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California and the West | CAPITOL JOURNAL

Price Caps Don't Fit in Cheney's Head for Figures

April 19, 2001|GEORGE SKELTON

SACRAMENTO — Want price caps on wholesale electricity to staunch the bleeding of billions from California? Not going to happen, Vice President Dick Cheney insists. Don't waste your energy thinking about it.

"Frankly, California is looked on by many folks as a classic example of the kinds of problems that arise when you do use price caps," Cheney said in a telephone interview Wednesday.

The vice president was referring to another type of price cap--the infamous state cap on consumer rates that has left the private utilities billions short of enough revenue to pay their gouging wholesalers. What political leaders in California and the Northwest are pleading for from the Federal Energy Regulatory Commission is a regional cap on wholesale prices.

Early last year, a megawatt-hour was selling wholesale in California for $30. By year's end, it had risen to an average $300, according to state officials. At peak, prices have soared to $1,500. Meanwhile, demand increased last year by less than 4%. In fact, demand last month was 9% less than in March 2000.

This is the sorry news for ratepayers/ taxpayers: Californians paid $7.4 billion for electricity in 1999. This year, the tab--without price caps--is projected at $70 billion. Gov. Gray Davis disclosed Tuesday that his administration has been shelling out $73 million a day to buy electricity for the pauper utilities.

The profits of power producers--many of them Texans and Bush backers--have risen 400%-500%-600%.


But none of this budges the Bush administration.

Price caps, Cheney declares, may provide "short-term political relief for the politicians. But they don't do anything to deal with the basic fundamental problem." That problem is supply, he says; price caps discourage investment in new power plants and encourage consumption.

Counters Garry South, Davis' political strategist: "The notion by free market zanies that you have to let profits rise 500%-600% is ludicrous. Reasonable profits can be made without bankrupting the system. They're just trying to protect the profits of their friends in the energy business."

In truth, California is building power plants as fast as it can. But not enough new megawatts apparently will be online by summer to prevent blackouts--and the bleeding of billions more into the pockets of out-of-state profiteers.

How about a temporary price cap?

"Six months? Six years?" Cheney replies. "Once politicians can no longer resist the temptation to go with price caps, they usually are unable to ever muster the courage to end them . . .

"I don't see that as a possibility . . . Any package you can wrap it in, any fancy rhetoric you can prop it up with, it does not solve the problem."


The White House clearly understands it has a problem in California--a political problem. A problem with a Democratic-dominated state that voted overwhelmingly for Al Gore. And now a problem with that mythical headline--Bush to California: Drop Dead--which seems to be getting bigger each day.

There have been several recent California: Drop Dead stories. One was in Sunday's New York Times--"Bush Devoting Scanty Attention to California." Tuesday, the Sacramento Bee reported that when Cheney met with Northwest members of Congress to discuss West Coast energy, he barred Californians from the room.

Cheney flatly denies it.

But Sen. Dianne Feinstein (D-Calif.) says she has had trouble making contact with the Bush White House. She has sent two letters to President Bush asking for a meeting on energy. The first time, she got back a form letter with her name misspelled. On the second try, she got a group meeting with Cheney.

"It was very disappointing," she says. "He spoke about letting the free market work and drilling in [Alaska]. That's not going to help California in the short-term. We need price caps until we're able to fix this very broken market. . .

"There seems no interest in really wanting to understand the California situation."

I asked Cheney whether he sensed an anti-California bias across the country? "No more than there's an anti-Texas bias," he replied. "I wouldn't get paranoid about it.

"The fact is, California is one of the leading states in the nation. Often a trendsetter. . . . Well, we hope not to emulate your energy policy. Hopefully, we'll learn from that."

His message to California: "There's no reason not to be optimistic. The energy crunch obviously is a significant problem. . . . But it too will pass."

While learning from California, the Bush White House also might take a refresher course in the free market Hoover administration.

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