Power Shift Keeps Democratic Hopes for Price Controls Alive

Senate Democrats, now holding a slender majority, are determined to confront President Bush over federal price caps on soaring electricity costs in California and other Western states.

The shift of power in the Senate has brought new life to legislation that would require the Federal Energy Regulatory Commission to impose electricity price controls in California and the Pacific Northwest, where prices have soared to 10 times what they were 18 months ago.

Bush, in a dramatic confrontation Tuesday with California Gov. Gray Davis in Los Angeles, reiterated his opposition to price caps. He rejected the argument that the Western electricity markets are out of control, dysfunctional and open to abuse by a handful of out-of-state power generators and marketers.

As Davis, a Democrat with presidential aspirations, sat two seats away, Bush declared: "Price caps do nothing to reduce demand and they do nothing to increase supply." If imposed, the president continued, they will create "more serious shortages and ... even higher prices" for power.

The same argument has been heard repeatedly in recent months from Curtis Hebert, the Republican chairman of FERC, which under a 1935 law is obligated to assure that wholesale electricity prices -- even in a competitive market -- are "just and reasonable."

Like Bush, Hebert has maintained that price controls would reduce supplies because they might stifle investment in new power plants, an argument rejected by another FERC commissioner, William Massey, who has strongly argued for price intervention. A third commissioner, Democrat Linda Breathitt, has sided with Hebert on the issue so far.

Davis said Tuesday he planned to file a lawsuit against FERC to force it to impose price caps under the 1935 Federal Power Act.

But even as Davis spoke, a federal appeals court in San Francisco rejected a similar suit that had been filed by two California state lawmakers. The three-judge panel said the case had not been made for federal intervention.

The issue of electricity price caps was all but abandoned on Capitol Hill as well -- until Sen. James Jeffords of Vermont announced last week he would leave the Republican Party, giving Democrats control of the Senate.

Suddenly the Senate Energy and Natural Resources Committee, now under new leadership, is making plans to take up price-cap legislation, which had been dismissed by the panel's former chairman, Sen. Frank Murkowski, R-Alaska.

The panel's new chairman, Sen. Jeff Bingaman, D-N.M., is a co-sponsor of the bill and is making plans to give it top priority in the coming weeks, according to Bingaman aides.

With the 2002 election not far off, there has been growing uneasiness among some Republican lawmakers over the California power crisis as its impact has spread across the West, and the White House refusal to get more involved.

While emphasizing his support for free markets, Sen. Gordon Smith, R-Ore., who is up for re-election next year, has voiced his concerns to the White House, arguing that price caps are the only way to bring relief in a market that he says is broken.

Smith joined Sen. Dianne Feinstein, D-Calif., in introducing the price cap legislation in the Senate. Bingaman expressed optimism that the measure now may get through the Senate, and put pressure on the House, still under Republican control, to take action.

Rep. Dick Gephardt, D-Mo., last week lashed out at House Republicans for refusing to take up the price cap issue. "Small businesses and families are going bankrupt" because of high energy costs in California, the House Democratic leader said.

Legislation aimed at helping California deal with this summer's power problems has languished in the House Energy and Commerce Committee as Democrats and Republicans wrestled over the price cap issue.

Rep. Billy Tauzin, R-La., committee chairman, said he was optimistic the bill could move after lawmakers return next week from the Memorial Day recess, although he remained opposed to price caps.

On Tuesday, Democrats distributed a letter sent to Bush as well as to top GOP leaders in Congress by 10 prominent energy economists, calling for limited and temporary federal price caps on the California market.

"California's markets are not characterized by effective competition," wrote the economists, among them Alfred Kahn of Cornell, a staunch supporter of deregulation be it airline, communications or electricity. They called temporary price controls based on cost of service "an obvious remedy."