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Energy Secretary Rejects Calls for Power Price Caps

Regulation: Several Western governors criticize federal stance, warn of economic peril. Davis wins praise despite widespread view that state's consumers should pay more.


PORTLAND, Ore. — Energy Secretary Spencer Abraham rebuffed calls for limits on wholesale electricity prices Friday, leaving some Western governors sharply critical of the Bush administration and predicting energy shortfalls this summer, even with California's new $10-billion power-buying program.

"Is it a crisis? Well, if it's not a crisis we are absolutely vulnerable to it--it is that serious. . . . The rates may in fact go through the roof," Idaho Gov. Dirk Kempthorne said as eight Western governors settled on a short-term strategy for managing the region's electricity dilemma.

Gov. Gray Davis was greeted with warm congratulations for California's move to help ease wholesale price inflation in the West by making billions of dollars available to negotiate cheaper long-term power contracts. That action was accompanied by an $800-million conservation program.

But utility operators and nearby states whose consumer power rates have as much as doubled in recent months continued to apply quiet pressure on California to go beyond the 9% temporary rate hike approved by the Public Utilities Commission and make electricity users feel the pinch for higher and peak-hour power usage.

"We need to put in place rate structures that give consumers appropriate signals about the consumption of electricity," said Oregon Gov. John Kitzhaber.

Though the governors did not directly address the issue of across-the-board rate hikes, they adopted a statement that said rate reforms are "the first step in empowering customers to make wise decisions about their energy use." That could include rewarding employers who shift consumption to off-peak power usage hours, according to a 13-point program of short-term measures to ease the electricity pricing crisis.

The governors also called for following California's move toward long-term, lower-cost energy contracts, streamlining of permits for new power plants and expanding programs to compensate energy users--from farmers to factories--who temporarily give up their power allocations. They continued the push for greater conservation measures.

"My office is so dark you can almost develop film in it," Davis declared, trumpeting the state's program of incentives for electricity demand management and mandatory power cutbacks for businesses.

"Our employees now refer to it as mood lighting," Intel Vice President Jim Jarrett said of his company's 50% reduction in electric lighting in California.

Davis' reception was a remarkable contrast to the California bashing that has characterized most regional gatherings on the electricity crisis. Although state officials in the Pacific Northwest have loudly blamed the problem on California's failed deregulation plan and balked at federal orders to sell power to beleaguered California utilities, the governors seemed to make a point of shaking Davis' hand, commending California for this week's energy-buying bill and emphasizing that the power crisis is a regional problem.

"I'm pleased that California is stepping up to the task, the challenge," Washington Gov. Gary Locke said.

Davis, in turn, was conciliatory, thanking "the forbearance and sacrifice of the citizens of Washington and Oregon" in shipping power to California and pledging to boost transmission capacity to pay back the favor to its Western neighbors.

At the same time, Davis pointed out that California's economic engine has enlivened the economy of the entire West.

But it was the issue of limiting wholesale electricity prices that captured most of the governors' attention, as at least eight governors--four Republicans and four Democrats--endorsed calls for "cost-plus" pricing on wholesale electricity, in which generators would be guaranteed their direct and indirect costs plus a reasonable profit.

Kempthorne's opposition, coupled with negative signals from Arizona Gov. Jane Dee Hull, blocked the proposed price caps from inclusion in the governors' resolution despite vocal, repeated endorsements from the rest of the group.

Abraham and Federal Energy Regulatory Commission Chairman Curt Hebert Jr. both sounded discouraging notes about cost-plus pricing, saying it would stand in the way of investment in new power-generating facilities--the most crucial shortfall in the energy equation.

Abraham said he has "great concerns" about any caps on wholesale electricity prices. "At a time when demand is a very serious challenge for us this summer, anything that puts disincentives in place . . . has to be looked at very closely," Abraham said.

He said more than half the power consumed in the West comes from generators, such as those in Canada, outside the jurisdiction of the FERC.

Hebert said cost-plus pricing creates "an artificial marketplace. What we're trying to do is move beyond that. . . . By capping the spot market, you penalize those areas that have made good choices [and negotiated long-term contracts]," he said.

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