Federal regulators on Monday imposed around-the-clock price limits on electricity throughout the West, significantly expanding their previous efforts to check power costs and winning support from some of their critics.
The Federal Energy Regulatory Commission, once deeply divided over how to help California, approved the new plan on a unanimous vote, with three Republican commissioners joined by two Democrats, including FERC’s most vocal dissenter.
FERC’s action will have little immediate effect on electricity consumers in California, because retail rates are set by the Public Utilities Commission and do not fluctuate with market changes. But state taxpayers ultimately will benefit if the plan succeeds in reducing the cost of electricity being purchased by the state.
In addition to making the plan apply at all times and across the region, FERC confronted the issue of “megawatt laundering,” a heavily criticized loophole in its previous order. Under the new rules, generators no longer may circumvent California price curbs by transmitting power out of state and then importing it back at higher rates.
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“Clearly they put a lot of muscle into this,” said Mark Cooper, research director at the Consumer Federation of America and a FERC critic. “There is no doubt about why they got a 5-0 vote: They took a whack out of the monopoly rents.”
Like others, Cooper said he still has concerns about elements of the complex plan, including a 10 percent allowance that FERC tacked on to the maximum rate electricity generators may earn during power emergencies. Nonetheless, “California taxpayers will benefit,” Cooper concluded.
Crisis summit
The plan also calls for a summit of the various parties to California’s crisis to resolve issues of refunds and unpaid generator bills and to chart a future energy course for the region. That conference, to be overseen by a FERC judge, is expected to be held this month.
The new order will go into effect almost immediately, one day after its official publication, which is expected Tuesday. The year-round price curbs will cover two summers, and are set to expire on Sept. 30, 2002.
FERC stopped short of satisfying demands by California Gov. Gray Davis and others for hard price caps on wholesale power. Davis, a Democrat, wants FERC to return to the traditional way of setting electricity rates, in which generators were allowed to recover their costs plus a specified margin of profit.
Davis, who has threatened to sue FERC over its approach to rate regulation, offered a measured reaction to Monday’s action.
“Today, the FERC has finally taken a step in the right direction, but there is much more they should do,” Davis told reporters. “This order may well have some loopholes as the first one did, and if that’s the case they need to be closed immediately.”
FERC commissioners and Republican lawmakers on Capitol Hill hope the agency’s more market-oriented plan will be embraced as a politically acceptable alternative, particularly if it succeeds in stemming price spikes.
“Realistically, this is the best we’re going to get out of FERC,” said Severin Borenstein, director of the University of California Energy Institute in Berkeley. “It is now time to turn the focus away from the federal government and turn it much more heavily to conservation, because we really can make this problem go away this summer with conservation.”
Spot market
The FERC plan covers sales of electricity for immediate delivery. Electricity purchased on this so-called spot market supplies about 20 percent of California’s needs and is the market the state turns to when it is desperately trying to keep the lights on.
FERC’s original plan limited prices that generators could charge only during power emergencies called by California’s grid operator, Cal-ISO.
The old plan enjoyed some success during power emergencies last month. The new plan extends its reach and closes several loopholes. It also introduces some controversial elements with which consumer groups disagree.
To expand the reach of the plan beyond California, FERC ordered that power sellers throughout the West may not be paid more than the maximum price in effect in California at any given time.
In effect, the spot-market price for electricity applied across the West will be set in California.
At least two FERC commissioners said they are open to taking more aggressive action, particularly to ensure that California’s natural-gas prices return to levels more in line with the rest of the country.