As speculation mounts over whether the Federal Energy Regulatory Commission is about to expand its California market mitigation plan to 24 hours a day, seven days a week across the West this summer, Sen. Dianne Feinstein (D-CA) yesterday questioned whether such a move would eliminate what she asserted was a gaming of the system by generators to boost power prices.

She made her comments to a group of reporters on Capitol Hill yesterday after giving testimony before a Senate Governmental Affairs Committee hearing examining economic issues associated with the restructuring of energy industries.

FERC has scheduled a meeting for Monday to consider rehearing requests on its April 26 mitigation order (see Daily GPI, June 12). In its order, FERC established a single market clearing price for real-time transactions by the California Independent System Operator during times of reserve deficiencies (Stage One, Two and Three emergencies) in the state. During those times, real-time transactions are based on a proxy price tied to natural gas prices (see Daily GPI, April 26). Speculation has mounted that FERC is mulling an order that would mitigate prices 24 hours a day, seven days a week. Adding fuel to the fire, Republican House energy leaders earlier this week urged FERC to expand its California market mitigation plan to 24 hours a day across the West this summer (see Daily GPI, June 13).

“I think…24/7 is right, that’s right, it should be all the time,” Feinstein told reporters. “I think compelling the sale into the California marketplace right now is right, is helpful,” she added. “I am very suspicious of pegging this thing to the least efficient megawatt [because] I don’t trust these guys,” Feinstein said in reference to generators. “You can’t tell what they’re doing, and they market by selling it to this person, who sells it to that person, who then sells it back at an inflated price, so it’s become a convoluted process without transparency. So they play a game to boost the price. I’m not sure this kills that game,” she said. “It seems to me that if you’re going to buy 5,000 MW of electricity, and you’re going to buy it from Enron, that should come right from Enron,” as opposed to going through several intermediaries, she told reporters.

In a statement issued on Tuesday, Feinstein said that price mitigation “appears to be a way to avoid using the words ‘price cap’ or ‘cost-based rate,’ which some members of FERC and the Bush administration find objectionable. Frankly, I don’t care what they call it, as long as they get the job done.”

In effect, Feinstein said that FERC’s expansion of its mitigation plan would result in a flexible price cap, set at the price of the least efficient megawatt of the least efficient plant. “This sounds good on the face of it, and it may well be,” she said. However, in her prepared statement, Feinstein also said that the situation is “rife for manipulation.” She argued that as soon as prices are linked to the cost of operating the least efficient plant, an incentive for plants to be inefficient is created. “I am concerned that this order will continue to provide energy generators the opportunity to manipulate prices, as I believe they have been doing,” Feinstein stated.

Feinstein has co-sponsored legislation with Sen. Gordon Smith (R-OR) that would reinforce FERC’s responsibility related to maintaining just and reasonable energy prices. A hearing on the measure has been slated for June 19 by the Senate Energy and Natural Resources Committee.

Meanwhile, Sen. Joseph Lieberman (D-CT), newly-installed chairman of the Senate Governmental Affairs Committee, has scheduled a committee hearing for June 20 that will examine the role of FERC as it relates to the restructuring of energy industries. Feinstein, in a recent letter sent to Lieberman, asked that the committee investigate the possibility of an improper relationship between the energy industry and FERC based on an exchange between FERC Chairman Curtis Hebert and Enron Chairman Ken Lay that was first reported by The New York Times (see Daily GPI, May 30).

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