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Date: Fri, 27 Apr 2001 10:22:32 -0500
From: "Tracey Bradley" <tbradley@bracepatt.com>
To: "Deanna King" <dking@bracepatt.com>, "Justin Long" <jlong@bracepatt.com>, 
"Paul Fox" <pfox@bracepatt.com>
Cc: "Ronald Carroll" <rcarroll@bracepatt.com>
Subject: New York Times - Plan on California Energy Has No Shortage of Critics
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FYI - Linda Stuntz is quoted in this article.  She characterized the RTO 
filing requirement as "bizarre".  It appears to me that it is typical FERC 
behavior; FERC likes to use whatever leverage it has to force compliance.


April 27, 2001

Plan on California Energy Has No Shortage of Critics
By JOSEPH KAHN

WASHINGTON, April 26 * A novel plan by federal regulators to control 
California's runaway electricity prices is a messy, politically motivated 
compromise that may offer some relief to consumers but will do little to fix 
the state's dysfunctional energy market, analysts said today.

The intervention, announced by the Federal Energy Regulatory Commission on 
Wednesday night after much haggling, was dismissed by a wide range of critics 
today as a flawed effort that satisfies no one.

It fell short of the sweeping suspension of regional electricity deregulation 
that California officials and some energy experts had advocated. But it also 
crossed what has become a firm ideological line among Republican leaders, 
including President Bush, by imposing price controls on some electricity 
sales to utilities.

Under the agency's order, which takes effect on May 1, California regulators 
can begin to impose price controls on power generators when electricity 
supplies fall to within 7.5 percent of consumer demand. The state is expected 
to face such shortages routinely this summer, and the order has the potential 
to shave billions of dollars off California's electricity bill if implemented 
fully, some people at the federal agency say.

"The president has a long-held belief that price caps don't work," the White 
House press secretary, Ari Fleischer, said today. "The last thing you want to 
do is create artificially increased demand and put in disincentives that harm 
the availability of supply."

Mr. Fleischer noted that the energy commission is an independent federal 
agency, adding that the Bush administration has no authority to countermand 
its orders.

But Mr. Bush did appoint the commission's chairman, Curtis L. H,bert Jr., a 
Republican. Like the president, Mr. H,bert has often insisted that price caps 
do no good. But he came under withering political pressure to abandon the 
agency's largely hands- off approach to the California crisis. Some of that 
pressure came from the two other commissioners at the agency, both Democrats, 
and Mr. H,bert wound up voting for the controls adopted on Wednesday night.

The split with the Bush administration raises fresh questions about whether 
the president will seek to replace Mr. H,bert as chairman in coming weeks. 
Mr. Bush has nominated two Republicans to fill vacant slots on the 
commission, including Pat Wood, a longtime ally of the president who served 
as chief electricity regulator in Texas. Industry executives say they expect 
that Mr. Bush will eventually name Mr. Wood to the commission's top post.

In a reflection of how delicate the issue is, Mr. H,bert argued that the 
agency's action did not amount to imposing price caps. But his position 
appeared to rest on a semantic distinction between returning to cost- based 
electricity regulation (as some Californians favor) and the agency's decision 
to impose tactical price controls.

Among California officials, the dominant reaction was disappointment. Some 
state regulators and market experts said the agency was practicing 
upside-down economics: it has chosen to impose price limits during periods of 
severe scarcity, when prices theoretically ought to rise to encourage 
companies to build power plants and encourage people to use less electricity.

The agency, its critics argue, has chosen to ignore price abuses during times 
of relative abundance, when power generators, the critics say, have used 
artificial market power to earn high profits.

"They got it exactly wrong," said Frank Wolak, chief market supervisor for 
the California Independent System Operator, which runs the state's power 
grid. "It looks like they're doing something, but it doesn't work in real 
time."

Mr. Wolak has estimated that most overcharges by generators last year * in 
amounts that he puts in the billions of dollars * occurred when electricity 
supplies were not acutely short, meaning that the agency's price caps would 
have had no mitigating effect.

The state is likely to face many emergency shortages this summer. But, Mr. 
Wolak said, generating companies have become adept at "gaming" the system. He 
predicted that they would find ways to continue to earn high profits in 
California.

One fear is that generating companies will arrange to sell their output to 
affiliates out of state. When California's transmission grid managers 
scramble to find supplies, the same companies will offer to sell the power 
back to the state, but only above the cap price. The agency's new order 
includes a provision that is intended to discourage this sort of abuse, known 
as megawatt laundering. But the agency has a weak record of enforcing such 
mandates, and California officials are skeptical.

The order also came under fire on other grounds. The commission said that 
price caps would be canceled unless California submitted a proposal to link 
its transmission grid to the one that serves the Western region, a priority 
of the agency that state officials have resisted.

Linda Stuntz, an electricity industry lobbyist who is an expert on the 
agency, called that clause bizarre, arguing that it held the entire 
California market hostage to a technical filing requirement.

California politicians said they worried that even if the price caps were 
carried out as promised, relief would be too limited.

The price limits will be based on estimates of the highest operating costs of 
the least efficient generating plant in the state. The order as written means 
that companies that operate efficient generating plants could still sell 
power at large mark-ups during periods when caps are imposed. When the agency 
scrutinized the California market earlier this year, it found the high-cost 
generators to be justified in charging about $300 a megawatt hour for 
electricity, a price that is about 10 times as high as the state was paying 
for power a year ago.



Copyright 2001 The New York Times Company
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