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Bush Say ‘No’ to Price Caps, Will Review Gas
President George W. Bush, addressing business leaders and Gov. Gray Davis in Los Angeles Tuesday, delivered a public and unmistakable ‘no’ to price caps as a way out of the western energy crisis, and called for an end to finger-pointing. “Blame shifting is not action,” Bush said. “It is distraction.”
After a private meeting between Bush and Davis, the governor said the president had, however, expressed concern that Texas natural gas prices delivered to California are sometimes ten times what they are in New York. Davis said the president had pledged to send his latest appointee to the Federal Energy Regulatory Commission, Pat Wood, to California for a first-hand review of the situation.
On wholesale electricity prices, however, Bush was unyielding. “Price caps do nothing to reduce demand, and they do nothing to increase supply,” the president said. Caps simply create “more serious shortages and therefore, even higher prices.”
Davis said he had stressed that wholesale energy price relief in the state ultimately would help prevent broader national economic problems, possibly even a recession. And the state will continue to press its case in the courts. “I don’t think it is a matter of ideology, it is a matter of law,” said Davis, noting he has a “fundamental difference” with the President on this issue, which the governor continues to argue is legally owed to the state by federal regulators once they declared last December that prices were not “just and reasonable.”
While thanking the President for the meeting and his visit to California, Davis said he now will file a lawsuit against FERC and will pursue every legal avenue open to him. Davis addressed a gathering of adversely impacted consumers, businesses and nonprofit groups from San Diego in the morning prior to the presidential meeting, and released a letter from 10 nationally known economists, stressing the potential adverse national economic impact if wholesale electric prices are not reigned in.
Before and after the 35-minute meeting between Davis and the president, the governor’s advisors stressed the potential macro-economic fallout from what Princeton University economist Alan Blinder, former vice chairman of the Federal Reserve’s Board of Governors, called an “economic shock” in the state that is the equivalent of the 1973 Arab Oil Embargo’s national economic impact. Blinder said he agrees with the Bush Administration that wholesale price caps are not a good long-term solution. However, they would be viable for a six- to 18-month period because adequate new supply cannot be brought into the market in this short-term period. He said it is incorrect to apply the long-term reasoning against price controls to short-term, emergencies situations such as California now faces.
The economists’ letter expressed “deep concern over the failure of the Federal Energy Regulatory Commission (FERC) to act effectively to enforce the provisions of the Federal Power Act that require it to set just and reasonable wholesale prices for electricity in California.” “This letter is a very significant validation of what we’ve been saying,” Davis said. “The marketplace is not working and FERC has an obligation to act. We’re not pleading for relief, we’re entitled to it.”
Underscoring that California’s power markets are broken, the economists, including Alfred Kahn, father of airline deregulation, wrote:
“We strongly advocate that FERC be directed to fulfill its responsibilities and take the actions necessary to alleviate the market-performance problems that have led to unreasonable prices. We are mindful of the potential dangers of applying a simple price cap, the maximum price that all sellers can receive, to a truly competitive market where the interplay of supply and demand happens to yield prices higher than some might like. But California’s electricity markets are not characterized by effective competition. In this case, cost-of-service prices are an obvious remedy that satisfies the just and reasonable rate standard.”
Earlier in the day Bush outlined several measures to aid Californians caught by high power prices and shortages, including a $150 million allocation to help low-income Americans pay energy bills this summer, and an Energy Department project to stimulate the building of more transmission lines running north and south through the state.
The low-income relief is in addition to the $300 million included in the administration’s budget for next year. And “Energy Secretary Spence Abraham is speeding approval of the necessary permits and easements. We’re going to unplug the Path 15 bottleneck.” Bush also pointed to the fact that military facilities in California have exceeded their goal of trimming usage by 10% during peak hours.
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