Statement of Senator Dianne Feinstein
On the FERC ‘Price Mitigation’ Order
June 18, 2001

“Last summer, I called upon the Federal Energy Regulatory Commission (FERC) to impose a temporary regional price cap or cost-based rates on wholesale electricity prices that had skyrocketed out of control in California and the West. Almost a year later, the Commission has issued an order that finally seeks to address the broken energy market in the West.

Essentially, FERC has moved toward cost-based rates, 24 hours a day, seven days a week in the 11 Western states until October 2002. This is a giant step forward. They may not call it cost-based rates, but it is very similar to what Senator Gordon Smith and I asked for in our bill.

It is also very important that FERC has acknowledged that natural gas prices, which had been dramatically higher in California than elsewhere in the country, were a major factor in the high electricity costs. In its order today, FERC apparently will now ensure that electricity prices will no longer be driven up by exorbitant natural gas prices.

There are two fundamental weaknesses of the order, however. First is linking the rates energy providers can charge to the production of the least efficient megawatt of electricity. I am concerned that this still provides an opportunity for market manipulation. Second is FERC’s mandate of a 10% premium rate for electricity sales into California. As I understand it, FERC has directed the generators and the utilities to negotiate back debts of up to $15 billion during the next 15 days. If there is a voluntary agreement, the 10% premium might be lifted. If not, it could remain in effect and that is a problem.

Had FERC put ideology aside and issued this order last year, it could have saved Californians billions of dollars and prevented a massive transfer of wealth from California into the coffers of the electricity generators and marketers. Nevertheless, FERC has taken a step that may get wholesale energy prices under control and lead to a period of reliability and stability in the Western energy market.

In the past year, generators have been able to withhold energy from the market in the effort to try to wring every last dollar out of California and the West. For that reason, FERC needs to closely monitor the situation and ensure that generators are accountable for the prices they set.

If generating capacity is taken offline to boost prices, then FERC must aggressively step in and order plants online. FERC must also address two issues that remain unresolved, including rebates warranted by a year's worth of ‘unjust and unreasonable’ energy prices and spikes in the cost of natural gas.”