, John E. Bryson, calls for fixing a broken market system, and an open-letter-style ad in Friday's Los Angeles Times contends ''some form of electricity re-regulation'' is needed.

''Unless state policy-makers take immediate steps to provide relief from the runaway market, SCE's deteriorating financial strength will soon limit our ability to purchase electricity on behalf of our customers, and will result in power interruptions,'' reads the letter, signed by Bryson and Stephen E. Frank, SCE's chairman and CEO.

The utilities have asked regulators to pass on the costs of the wholesale price spikes, and the Public Utilities Commission is scheduled to meet Dec. 21 to discuss financial remedies, including a proposed rate increase.

''We are facing a stark reality,'' PG&E spokesman Greg Pruett said. ''The two-minute warning sounded long ago and we are down to the final few seconds in a game where we might not be able to buy power for our customers unless something is done.''

PG&E estimates that its electricity expenses this year are $4.6 billion higher than its revenues from customers. Southern California Edison estimates rising electricity prices have put it in a $3.5 billion hole.


AP Washington reporter Bart Jansen contributed to this story.


On the Net:

Federal Energy Regulatory Commission: http://www.ferc.gov/

California Independent System Operator: http://www.caiso.com


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