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Utilities in 3 western states urge FERC to change price controls

BELLEVUE, Wash., Aug. 7, 2001 — The utilities of three Western states have joined to protest the consequences of Federal Energy Regulatory Commission (FERC) actions on price controls.

According to Puget Sound Energy, Portland General Electric Company and Sierra Pacific Resources, FERC’s actions threaten the reliability of the electric supply in the West and ultimately could lead to shortages, all in an effort to solve California’s energy crisis.

Fundamentally this result is caused by the mechanics of FERC’s price controls, the utilities claim. Western utilities are being required to sell power into California at less than full cost under the price controls, thereby leaving their customers to finance the crisis-relief effort.

“While it is appealing to think that price caps limit the cost of wholesale power to consumers, these controls unintentionally but dramatically shift the burden of California’s poor planning to other states, like Nevada, that have planned properly for the future,” said Walt Higgins, chairman, president and chief executive officer of Sierra Pacific Resources.

“Now, Californians can obtain power at the last minute at an artificially low price while states that have had the foresight to purchase more secure, longer-term power are left with higher bills.”

“FERC’s price controls effectively expand the energy crisis to all states in the West,” said Tim Hogan, Puget Sound Energy’s vice president of external affairs. “The crisis has already bankrupted a California utility, and FERC’s recent actions, causing the cancellation of needed new generation, could now begin to haunt the entire West as a result of the well-intentioned but misguided efforts in Washington, D.C.”

The western group also criticized FERC for first encouraging energy providers to move quickly away from reliance on the short-term wholesale electric market and then, through the price control mechanism, punishing those utilities that followed the directives.

“The utilities that did the responsible thing in securing appropriate supplies for their core customers, consistent with good public policy and FERC’s directives, now face the prospect of being forced to sell power to other utilities at a loss,” Hogan said. “This will result in consumers of one utility paying the price for the federal bail-out of another state, which is completely unacceptable.”

Higgins said the price caps actually harm reliability because other utilities and independent power producers are less likely to take the risk of selling power at the last minute at the federally mandated low price. The inability to secure spot power as usual was a major factor in the brief power interruption affecting 10,000 customers last month in Las Vegas.

The coalition members are committed to working with their respective federal and state officials to assist FERC in developing solutions that are both more fair and more likely to achieve reliable power supplies this coming year.

“During a crisis you must keep a cool head and take actions that are in the best interest of all customers involved,” Hogan said. “A solution must be implemented by FERC that protects all customers in the West and sets up a predictable mechanism to meet the region’s energy needs. Many other utilities in the West have expressed similar opinions in their filings with FERC.”

“We believe FERC has changed the rules in the middle of the game,” said Pamela Lesh, vice president of Public Policy and Regulatory Affairs at PGE. “FERC did not create a proper transition plan for those market participants who took prudent steps to plan ahead in accordance with the old rules.”