F.Y.I.


Clinton Seeks Stepped-Up Power Probe --- Surging Prices for Electricity In 
California Spur Move;
Emergency Loans Planned
By Rebecca Smith and John J. Fialka
Staff Reporters of The Wall Street Journal

08/24/2000
The Wall Street Journal
A3
(Copyright (c) 2000, Dow Jones & Company, Inc.)

WASHINGTON -- The Clinton Administration and federal energy regulators 
stepped up efforts to respond to a
politically disastrous rise in California electricity prices, threatening to 
go as far as re-regulating some prices if they
determine that the free-market experiment in the state has failed. 

The moves by federal authorities come as California regulators and lawmakers 
scramble to come up with an
expedient solution to high power prices in the San Diego area, where monthly 
bills have in some cases quadrupled
since last summer.

In a 21-page order issued yesterday, the Federal Energy Regulatory Commission 
said that under the Federal Power
Act it can intervene to limit the prices charged by generators to the 
California market -- if it determines the prices
they are charging aren't "just and reasonable," and the market is not 
"workably competitive." 

The order accompanied an upgrade of the FERC's effort from a staff probe to a 
formal investigation, requested by
President Clinton, who also yesterday extended $2.6 million in federal 
emergency loans to low-income residents in
the San Diego area to help pay their electric bills. 

"There is a crisis of confidence in California wholesale electricity markets 
that threatens to erode the political
consensus necessary to sustain a market-based approach to regulation,"William 
Massey, one of four FERC
commissioners, said yesterday in an opinion attached to the order. "In these 
circumstances, the FERC must act
forcefully and decisively to . . . insist that jurisdictional wholesale 
markets produce consumer benefits and just and
reasonable rates." 

As prices have risen, power generators such as Duke Energy Co., the local 
utility, San Diego Gas & Electric Co.
and public officials have all pointed the finger at one another for what 
appears to be a badly flawed market. California
governor Gray Davis, who is pushing for local legislation that would lower 
bills and accelerate power-plant
construction, yesterday said "out-of-state generators" were most responsible 
for "bringing San Diego residents to
their knees." 

FERC's action yesterday originated in a complaint filed Aug. 2 by San Diego 
Gas & Electric Co, a unit of Sempra
Energy, the utility whose customers have riased the most outrage over the 
rate rises. 

The utility sold off its plants and now buys all the power its customers use 
out of a state-sanctioned auction,
passing those market costs directly through to its customers. 

Steve Baum, Sempra Energy chairman, said FERC's action is a warning to 
generators "that the prices they've been
receiving are now at risk." He expects FERC to eventually issue a ruling that 
California's market isn't competitive,
setting the stage for a possible return to cost-based rates in periods of 
high demand. Prior to deregulation in 1998,
the rates utilities charged for electricity were based on their underlying 
cost. Deregulation allowed them to charge
whatever the market would bear. 

Mr. Clinton said the the FERC investigation would allow Washington to "better 
understand" what is happening in the
California market so the government can protect consumers there and in other 
deregulated states. 

While politicians and regulators seek solutions, wholesale power prices in 
California are becoming more aberrant. 

Even on days when consumption and prices normally drop, such as Sundays, 
prices have been stubbornly high this
summer. For example, the auction price of electricity to be consumed at 10 
p.m. last Sunday was $125.48 per
megawatt, or more than four times the price such power commanded on the third 
Sunday of August in 1999. The
markup is especially noteworthy because actual demand on that day was 12% 
lower than on the comparable day a
year earlier. 

"A number of people are looking at the high prices trying to figure out 
what's going on," says Jesus Arredondo,
spokesman for the state-sanctioned entity that runs the state's day-ahead 
energy auction, the California Power
Exchange in Pasadena, Calif. 

These prices have remained high despite the best efforts of public officials. 
For instance, the organization that runs
the state's electric grid and is responsible for keeping consumers constantly 
supplied with electricity has reduced
the maximum price it will pay for electricity this summer to $250 per 
megawatt hour from $750. While this action
has capped peak prices, it has also caused an increase in the overall number 
of hours in which prices are
abnormally high. 

Take yesterday for instance. Prices for power in California never dropped 
below $108 per megawatt hour, even for
power contracted for delivery in the dead of night, and the hourly price was 
at or above $200 in 13 of 24 hours
despite only moderately high demand. 

California's problems are likely to step up pressure on Congress to pass 
omnibus legislation which would provide
uniform national rules for deregulated state energy markets and make more 
efficient the interstate
power-transmission system, Mr. Clinton said yesterday. 

The administration has pushed for such a measure but the House Commerce 
Committee, which has jurisdiction
over the legislation, still appears deadlocked on the details. It plans to 
hold a hearing in California on
electricity-market conditions there next month. 

--- 

Marc Lifsher contributed to this article 

--- 

Journal Link: See video of President Clinton announcing emergency funds to 
help low-income families in California
pay electricity bills, in the online Journal at WSJ.com.




Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.