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F.Y.I.
Clinton Seeks Stepped-Up Power Probe --- Surging Prices for Electricity In California Spur Move; Emergency Loans Planned By Rebecca Smith and John J. Fialka Staff Reporters of The Wall Street Journal 08/24/2000 The Wall Street Journal A3 (Copyright © 2000, Dow Jones & Company, Inc.) WASHINGTON -- The Clinton Administration and federal energy regulators stepped up efforts to respond to a politically disastrous rise in California electricity prices, threatening to go as far as re-regulating some prices if they determine that the free-market experiment in the state has failed. The moves by federal authorities come as California regulators and lawmakers scramble to come up with an expedient solution to high power prices in the San Diego area, where monthly bills have in some cases quadrupled since last summer. In a 21-page order issued yesterday, the Federal Energy Regulatory Commission said that under the Federal Power Act it can intervene to limit the prices charged by generators to the California market -- if it determines the prices they are charging aren't "just and reasonable," and the market is not "workably competitive." The order accompanied an upgrade of the FERC's effort from a staff probe to a formal investigation, requested by President Clinton, who also yesterday extended $2.6 million in federal emergency loans to low-income residents in the San Diego area to help pay their electric bills. "There is a crisis of confidence in California wholesale electricity markets that threatens to erode the political consensus necessary to sustain a market-based approach to regulation,"William Massey, one of four FERC commissioners, said yesterday in an opinion attached to the order. "In these circumstances, the FERC must act forcefully and decisively to . . . insist that jurisdictional wholesale markets produce consumer benefits and just and reasonable rates." As prices have risen, power generators such as Duke Energy Co., the local utility, San Diego Gas & Electric Co. and public officials have all pointed the finger at one another for what appears to be a badly flawed market. California governor Gray Davis, who is pushing for local legislation that would lower bills and accelerate power-plant construction, yesterday said "out-of-state generators" were most responsible for "bringing San Diego residents to their knees." FERC's action yesterday originated in a complaint filed Aug. 2 by San Diego Gas & Electric Co, a unit of Sempra Energy, the utility whose customers have riased the most outrage over the rate rises. The utility sold off its plants and now buys all the power its customers use out of a state-sanctioned auction, passing those market costs directly through to its customers. Steve Baum, Sempra Energy chairman, said FERC's action is a warning to generators "that the prices they've been receiving are now at risk." He expects FERC to eventually issue a ruling that California's market isn't competitive, setting the stage for a possible return to cost-based rates in periods of high demand. Prior to deregulation in 1998, the rates utilities charged for electricity were based on their underlying cost. Deregulation allowed them to charge whatever the market would bear. Mr. Clinton said the the FERC investigation would allow Washington to "better understand" what is happening in the California market so the government can protect consumers there and in other deregulated states. While politicians and regulators seek solutions, wholesale power prices in California are becoming more aberrant. Even on days when consumption and prices normally drop, such as Sundays, prices have been stubbornly high this summer. For example, the auction price of electricity to be consumed at 10 p.m. last Sunday was $125.48 per megawatt, or more than four times the price such power commanded on the third Sunday of August in 1999. The markup is especially noteworthy because actual demand on that day was 12% lower than on the comparable day a year earlier. "A number of people are looking at the high prices trying to figure out what's going on," says Jesus Arredondo, spokesman for the state-sanctioned entity that runs the state's day-ahead energy auction, the California Power Exchange in Pasadena, Calif. These prices have remained high despite the best efforts of public officials. For instance, the organization that runs the state's electric grid and is responsible for keeping consumers constantly supplied with electricity has reduced the maximum price it will pay for electricity this summer to $250 per megawatt hour from $750. While this action has capped peak prices, it has also caused an increase in the overall number of hours in which prices are abnormally high. Take yesterday for instance. Prices for power in California never dropped below $108 per megawatt hour, even for power contracted for delivery in the dead of night, and the hourly price was at or above $200 in 13 of 24 hours despite only moderately high demand. California's problems are likely to step up pressure on Congress to pass omnibus legislation which would provide uniform national rules for deregulated state energy markets and make more efficient the interstate power-transmission system, Mr. Clinton said yesterday. The administration has pushed for such a measure but the House Commerce Committee, which has jurisdiction over the legislation, still appears deadlocked on the details. It plans to hold a hearing in California on electricity-market conditions there next month. --- Marc Lifsher contributed to this article --- Journal Link: See video of President Clinton announcing emergency funds to help low-income families in California pay electricity bills, in the online Journal at WSJ.com. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.
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