As California was plunged into its second consecutive day of daytime darkness on Tuesday, FERC regulators remained as divided as ever on whether to impose price caps on wholesale power sales in the West to prevent continuing blackouts and price hikes this summer.

In testimony before the House Energy and Air Quality Subcommittee hearing on the California power markets, Commission Chairman Curt Hebert toed the Bush administration line in opposing price caps as a short-term remedy, while Commissioner William Massey touted the importance of temporary caps to avoid a catastrophe in western power markets this summer. Commissioner Linda Breathitt remained non-committal on the issue.

While calling FERC’s actions to date both “significant and appropriate,” Breathitt did tell the House panel that she has become “increasingly concerned” about problems facing the western energy markets in the short term (summer), and believes the Bush administration, Congress and regulators should begin “exploring shorter-term options” to resolve the dilemma. President Bush said Monday that his administration plans to focus on long-range solutions to the energy problems facing the nation.

As the second summer of a “wildly dysfunctional market” in California approaches, “we stand at the edge of an abyss,” said Massey. “We have reason to believe market power is present in the market,” he noted, adding that the withholding of generation capacity has become a “highly profitable strategy.” California’s bulk power markets already have been declared “highly dysfunctional” by FERC, and the problems have been so well publicized that even elementary school children in Maryland know that the state is capacity short, Massey said.

Without some form of effective price mitigation in the West, “I fear a disaster” will occur in the western electricity markets this summer, he said. “…..I fear for the worst.” As a remedy, Massey believes the Commission should at least consider temporary price caps on wholesale power transactions. Under his proposal, new generation facilities would be exempted from the caps so as to continue investment in the market, and the caps would have a specific sunset date. “I don’t support a long-term price cap,” he told Subcommittee Chairman Joe Barton (R-TX).

If FERC can bring wholesale power prices under control, Massey suggested that California might be more willing to pass through the costs to retail residents. He said he thinks state regulators have been unwilling to do this so far because they think the wholesale costs are a “rip-off.”

“FERC must take more forceful action to fulfill our statutory obligation,” Massey noted. In addition to temporary price caps, he said California and other western markets must establish a regional transmission organization, end their overreliance on the spot markets, and replicate the rules of the PJM (Pennsylvania-New Jersey-Maryland) market. As another potential remedy, Breathitt said Congress may need to give FERC a “greater role” in the siting of transmission facilities.

Also, the Commission needs to look into the reasons for the “sometimes exorbitant” transportation differential for natural gas — as high as $30 — into the Southern California market, Massey noted. “We’ve got to get a handle on that problem as well” since gas is being increasingly used to fuel power generation plants.

In contrast, Hebert touted supply and load-reduction measures to resolve the current “state of stress” that California and the other western power markets are experiencing. “Price caps are not a long-term solution,” he told the subcommittee. In the end, he said he was confident that the problems “can be and will be solved” in the troubled markets.

Going forward, the question of price caps will not be up to these three alone. President Bush is expected to name two new commissioners in the near future to bring FERC up to the five-member limit.

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