Editorials

Price caps may end up hindering energy crisis

The Associated Press
Wednesday April 25, 2001

SAN FRANCISCO — Chief federal energy regulator Curtis Hebert has made it his refrain: Price caps on wholesale electricity will hinder, not help, California’s energy crisis. Price caps will discourage the construction of desperately needed new power plants. 

But some power generators say that California’s dearth of energy supplies, and its growing demand, make it a good place to build more plants and sell more power in the years to come – even with price caps. 

“Regardless of what the (market) structure turns out to be, the state’s going to need electricity and it’s going to need to buy it from somebody,” said Bill Highlander, spokesman for San Jose-based Calpine Corp. 

Calpine is investing about $4 billion in power plants over the next four years. They will generate 9,000 megawatts, enough for more than 6 million homes. The state’s current energy crisis “hasn’t really changed our plans or our strategy,” he said. 

Eight of the 13 new power plants approved in California already are under construction. Twelve more are under review, according to the California Energy Commission, which approves power plants. 

CEC spokesman Rob Schlichting said that’s a huge boost over the last decade, when uncertainty over the rules of deregulation kept applications down. 

“The only way price caps would scare away investment is if they were set so low you couldn’t make a profit,” Schlichting said. “It’s still a market that people seem to want to come in and produce power for.” 

Other companies still planning to invest in California include North Carolina-based Duke Energy, which has two plants in the works, and Houston-based Reliant Energy, which is negotiating with the state to sell power on long-term contracts. 

Reliant’s spokesman, Richard Wheatley, wouldn’t say whether price caps alone would inhibit the company from building more plants. 

The state has talked about taking over power plants through eminent domain and implementing a windfall profits tax. Attorney General Bill Lockyer is offering a bounty for evidence of price collusion. If California wants to encourage construction, it’s got to tone down its demonization of the industry and stop adding more restrictions, Wheatley said. 

“Whenever we go into an area and consider building a power plant, we have to look at the economics of the facility, we have to look at the regulatory situation, esoteric things like what the mindset is like,” he said. “California is not the easiest place in which to do business.” 

Some power companies have invested so much in pipelines, gas reserves and plants already under construction that it would be folly to bail out. 

“We want to build in California, but we need to have regulatory stability or at least regulatory clarity to move these things forward because they’re half-billion dollar projects in some cases,” said Tom Williams, a spokesman for Duke. “That’s a lot of bananas.” 

Sens. Dianne Feinstein, D-Calif., and Gordon Smith, R-Ore., introduced legislation Tuesday ordering the Federal Energy Regulatory Commission to impose a temporary price cap in the 11 Western states. They hope to keep prices down in the short-term and give California and other troubled states a breather to make long-term decisions. 

FERC, of which Hebert is chairman, remains opposed to price caps, but after months of complaints, the board this week is considering a limited cap on the most expensive last-minute power buys. 

The proposal would cap California but not the rest of the West, and order wholesalers to sell to the state during the most extreme power shortages.  

Though it provides some cushioning, it does not address the high prices California swallows the rest of the time. That’s the point of Feinstein’s bill. 

“The crisis point is this summer to next summer and we need some federal assistance,” said Howard Gantman, spokesman for Feinstein.  

“This would assure the generators a reasonable profit and continue to spur on further investment into new plants.”