STATEMENT BY U.S. SENATOR DIANNE FEINSTEIN
Federal Energy Regulatory Commission Hearing
San Diego, California
November 14, 2000

“I would like to submit these written remarks to the Federal Energy Regulatory Commission about the California Energy Crisis in lieu of personal testimony because Congress is back in session in Washington. I appreciate the opportunity to provide remarks and I appreciate the Commission’s consideration of my remarks.

In previous letters to Chairman Hoecker I had requested a full investigation of the California energy situation, immediate hearings in Southern California and a wholesale cap on energy sold into the California Power Exchange. I want to thank FERC for its attentiveness to my requests. I am pleased that FERC has issued a report (dated November 1, 2000) addressing this energy crisis and I believe that FERC has properly concluded that the rates in California are “unjust and unreasonable” and has pinpointed many of the underlying causes of the crisis.

I am concerned that your investigation did not go far enough and I urge the Commission to take stronger action. FERC’s proposed cap of $150 on energy sold into the California Power Exchange may control energy prices during peak times in the summer months, but is an inadequate response to the present situation. (I am also concerned that the nature of this “soft” cap will provide loopholes that allow energy generators to effectively ignore the cap.)

The cap is a good first step but will not address the problem at other times of the year and during times of the day where demand is traditionally lower. Most of the time, energy bids to sell onto the Power Exchange do not approach $150/Megawatt x hour. Energy prices during those times must also be addressed.

Empirical evidence from the summer shows energy prices during the middle of the night and early morning, for instance, that were much higher than similar times in past summers. Sempra Energy, for example reports that the price of spot power at midnight has been three times the usual rate this past summer. Furthermore, even now in the middle of November, at relatively light load conditions, California is witnessing prices at or above the load cap.

This is disturbing evidence of a broken market that has created enormous disparities between the winners and losers in the California energy market. Unfortunately, residents and businesses in San Diego County have become the biggest losers here. This is unacceptable.

In the past, Governor Davis and I have asked for a price cap on wholesale electricity rates in the region. A price cap that is modulated to reflect different market conditions at different times of the day and year would effectively address the supply and demand imbalances.

If that is not possible, I urge the Commission to consider imposing cost-based rates for energy generators in lieu of the market rates that now exist. This would eliminate the need for a wholesale price cap, while ensuring more reasonable energy prices and also a reasonable rate of return for companies selling energy into the California Power Exchange.

I also believe that FERC must do more to encourage bilateral contracts between Investor Owned Utilities (IOUs) and energy generators. I understand that many generators are offering reasonable rates (around 5 cents a kilowatt hour) but for long-term contract (5-7 years). IOUs are understandably reluctant to negotiate long-term contracts under the present market conditions and I think they have a good point. Although I appreciate the willingness of generators to offer contracts, it is FERC’s duty to make sure that generators understand the potential consequences of rejecting these rates for short-term contracts.

I would suggest that FERC set up criteria to ensure that energy generators offer reasonable rates directly to energy distributors and/or to the power exchange. If these criteria are not met, than the result would be a strict region-wide wholesale price cap. A second consequence could be a customer rebate for energy delivered before as well as after October 2, 2000.

I understand that the Commission believes that it lacks statutory authority to issue consumer rebates for market abuses before October 2, 2000. If Congressional authorization is needed, I will work with my colleagues in Congress to see that FERC receives this authority.

I will also work with Governor Davis to see that the California Public Utility Commission is taking every possible action on the State level to address the problem.

I believe a five-year moratorium on energy deregulation may be needed in the state. A deregulated market cannot function without adequate power sources. There is no evidence that adequate energy sources can be brought on-line in one or two years. It is essential that FERC and the PUC work in lockstep to see that the California market is fixed.”