Bush Policy Toward CA Power Crisis Fluctuates

Energy Secretary nominee Spencer Abraham said during his Senate confirmation hearing last Thursday that the grave power crisis facing California would be a priority of the Bush White House. But no sooner had those words been uttered than incoming President George W. Bush essentially wiped his hands clean of the state's problems. Key Senate Republicans as well urged Abraham and the Bush White House to take a hands-off approach to the continuing crisis.

At his hearing, Abraham sidestepped questions about what action, if any, the incoming Bush administration would take to deal with the power-supply problems and potential utility bankruptcies in California, saying "premature" speculation on his part could "disrupt" ongoing negotiations at the state level. But the matter will be an "urgent priority" of the Bush administration, he assured the Senate Energy and Natural Resources Committee last Thursday.

On Friday, however, Bush told the Associated Press that he had ruled out the possibility of any federal action for California. "These are California utilities," he told the wire service, meaning it's up to the state to solve the problem. He further rejected any price caps on wholesale power, saying such ceilings would amount to a "short-term delay of a needed solution."

Top Republicans on the Senate panel shared the new president's views. There will be "great expectations that somehow you are going to solve this dilemma" in California, Sen. Frank Murkowski (R-AK) told Abraham, a former senator from Michigan. "I would encourage you to keep the pressure on those [who] are responsible for it" --- namely California's governor, legislature, regulators and state utilities --- "and not necessarily encourage Uncle Sam to step forward and bail out" the state.

The "immediate burden has to fall on California" for the crisis, which he believes "was quite predictable." The California retail consumer "has to feel the hit" of these higher costs before there can be "meaningful corrections" in the market, Murkowski said.

Sen. Pete Domenici (R-NM) agreed the current crisis has been of California's own making. He singled out the state's long-held policy of not-in-my-backyard for siting new generation facilities as the key culprit. "I think it is an immediate crisis" in California, and the state "has to decide what they want to do" about it, he said.

"I sincerely believe there is a federal responsibility here through FERC," countered Sen. Dianne Feinstein (D-CA). The agency's role, she said, was to set "just and reasonable" rates on wholesale power transactions in California, which she pointed out it failed to do.

Feinstein said she plans to introduce legislation on Capitol Hill this week, possibly as early as today, that would give the Department of Energy (DOE) the authority --- whether it wants it or not --- to establish cost-based rates for bulk power transactions in 12 western states when prices are determined to be "unjust and unreasonable."

The rates would be temporary until a state can bring more power sources on line, she said, and the proposed fix would be voluntary in nature, with states having the ability to opt out.

Feinstein, a new member of the committee, contends if California's major utilities go bankrupt, this would have ripple effects in western, national and international economies. "Anyone who thinks this is going to stay just with California is dead wrong." Feinstein believes a concerted effort by state, federal and industry officials is required to put California's power market back on track.

To forestall utility bankruptcies, she called on California Gov. Gray Davis and state lawmakers to quickly move to securitize the $8 billion-plus debt load that the utilities have incurred as the result of not being allowed to pass through the increases in wholesale power costs to their retail customers. She proposed that the debt be securitized over a long period, giving the utilities' customers 15 years or more to pay it off.

Compared to the more contentious confirmation hearings that were taking place on Capitol Hill last week, members of the Senate Energy Committee treated their former colleague with kid gloves. Bush picked Abraham to head up the DOE after he lost his bid for re-election to the Senate last November.

The committee wasted little time last Thursday in voting out Abraham's nomination. It will be forwarded to the full Senate, which is expected to act quickly to approve him.

Susan Parker

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