New York Times - 3 Feb 01

Prof. Robert B. Laughlin
Department of Physics
Stanford University, Stanford, CA 94305
(Copied 22 May 09)

Energy Secretary Rejects Request to Cap Electricity Price

Published: Saturday, February 3, 2001

Spencer Abraham, the federal energy secretary, rejected a plea from several Western governors today for the federal government to impose temporary price caps on wholesale electricity, after listening to their concerns that "exorbitant" and "out-of-control" electricity costs were spreading economic havoc across the region.

"I have great concerns about that, and the president has expressed concerns as well," Mr. Abraham said in response to the request from at least eight Western governors, including those of the three West Coast states, California, Oregon and Washington.

"At a time when demand is a very serious challenge for us this summer," Mr. Abraham said, "anything that puts disincentives in place, that would work against reducing demand, I think has to be looked at very closely."

Several of the governors, especially the Democrats, denounced the Bush administration's unenthusiastic response.

"I'm very disappointed by the secretary's statement that the administration does not support even temporary, quick price caps," said Gary Locke, the Democratic governor of Washington. "They're really leaving all the people of the Western United States out in the cold and on their own for many years."

"This is a growing crisis that's going to sweep across the United States," Governor Locke said, "and that's why the Bush administration needs to get involved now and has to provide some immediate relief and stabilize the situation."

The meeting here in Portland was called by the Western Governors' Association and held under the polite billing of an "Energy Policy Roundtable," but there was no mistaking the tension as elected leaders struggled with the economic and political fallout of the turmoil in the region's electricity markets. And Secretary Abraham was not the only official on the hot seat during the event.

A leader who many governors felt had some explaining to do was Gov. Gray Davis of California, the state where the electricity crisis began and the one that has been widely blamed by its neighbors for creating supply shortages that have driven up electric rates by 10 percent to 80 percent in some Western cities.

Governor Davis, a Democrat, cited the bill he signed on Thursday in Sacramento that would allow the state to buy as much as $10 billion worth of power through long-term contracts to try to stabilize its electricity market. He promised his fellow governors that California would move at "warp speed" to build new power plants, after more than a decade in which not a single major plant had been built in the state, and he managed to defuse some of the anger directed at him and his state with his description of the conservation measures that he said California was undertaking.

The California conservation plan, to reduce demand by as much as 20 percent, includes a requirement that retail businesses curb their outdoor lighting and take other measures to cut power consumption.

Secretary Abraham, who was sworn into office barely a week ago, praised the electricity bill signed by Mr. Davis. He cited it and the conservation measures in explaining why he did not believe that significant federal intervention in the electricity crisis, including price controls, was needed right now.

"I think Governor Davis proved that California can stand on its own with the actions they've already taken," Mr. Abraham said at a news conference. "They've made the progress they said they would make, and I commend them."

Despite his opposition to price caps, Mr. Abraham said he was open to more suggestions from the governors, and he noted that President Bush had convened a task force on the electricity problem, with Vice President Dick Cheney as chairman.

The issue of price caps was contentious even among the governors, as at least three -- Dirk Kempthorne of Idaho and Jane Dee Hull of Arizona, both Republicans, and Tony Knowles of Alaska, a Democrat -- announced their opposition and thwarted a forceful effort by the three West Coast governors to forge a unanimous resolution in favor of capping prices.

Such controls could, indeed, stabilize electricity bills in the short term by limiting what large power generators could charge utilities. But critics say the measures are an artificial and dangerous tinkering with normal market forces and could exacerbate problems in the long run by discouraging development of new sources of electricity.

The issue is further complicated by the fact that some Western states are net exporters of power, and price caps are bitterly opposed in those states by power industry leaders, who say curbs will produce a net loss for the states, even if consumers temporarily benefit.

The Federal Energy Regulatory Commission, which oversees the wholesale electricity markets, has so far turned back pleas to use its authority to impose the caps, saying it can do so only if it finds evidence of collusion by power companies to drive up prices. Although wholesale rates for electricity have soared at times to 10 times and even 100 times their normal rates in the recent crisis, the regulatory commission has said it does not believe that industry officials have manipulated the market.

The commission's chairman, Curt Hebert, repeated Secretary Abraham's comments in opposing price controls.

"Caps are completely contrary to everything the FERC is trying to accomplish" in creating competition and alleviating the Western power shortages, Mr. Hebert told the governors today, using the acronym for his agency. He said the caps would also reduce incentives to conserve electricity.

The governors did agree today on a number of short-term and long-range strategies to help ease the crisis, including increasing conservation, in part by exploring ways of billing consumers that encourage them to use significantly less electricity during peak demand hours, which is when rolling blackouts, which have already hit California, are most likely to be imposed. And they pledged to work on speeding the construction of new power plants. But Gov. John Kitzhaber of Oregon, a Democrat, pushed for an extensive expansion of conservation efforts, warning against simply trying to "dig, drill and burn" a way out of a crisis.

Also at the meeting were leaders of several Indian tribes, who repeatedly expressed concern that the electricity problems could unravel federal laws and programs protecting salmon and other migratory fish that must navigate the huge network of federal hydroelectric dams in the Northwest.

"Salmon did not create the current crisis, and the Columbia River cannot continue to be run on their backs," said Antone Minthorn, chairman of the Confederated Tribes of the Umatilla Indian Reservation, in northeastern Oregon.