Action On Price Caps Looms Larger As Senate Changes Hands

As the balance of power shifted in the Senate last week from Republicans to Democrats, members from both sides of the aisle offered up plenty of hints that the contentious issue of reining in California's runaway wholesale energy prices will be in play over the next couple of weeks. Democrats said they may take action on legislation that would direct FERC to set cost-based rates to ensure just and reasonable wholesale energy prices in the state, while Sen. Frank Murkowski (R-AK), the outgoing Senate Energy and Natural Resources chairman, indicated flexibility on the subject, but not if such open-mindedness means sacrificing additional generation in California.

On the same day that he was handed the reins of the Senate Energy and Natural Resources Committee, Sen. Jeff Bingaman (D-NM) detailed what issues he thinks the energy panel can successfully address in the short term. The recent defection of Sen. James Jeffords (I-VT) from the Republican Party has shifted the balance of power --- and the chairmanships --- in the Senate from the GOP to the Democrats.

Appearing last Wednesday before a Washington, D.C., press briefing sponsored by the Energy Daily and the United States Energy Association, Bingaman mentioned adequate funding for the low-income home energy assistance program and, separately, "enormously high" wholesale energy prices in California, both of which are issues he has touched upon in recent weeks (see NGI, May 28). "Again, it's been my position from the beginning that the Federal Power Act requires the Federal Energy Regulatory Commission to ensure that rates are just and reasonable and ... their last determination on this was in December that rates are not just and reasonable," Bingaman said. He said that FERC "needs to take some action" as it relates wholesale energy prices in California.

He expressed optimism that the seating of two new commissioners at FERC -- Pat Wood III and Nora Brownell -- may make a difference in terms of how the Commission deals with this issue. "I've great hopes that they will concentrate on this issue and move the FERC to deal with it responsibly," he said. In the meantime, Bingaman pointed out that Sens. Dianne Feinstein (D-CA) and Gordon Smith (R-OR) are "anxious" for the energy panel to move forward with legislation they have sponsored that would reinforce FERC's responsibility related to maintaining just and reasonable energy prices.

Bingaman emphasized the point that the bill would not legislatively set a price cap, but would instead direct FERC to set a cost-based rate of some sort that would meet the just and reasonable requirement. "So that's another issue that I think is clearly a strong candidate for action by our committee here in the next few weeks," Bingaman said. "I would expect we'll have a few hearings in the next couple of weeks before we actually conclude a final list of what we might move on quickly that are of an immediate nature," he added. "We're going to look at whether or not the sentiment is there to go ahead with that legislation and whether we think, under the circumstances that we're presented with a couple of weeks down the road, whether that will be a constructive act to take," Bingaman said.

Meanwhile, newly-minted Senate Majority Leader Tom Daschle (D-SD) in separate letters to California Gov. Gray Davis and Feinstein sought to clarify his position related to wholesale electricity prices in California. In the June 5 letters, Daschle refuted a recent Los Angeles Times report that he has "all but ruled out passage of federal price controls" for wholesale electricity sold in California. "This report does not accurately reflect my position on this important issue," Daschle wrote.

Echoing Bingaman's comments, Daschle emphasized the point that FERC must meet its obligation under current law to ensure just and reasonable prices for wholesale electricity in California. But the new Senate majority leader argued that FERC has failed to meet this responsibility, despite finding last fall that prices were not just and reasonable. "Unless FERC takes action, I believe that Congress will have to consider legislation to address this issue," Daschle wrote. While Daschle noted that he does not believe Congress can or should establish a dollar amount for the price of electricity in California, he did voice support for the Feinstein-Smith legislation. "Unless FERC acts soon, your legislation should be taken up and passed to direct FERC to take action," Daschle wrote in his letter to Feinstein. "I will support all necessary efforts to meet that goal," he added.

Sen. Joseph Lieberman (D-CT), who last week took control as chairman of the Senate Governmental Affairs Committee, made it clear that high energy prices will be the panel's top priority. At a press conference, Lieberman announced that his committee would hold two energy hearings this month. The first hearing, slated for this Wednesday, will explore the effects of deregulation on the cost of natural gas and electricity. The second hearing, scheduled for June 20, will seek to determine if FERC is fulfilling its responsibility to provide just and reasonable energy rates for consumers. Feinstein, in a recent letter to Lieberman, asked that the Governmental Affairs Committee investigate the possibility of an improper relationship between the energy industry and FERC based on an exchange between FERC Chairman Curtis Hebert and Enron Chairman Ken Lay as reported recently in The New York Times (see NGI, June 4). However, it remains unclear as to whether either of the scheduled hearings will delve into this subject.

For his part, Murkowski last week seemed to exhibit some flexibility as it relates to putting caps on wholesale electricity prices in California. But, in a Capitol Hill news conference, the Alaska lawmaker made it clear that such flexibility would be predicated on the guarantee of additional generation being added in the state.

During the press conference, Murkowski was asked whether he could support the Feinstein-Smith legislation. "Not unless there was the assurance ... that it was at a rate or that there was a formula worked out to ensure that California would get new facilities," the Alaska lawmaker said. Another reporter asked Murkowski whether it was a fair statement to say that he's not going to rule out price caps. "It's a fair statement to say my bottom line is quite specific -- to ensure that there's new facilities built in California," Murkowski responded. "If I get that assurance, I'm willing to work with anybody on any kind of a formula that achieves increased energy production in California," he added.

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