Energy price ceiling OK'd; federal board's vote to benefit Northwest users next winter

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WASHINGTON - Federal regulators stepped into California's energy crisis yesterday with a compromise solution that will impose stricter controls on electricity prices and will close a loophole that permitted some companies to get around price restraints.

Yesterday's 5-0 vote by the Federal Energy Regulatory Commission will extend new price ceilings on California's wholesale electricity sales to other Western states, including Washington, to prevent companies from sending electric power to neighboring states - where price restraints were not in effect - and then returning the higher-priced power to California.

Under the FERC order, the mandatory ceiling price for wholesale electricity would:

• Be established by the price charged by the most inefficient, most expensive power generator in the bidding process. That price would include consideration of fuel, maintenance and operational costs.

• Apply fully during emergency-supply periods when reserves fall below 7 percent, but drop to 85 percent of that amount during nonemergency periods.

• Be extended to cover 10 other states where the price ceiling would be pegged to the California price, although California sales would be allowed a 10 percent surcharge because of increased market risks.

Those other states are Washington, Oregon, Utah, Idaho, Wyoming, Nevada, Montana, Arizona, Colorado and New Mexico. The plan will take effect tomorrow or Thursday.

Some said the price controls should help consumers in the Northwest, especially this winter when the region is expected to buy up to 4,000 megawatts of power to keep the lights on.

Jim Harding of Seattle City Light estimated the FERC's action would translate into a $150-a-megawatt-hour ceiling on prices during times of tight supply.

By contrast, the utility paid $300 to $450 per megawatt hour for electricity last winter, setting a rate increase in motion that is expected to total about 50 percent by October.

The new price controls probably mean that Seattle City Light rates won't go higher this winter and that rate increases will be reduced sooner, Harding said.

The FERC's action expands and alters a commission decision in April that limited prices. That order was limited to power emergencies - when California's power reserves fell below 7 percent of expected demand. Under the new plan, slightly more lenient ceilings would be set for nonemergencies.

The commission removed natural-gas prices - a key and volatile part of the formula approved in April - from the new price ceiling. Instead, generators using gas will be reimbursed according to a monthly average for gas costs. U.S. Rep. Jay Inslee, D-Bainbridge Island, dismissed the FERC's action as a "public-relations strategy." Inslee and other West Coast Democrats want the commission to key prices to actual cost, rather than market fluctuations.

Others said the FERC went too far.

"In the long term, rate caps will serve to create less energy supply. ... Rate caps are a feel-good solution," said Sen. Bob Morton, R-Orient, ranking Republican on the state Senate Environment, Energy and Water Committee.

Reliant Energy, one of California's major electricity suppliers, said the commission had imposed price controls that would discourage conservation as well as new power-plant projects in the state.

The FERC was under intense pressure to address the crisis in California, where rolling blackouts and surging energy prices have hurt the economy and angered ratepayers. House Democratic leaders believe the issue could swing control of the U.S. House back to their party in 2002.

The stricter price controls imposed by the FERC should prevent the severe price spikes that hit California this winter, according to Mark Cooper, research director at Consumers Union, wfavors still tighter controls.

California Gov. Gray Davis, a Democrat, called the FERC's action "a step in the right direction" but said it failed to meet state demands for refunds to cover billions of dollars in alleged overcharges.

If the approach works, the benefits will not be felt directly by consumers in California. The state has already instituted a recent rate increase aimed most heavily at businesses.

It will instead lessen the impact of higher energy costs on California's state government. California has been purchasing power on behalf of its two largest utilities, which are insolvent. State officials have warned that California's costs for purchasing power could reach $50 billion this year, compared with $7 billion two years ago, although power prices have been falling recently.

Yesterday's action united FERC Chairman Curt Hebert Jr. and Commissioner Linda Breathitt, who have resisted tight price restraints on the California market, with Commissioner William Massey, an advocate for the far tougher limits sought by Davis and leading congressional Democrats.

Also on board were the commission's two newest members, Pat Wood III and Nora Brownell, who were appointed by President Bush.

The unanimous decision was a victory for Hebert, a Republican commissioner whom Bush elevated to the chairmanship shortly after his inauguration. House GOP leaders wrote to Hebert this month with a blunt appeal to take stronger actions to limit California energy prices.

Hebert said yesterday that policy issues, not politics, determined the decision. There was no response from the White House.

Press secretary Ari Fleischer said Bush might embrace a "market-based" approach to price mitigation, although the president earlier in the day reiterated his strong opposition to price caps.

Hebert also said the FERC's action did not amount to the kind of rigid price cap he and GOP leaders have insisted will not work in California. Because the ceiling prices are based on operating costs, they will vary depending on market conditions and on which generators are producing power when emergency limits are in place.

Seattle Times staff reporter Lynda V. Mapes and The Associated Press contributed to this report.