As California was plunged into its second consecutive day ofdaytime darkness on Tuesday, FERC regulators remained as divided asever on whether to impose price caps on wholesale power sales inthe West to prevent continuing blackouts and price hikes thissummer.

In testimony before the House Energy and Air QualitySubcommittee hearing on the California power markets, CommissionChairman Curt Hebert toed the Bush administration line in opposingprice caps as a short-term remedy, while Commissioner WilliamMassey touted the importance of temporary caps to avoid acatastrophe in western power markets this summer. CommissionerLinda Breathitt remained non-committal on the issue.

While calling FERC’s actions to date both “significant andappropriate,” Breathitt did tell the House panel that she hasbecome “increasingly concerned” about problems facing the westernenergy markets in the short term (summer), and believes the Bushadministration, Congress and regulators should begin “exploringshorter-term options” to resolve the dilemma. President Bush saidMonday that his administration plans to focus on long-rangesolutions to the energy problems facing the nation.

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

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

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

“FERC must take more forceful action to fulfill our statutoryobligation,” Massey noted. In addition to temporary price caps, hesaid California and other western markets must establish a regionaltransmission organization, end their overreliance on the spotmarkets, and replicate the rules of the PJM (Pennsylvania-NewJersey-Maryland) market. As another potential remedy, Breathittsaid Congress may need to give FERC a “greater role” in the sitingof 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, Masseynoted. “We’ve got to get a handle on that problem as well” sincegas is being increasingly used to fuel power generation plants.

In contrast, Hebert touted supply and load-reduction measures toresolve the current “state of stress” that California and the otherwestern power markets are experiencing. “Price caps are not along-term solution,” he told the subcommittee. In the end, he saidhe was confident that the problems “can be and will be solved” inthe troubled markets.

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

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