The case against capping energy prices

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President Bush is being hammered for not ordering enough energy conservation. He is also being pounded, often by the same critics, for not capping the wholesale price of electricity. The critics contradict themselves. By letting prices reflect the reality of supply and demand, government provides the greatest incentive to conserve.

At retail, power prices have rarely been given free rein. When they were for a brief time in San Diego last year, customers howled. But they immediately cut back their use of power by more than 5 percent.

A study by McKinsey & Co. calculated that had the whole of California cut back as much as San Diego did, the state would have suffered no blackouts last winter.

Since the West Coast power crisis began, retail power rates have risen 35 percent in Snohomish County, 37 percent in Seattle and 50 percent in Tacoma. These reflect only part of the spike in the wholesale market, a full pass-through being politically impossible.

But higher rates, and anticipation of higher rates, have begun to make a difference. At Seattle City Light, electricity use is 8 percent below levels projected last year.

The supply side has also responded. Tacoma Power and other utilities have brought in diesel generators that now contribute, regionwide, a surprising 700 to 800 megawatts. Plans are afoot to build a gaggle of gas-fired power plants, with several to come on line in about two years.

Finally, the price of power has begun to come down to Earth. A month ago, power that was long thought to be worth $25 per megawatt was selling for $250-$300. This week, it dipped as low as $35-$60. Part of the reason is an early snow melt, but much of it is adjustments in supply and demand.

BPA announced this week it would need to buy less power than it had thought over the coming winter. Its projected rate increase Oct. 1 will not be 250 percent-plus, as it said earlier, but less than 100 percent, and maybe as low as 50 percent.

Had federal authorities capped all prices, much of this would not have happened. There would have been less conservation and less interest in creating new supply. The region would be deeper in the hole than it now is.

There remains the suspicion that last winter's sky-high prices resulted from producers deliberately withholding power from the market. Some producers refused to sell to California utilities because they didn't believe they were going to get paid - and they had good reason to believe that.

It is said that others withheld power solely to manipulate the price. If that can be proven in court, they should be made to disgorge their profits. But price controls on everyone cannot be justified by a mere accusation.

Bush is right about price controls. They don't work. As a former oilman, he ought to know the effect they had on gas pumps in the 1970s. Price controls created many headaches, but not one gallon of gas.