Stepping up the campaign for power price caps in advance of FERC’s meeting on the issue next Monday (June 18, 1 p.m. at the Commission offices), S. David Freeman, senior energy advisor to the California governor, told a press briefing in Washington, DC, of the state’s “desperate need for FERC to bring prices down to just and reasonable rates.” The Commissioners should exercise their legal independence from the White House, he added.
Californians are continuing to conserve electricity at the weather-adjusted rate of about 11% during the first week of June, and the state is beginning to turn the corner on its demand-reduction programs in which mass consumers can “exercise their market power,” Freeman said Tuesday. In addition, the state is currently negotiating a cost-plus contract for excess supplies from the municipal utilities in the state, principally the city of Los Angeles Department of Water and Power (LADWP), the nation’s largest muni.
But the state faces a potential $50 billion bill for power this year. The high prices threaten “to wipe out businesses,” Freeman said, and “California is a vital part of America. We have a very large economy. If we’re drug down into a recession, we’re not going all by ourselves.” He was “encouraged” the Federal Energy Regulatory Commission was “taking our case off the shelf at its meeting next Monday.” Questioned by reporters as to whether the Commission’s April 26 market mitigation order (effective May 29), installing a variable, market-based control had made a difference, he said it hadn’t been in effect long enough to tell, but claimed it was “full of holes (see Daily GPI, April 26).”
Noting that natural gas prices have been “bouncing all around,” Freeman said if over the long-run gas prices would stay as high as the $10/MMBtu level, there is no way California can bring down the cost it is paying for wholesale power on the spot market or in longer-term contracts it is still trying to sign. He said the Commission should “put the tariff [rate ceiling] back on the price of transportation. There is no excuse for not re-instating [the ceiling on transportation rates for released capacity]. I think the president and Gov. [Gray] Davis are together on that. The producers in Texas understand,” he added, blaming pipelines for the cost run-up.
As for power prices, “we don’t feel like we are out of the woods, but we have turned the corner, the troops are deployed and we’re gaining on the problem, but we’re still paying too much, more than is ‘just and reasonable’,” Freeman told news media, noting that a combination of conservation, long-term contracts and modification of air quality rules collectively is helping drive down prices. “Prices have gone from the moon-level down to around Cloud 9. I’m here primarily to make sure people (Congress) understand that conservation is a result of complex set of programs in which we are bailing ourselves out, but we still need price relief from FERC, which needs to do its job (assuring “just-and reasonable rates”).”
In response to arguments that price caps will stifle new power plant development, Freeman said California is not advocating that price limits be applied to any of the new plants now being developed (only existing ones), and that if private sector interest dries up, the newly created California Public Power Authority will build new generation facilities.
Freeman said California is facing a $50 billion wholesale power bill for this year, compared to $7 billion in 1999 and $20 billion last year. He said the state can’t get the bulk power costs back to the ’99 level, but it should be around $10 or $12 billion. (So far, the state water resources department, DWR, has reportedly spent almost $8 billion for power since mid-January.)
“This is the most massive failure of public regulation ever. We’re closing the gap, but we can’t continue paying these (wholesale) prices. FERC commissioners have yet to face up to the realities. They need to admit their experiment (with market-based pricing) has failed.” He said he doesn’t care if FERC ends up calling its actions something other than price caps, as long as it reduces wholesale prices. He said the newly appointed FERC commissioners who give the five-member body a full complement of appointees for the first time in a year should exercise their legal independence from the White House.
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