Showdown over energy price caps

Meetings of federal regulatory commissions don't generally fire up much public interest. But today's meeting of the Federal Energy Regulatory Commission (FERC) could prove an exception.

One reason is that the commission is taking on one of the summer's hottest issues - the high cost of electric power in the West. Another is that newly empowered Democrats in the Senate want to make sure how Republicans respond (or fail to respond) to this issue is etched in public thought. (Although FERC is an independent body, Bush recently appointed two new members.)

The commission may not go as far as Democrats want - a price cap on what wholesalers can charge for power. But even a move in that direction could signal more government involvement in controlling energy prices across the country.

Leaks of possible outcomes of the meeting have been circulating for days, but Senate staff who follow the issue insist that the outcome will not be known for sure until the five commissioners get together today.

What is sure is that they will be grilled about whatever they decide. Tomorrow, all five commissioners face questions from the full Senate Energy and Natural Resources Committee on whether they have done enough to ensure that the prices that generators charge utility companies are "just and reasonable."

For new Democratic chairmen with gavels (and subpoena power), it's a chance to signal that there's a big difference in how the two political parties deal with an issue at the top of public concerns. The White House has opposed price caps as a solution to California's energy crisis.

After taking over chairmanship of the Senate Energy and Natural Resources Committee, Sen. Jeff Bingaman (D) of New Mexico gave the FERC two weeks to deal with the California crisis "responsibly." After that, he said, the Senate would be forced to legislate the issue.

"It is our job to make sure federal agencies are doing their job to fairly and appropriately protect the interests of the American people," says Sen. Joseph Lieberman (D) of Connecticut, whose Governmental Affairs Committee takes up the same issue on Wednesday.

Market manipulation?

At the heart of such investigations is whether the sharp rise in energy prices since June 2000 is the result of genuine shortages of supply or the result of a deliberate withholding of supply by energy companies to drive up prices - a tough charge to prove.

"There have been 28 investigations of the oil and gas industry in the last 22 years for price gouging, and not one of them found anything of the kind," says Jerry Taylor, director of natural resources studies for the Cato Institute, a Washington-based libertarian think tank.

Even the threat of new investigations has already had an impact on the California scene by encouraging a recent drop in energy prices in the state, Democrats say. "History shows that when there is evidence that government is going to do its job on questions like this, that things start to get better," says Barry Piatt, a spokesman for Sen. Byron Dorgan (D) of North Dakota, who is calling for comprehensive hearings on energy pricing practices across the industry, including gasoline, natural gas, and home heating oil.

But industry spokesmen and many economists say that talk of price caps is more likely to make shortages worse, especially in the longer term. Price caps don't produce any more power, they say. They discourage new investment and fail to send appropriate signals to consumers that they need to cut back on consumption.

"It will be a mistake to make price caps the centerpiece of a federal response to the California power shortage. They would make a bad situation worse, and they do nothing to fix the flaws that so desperately cry out for solution," said Lawrence Makovich, senior director of the North American Energy Group, in Senate testimony on June 13.

Wholesalers' defense

Industry spokesmen argue that politicians are "demonizing" the energy companies to hide their own mistakes. "California failed to build new power generation for more than 10 years. That's the root cause of the problem," says Richard Wheatley, spokesman for the Houston-based Reliant Energy Inc., which supplies about 9 percent of the power in California.

"Our plants are running about three times harder this year than they have since we bought them in 1998, so the claim that companies like ours have taken power off the market deliberately to drive up prices is not born up by the facts," he adds.

In a bid to preempt the Democrats on this issue, House Republicans, led by Rep. W. J. "Billy" Tauzin of Louisiana, are also urging FERC commissioners to "do more" to mitigate wholesale electricity prices across the West, but stop short of calling for hard price caps. In a June 12 letter, the chairman of the House Committee on Energy and Commerce called on federal regulators to "aggressively monitor" wholesale sales of electric energy by public utilities and "strictly enforce" penalties and refunds as required by law.

"We're convinced that [retail] price caps have led, to a large extent, to the problems in California, and frankly we're not prepared to dig that hole any deeper," says Ken Johnson, a spokesman for the House Energy and Commerce committee.

(c) Copyright 2001. The Christian Science Monitor