Senators Agree to Price-Control Bill for Western Power, Gas

Sen. Gordon Smith (R-OR) announced last week that he and Sen. Dianne Feinstein (D-CA) have reached "consensual agreement" on legislation that would levy price caps or cost-based rates on wholesale power transactions in western markets for as long as two years. The measure also would seek to reimpose price caps on short-term gas transportation to the California market, and would require gas sellers to declare separately the transportation and commodity components associated with their bundled "gray market" transactions.

The initiative, which the senators plan to formally introduce in the "near future," would offer the power price-control relief to states in the Western Systems Coordinating Council (WSCC) - Arizona, California, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Washington, Utah and Wyoming. 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.

Unlike previously proposed measures, the power price controls advocated in the Smith-Feinstein proposal would not apply in western states that refuse to allow regulated utilities to pass their wholesale power costs through to customers at the retail level.

".....I believe that this approach, while temporary, will help us to avert an economic and environmental catastrophe" in the West, said Smith during a hearing before the Senate Energy and Natural Resources Committee last Thursday. "I hope that [we will] pass this on a bipartisan basis, and I hope the Bush administration will be a party to it."

Although this marks the first bipartisan support for price controls in Congress, Senate Republicans on the committee, and Bush administration officials indicated that a Smith-Feinstein bill probably would be a tough sell on Capitol Hill and at the White House.

Under the proposed measure, state regulators still would retain authority over how and when to pass through utility wholesale power costs to retail customers, Smith said. The Bonneville Power Administration (BPA), over which FERC lacks direct jurisdiction, would be encouraged to reduce rate increases to "economically distressed communities," while ensuring that its costs are recovered by the end of the next contract period in 2006, he noted.

For western states that don't qualify for wholesale price caps, the Smith-Feinstein initiative would require regulators in the region to ensure that utilities meet local demand for electricity before making sales outside of their service territories.

Another provision in the bill would absolve companies from the obligation to sell electricity or natural gas into a state without first receiving a determination from FERC that the suppliers will be paid, Smith said.

Susan Parker

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