Published January 13, 2015
Federal energy regulators' effort to rein in soaring California electricity prices Monday was a partial victory for state officials who had been pushing for more stringent controls for months.
Power generators, as well as their most vocal critics, said problems remain problems in the Federal Energy Regulatory Commission's unanimous ruling.
"The FERC is stumbling toward solutions and each one is incrementally better, but they're always late to the game," said Nettie Hoge, executive director of The Utility Reform Network, a San Francisco-based consumer watchdog group.
Restrictions on wholesale electricity prices will now be in place all the time and in 11 Western states, instead of only during peak demand periods when blackouts were threatened in California as under the commission's April order.
Although Monday's order closes several loopholes that allowed power generators to circumvent the April order, the commission's decision still ties the price cap to the cost of production at the least efficient electricity generating plant in the region. It also links price caps for the other 10 states to California prices, which have been the highest in the country.
Nor does the FERC order address what California regulators claim are billions of dollars in generators' overcharges over the last year.
"It's a split decision," said Peter Navarro, an economist at the University of California, Irvine. "This will help California and the rest of the West, but it's a mixed bag."
Gov. Gray Davis called it "a step in the right direction," while fellow Democrat U.S. Sen. Dianne Feinstein said it is "a giant step forward."
"They may not call it cost-based rates, but it is very similar to what Sen. Gordon Smith (R-Ore.) and I asked for in our bill," Feinstein said. Analysts said the bipartisan bill and new Democratic control of the U.S. Senate, as well as Republicans' concern about a political backlash, helped push FERC to back stricter price controls after months of opposition.
By contrast, Western Power Trading Forum director Gary Ackerman and Dynegy spokesman John Sousa praised the FERC for not abandoning a competitive market by requiring generators to link their prices to their cost of production.
The California Independent System Operator, which runs the state's power grid, questioned the commission's decision to impose a 10 percent credit worthiness premium on electricity sales into California, now that the Department of Water Resources is backing the state's power purchases.
But ISO spokeswoman Stephanie McCorkle said the FERC order appears in a preliminary review to have slowed or stopped generators' ability to avoid the April caps by "megawatt laundering" their electricity sales through other states.
Joe Bob Perkins, president and chief operating officer of Reliant Energy Wholesale Group., and Assembly Republican spokesman James Fisfis each suggested the caps could ultimately hurt California's efforts to build more power plants by discouraging investment.