Appeals court declines to order energy price caps

The Associated Press
Wednesday May 30, 2001

A federal appeals court declined Tuesday to order federal energy regulators to cap wholesale electricity prices. 

The decision by a three-judge panel of the 9th U.S. Circuit Court of Appeals came hours before California Gov. Gray Davis urged President Bush in a meeting to cap wholesale power costs, which have been spiraling out of control. The president refused. 

The panel, in a brief statement, said last week’s appeal by state Senate President John Burton and state Assembly Speaker Robert Hertzberg does not warrant “intervention of this court.” 

The lawmakers, both Democrats, were joined by the city of Oakland in their appeal to the 9th Circuit. 

“The citizens of California are suffering immediate irreparable harm as a result of FERC’s abrogation of its duty to establish just and reasonable rates for electricity,” they wrote to the 9th Circuit. 

The lawmakers said California’s looming threat of continued blackouts “are an imminent threat to the health, welfare and safety of every California citizen.” 

Davis and Hertzberg said they would study the ruling with their attorneys before deciding whether to appeal the ruling to the U.S. Supreme Court. 

The suit came after more than a year of wholesale power prices reaching historically high levels. In December, prices in California reached $200 per megawatt hour – and they have skyrocketed to as much as $1,900 per megawatt hour during peak times since then. 

The Bush administration ardently opposes price caps and President Bush has declined Davis’ requests to urge FERC to impose strict caps. 

Vice President Dick Cheney, chief architect of the administration’s energy plan, has said capping prices would not increase energy supplies or reduce demand. 

“We get politicians who want to go out and blame somebody and allege there is some kind of conspiracy ... instead of dealing with the real issues,” Cheney has said. 

Cheney criticized Davis, a Democrat, for what he called a “harebrained scheme” to use the state’s budget surplus to buy power because California’s two largest utilities face enormous financial problems. 

For the short term, the Bush administration has approved Davis’ request to expedite permits for new power plants and has ordered federal facilities in California to reduce energy consumption 10 percent this summer. 

Sacramento and the White House appear locked in a high-voltage war of rhetoric over energy policies. There is broad bipartisan dissatisfaction in Sacramento with Washington’s response to California’s energy crisis — the result of its own 1996 deregulation rules. 

Last month FERC did order a one-year cap on electricity sold into California during power emergencies, when power reserves fall below 7 1/2 percent. The agency did not set a price and also required the state to join a regional transmission organization, which could limit California’s ability to control its own power grid. 

Davis called the plan a “Trojan horse,” and state power regulators dismissed the cap as inadequate, saying it would profit power generators at ratepayers’ expense. 

In addition, Davis and state lawmakers sharply criticized FERC for considering requiring the state’s power grid operator to add a surcharge on power sales to pay generators the money they are owed by the state’s two large financially strapped utilities. 



LOS ANGELES — Gov. Gray Davis said Tuesday he and President Bush have a fundamental disagreement over whether California is entitled to energy price relief. 

“My view is I think we are entitled to relief as a matter of law,” Davis told reporters at the Century Plaza Hotel minutes after meeting with Bush. 

Davis said he told Bush he intends to do everything, including suing the Federal Energy Regulatory Commission, to bring price relief to California. 

“I said, ’Mr. President, you understand I have to do everything in my power to seek relief for the people of this state. You would do the same thing if you were in my position,’ and he agreed,” Davis said. 

“And among the things I am going to have to do are sue the Federal Energy Regulatory Commission ... and pursue every avenue in the Congress,” he said. 

Davis said the meeting was cordial and that Bush listened as he presented his side, but would not agree to price controls. 

“He believes it reduces abilities to conserve and discourages investment,” Davis said. 

But the governor said he showed Bush a chart from the U.S. Energy Department that showed the state ranked No. 1 in energy conservation. 

“Obviously it’s not going to have any negative effect on our ability to conserve,” he said. 



Davis said he pointed out to Bush that California had received applications for at least 12 power plants when there were price caps. 

“So certainly the investors of those plants thought they could get a very attractive return when we had the price cap,” he said. 

The governor said the state has made its price request to the FERC and now must wait for its official response before actually going to court. 

Davis said the president told him he will send FERC member Pat Wood to investigate claims of market manipulation. 

“The good news is the president is distressed to learn that the price of natural gas — Texas natural gas — in New York is roughly $5 per British Thermal Unit and $14 to $15 out here.” 

Davis said he warned Bush that the energy crisis could push the state into a recession and “bring down the rest of the country.”