Restraining themselves on what challenges, if any, will be made to the federal wholesale power price mitigation ordered Monday, both friends and foes of price caps expressed skepticism Tuesday about the prospects for the new wholesale price limits in the western states.

Rhetoric and emotions ran much higher in responding to a second power issue raised in California — the kick-off of an advertising campaign blasting Gov. Gray Davis for his handling of the electricity crisis that has gripped his state for 12 months. Ostensibly supported by a third party citizens’ committee with backing from state Republican Party leaders, the political ads prompted Davis to say that “out-of-state electricity generators charging us 800 percent more for electricity are reportedly running attack ads.

“If they think we are going to back down, they are dead wrong. We will fight back against out-of-control electricity prices, and we will continue to press the federal government to do its job to enforce reasonable rates.”

The governor said he has been “pounding on the Federal Energy Regulatory Commission” for help for nearly a year, and Monday the FERC “finally has taken a step in the right direction.”

Meanwhile, generators and their representatives strongly denied any involvement in the negative ads against the governor and raised concerns about the FERC action, noting as Gary Ackerman, of the Western Power Trading Forum, did that parts of the FERC action are likely to be revisited at various times during the prescribed 15-month life of its “soft caps.”

“Price caps don’t work,” said Joe Bob Perkins, president and COO of Houston-based Reliant Energy’s wholesale group. “This fact has been proven over and over in the context of virtually every business sector in which government regulators have experimented with such measures. Price caps always decrease available supply and discourage conservation.”

On the other side of the argument, California’s leading utility consumer watchdog group, The Utility Reform Network (TURN), criticized FERC for not going far enough and refusing to institute cost-based pricing for wholesale supplies. TURN was very critical of what it called the “10% adder” that allows generators to increase their prices by that amount to cover the added creditworthiness risk of selling in the California market.

“They allow the corporations to rob California for months, and then reward them for nearly bankrupting the state by allowing a markup for creditworthiness,” said Nettie Hoge, TURN’s San Francisco-based executive director. State Assembly Speaker Robert Hertzberg said he was “baffled” by the 10% provision, noting “FERC’s order paints a veneer of relief over a system that is still out of control. The proposed prices are likely to be far from either just or reasonable, which is what the law requires.”

Reliant Energy’s Perkins noted that consumers in California and throughout the western states are being “misled” into thinking that between the recent drop in energy prices and FERC’s action that “the battle is won. “Nothing could be further from the truth,” said Perkins. “Recent price drops are being driven primarily by a temporary weather-driven supply respite, not price controls.”

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