FERC Action Prompts Praise, Protest

The Federal Energy Regulatory Commission (FERC) voted 5-0 Monday to expand price limits beyond those already in place during power emergencies. 

"It's time to stop blaming and start solving problems" as ten Western states, including California, now face round-the-clock limits on wholesale electricity prices regardles of fluctuations in the volatile spot market, said FERC Chariman Curt Hebert.

The rule says that once electrical reserves fall below 7.5% — a tightening of supply that might normally prompt a price spike — a price limit is put in place.

President Bush appeared to support the new FERC action, though he took pains to define his support in a way that draws a distinction with his views on price caps which he has publicly opposed for six months.

"They are not talking about firm price controls," the president said.  "They're talking about a mechanism to, as I understand it, to mitigate any severe price spike that may occur, which is completely different."

Bush has argued that price caps will not solve California's energy problems because they do nothing to decrease the demand or increase the supply of energy in the state.

But some conservative economists failed to see Bush's distinction and say the action taken by the FERC meddles in the law of supply and demand. 

"It is a price cap. And I'd urge the President to back away from this just as fast as he possibly can if he wishes to keep the energy situation under control in the western states," said William Beach of the Heritage Foundation in Washington

But with rolling blackouts on the horizon and higher energy prices likely expected as the summer heats up, public opinion polls are showing support for limits on the price of electricity.

Still, Beach and other economists point to what they see as the core problem with price caps and with the regulatory agency's action.

"It encourages consumption but it discourages supply," Beach said.  "The supplier says if I can't get a higher price to take the risk to go into this market with this little bit of supply that I have, I'm not going to do it.

"The whole problem with a price cap and a price mitigation goes to the inability of the supplier to charge the price that the supplier needs to cover costs in normal operating profit. When you control that, either through a hard cap or through a mechanism which restricts certain high prices to a zone. You have a price cap. It's the same thing."

Some Democrats are arguing that energy suppliers, including some based in Texas, have a virtual monopoly over the prices of electricity out West and that price caps are the only thing that can keep prices down.

California Governor Gray Davis criticises the FERC action as too little, too late.  He and other Democrats continue to hammer the White House for what they claim is a "blind eye" that has been turned to the residents of the Golden State.

Some Republicans, worried about the political price of letting the market sort through the problem over time, are taking out $25 millions worth of advertising time to argue that Davis and other Democrats ignored warning signals they say have been obvious for years and have turned an energy problem into a crisis.

Fox News' David Shuster contributed to this report