Senators to Unveil Bipartisan Price-Cap Bill

Sens. Dianne Feinstein (D-CA) and Gordon Smith (R-OR) introduced last week the first bipartisan legislation aimed at restoring price stability and reliability in the western electricity and natural gas markets.

Within 60 days of enactment, the bill directs the Federal Energy Regulatory Commission to impose temporary "just and reasonable" rate caps or cost-based rates on wholesale power transactions in out-of-control western energy markets for as long as two years. It also proposes re-instituting price caps on short-term gas transportation in the secondary market to California, would require gas sellers to state separately the transportation and commodity components associated with their bundled "gray market" transactions.

"We are bringing...this legislation because FERC has not fulfilled its responsibility" under federal law, said Feinstein. The bill "is designed to force FERC to do its job so that the financial crisis does not get any worse than it already is."

The legislation seeks to provide the price-control relief to power consumers in the 11 states that make up the Western Systems Coordinating Council (WSCC) --- Arizona, California, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Wyoming and Washington. The power price caps or cost-based rates would remain in effect until either the western power markets achieve "just and reasonable" rates or until March 1, 2003, whichever comes first.

Other Democratic co-sponsors of the legislation include Sens. Joe Lieberman (D-CT), Maria Cantwell (D-WA) and Patty Murray (D-WA).

Unlike prior proposed measures, the power-price controls advocated in the Feinstein-Smith bill will not apply in western states that refuse to allow regulated utilities to pass their wholesale electric costs through to consumers at the retail level. California's prohibition against the passthrough of wholesale costs to the retail level has been blamed for the financial problems of the state's investor-owned utilities.

The legislation also addresses the rapid escalation in gas transportation costs in the California market. It directs FERC to end its two-year experimental suspension of the rate cap on short-term transportation. Since February 2000, when the Commission began the experiment, "we [in California] have seen the price of gas climb 400% in Southern California," she said.

At the present time, the price of natural gas in southern California is about three times the cost of gas in New Mexico ($15/Dth versus $5/Dth), Feinstein noted. When transportation costs were capped, the difference was never more than about 70 cents, she claimed.

Although the legislation marks the first bipartisan support for price controls in Congress, Republicans on the Senate Energy and Natural Resources Committee, of which Feinstein and Smith are members, and the Bush administration have signaled that the bill will face a tough battle ahead.

In a related development, Feinstein said she has made a third written request to discuss the California energy crisis with President Bush. Her two prior requests have gone unanswered, she noted. The latest request is "all the more important." she noted, in light of a recent letter to Bush from Dynegy Inc. in which CEO Chuck Watson made clear his company's opposition to price caps in the California electric market.

"Rather than focusing primarily on increasing supply, decreasing demand, and restoring credit and credibility in its energy markets, the state [California] appears to be pursuing a course of action that is characterized by politically motivated intervention and protectionism," Watson wrote on April 5 to the president. Energy Secretary Spencer Abraham recently noted the Bush administration believed the "fundamental problem in California is a shortage of supply and that price caps would in no way solve the shortage." Said Watson, "I could not agree more."

In other action, Sen. Murray called on FERC to also consider refunds for the Northwest electric market. "I cannot accept the Commission take [refund] action in California alone while ignoring potentially equally unjust power rates in the Northwest simply because it is outside the scope of the investigation or it is deemed 'complex,'" she wrote in a recent letter to FERC Chairman Curt Hebert.

In recent articles published in The Seattle Times, Murray noted the Northwest wholesale market averaged $267/MWh, which is 16% higher than the average price in northern California and 28% higher than southern California.

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