Some of the generating companies, having grown accustomed to inflated profits from market manipulation, apparently now feel unable to go on with only the low profits of a competitive electricity market. CalPine, for instance, is praying desperately for a hot summer and high prices, because during the crisis they were one of the few generating companies that started aggressively building new power plants, and now they are overextended, stuck with a set of half-built plants that there is now no demand for. They need cash flow. Other companies which sunk their resources into commodities futures trading of the kind invented by Enron, such as Reliant and Dynegy and Duke, have now seen that business turn into a liability, and are also hurting. So what do they do? They turn to their dependable old friends in Washington.
What's that you say? The Bush administration has been far too humiliated by exposure of its connivance in energy industry thievery, and would never dare now, in the full light of publicity, to help engineer further theft? They couldn't possibly believe they'd get away with it now? This, my innocent young friend, is why you are not a successful rich politician, like the Bushes. You imagine that getting caught is sufficient reason to give up the crime.
Here is what the administration has done. On Wednesday the 17th, Patrick H. Wood III, the chairman of the Federal Energy Regulatory Commission (nominated to that commission by none other than Ken Lay of Enron), has announced changes to the price cap rules that they reluctantly put in place a year ago -- the biggest change being that the price ceiling is increased by 172 percent. They also moved to further undercut the authority of the governor -- something they have been working at throughout the whole crisis. You will recall that when FERC finally gave in to calls for price caps, the result was the immediate collapse of the price spiral and -- temporarily -- an end to hundreds of power plants being kept offline to reduce supply. This "anticompetitive" measure restored competition to the market, for a while, and prices fell far below the cap set by FERC. (But in the latest heat wave (see the July 11 entry), prices briefly came near the cap level.)
And the people at FERC seem to be sorry to have done this. They apparently want electricity prices to be able to ride tall and proud once again. Although there is no reason for prices to be anywhere near their previous caps, with demand being down and plenty of generating capacity still going unused much of the time, they feel the cap is too low for where those prices need to be able to go. And what the hell, the cap was going to expire this fall anyway.
They also announced a new computerized monitoring system which will, they say, prevent market manipulation and price spikes. They claimed that it would lay groundwork for increased power supplies, preventing price spikes but allowing prices to rise in "genuine" shortages. It strikes me that preventing short term price spikes is now what the generating companies want. The best scenario, from their point of view, is a gradually rising price with a sense of normalcy about it, rather than an atmosphere of emergency. They tried the latter, and it blew up in their faces, wrecking one of their companies and badly damaging several others. So now they want high prices with a minimum of political crisis atmosphere, and that is exactly what FERC is setting out to help them get. Wood called the setup a "delicate balance" that they had to adopt because the state still has inadequate generation and transmission capacities -- a very dubious statement given how many generators were kept out of service and how many transmission lines were clogged with round-trip energy trade swindles.
Governor Davis, our one-fisted hero semi-bravely battling for Californians against the energy industry and its tools in the federal government, fumed that "Clearly, FERC views its constituency as energy generators, not consumers. FERC has acted with lightning speed to benefit energy generators, but we've yet to see a penny for California consumers." Consumer activists made dire predictions of higher prices and said things like "This emboldens generators to overreach." And Senator Feinstein said... well, I'm afraid that Senator Feinstein called the new rules a "workable solution [that] should prevent what happened in 2000 from happening again." I have long suspected that Feinstein is about as bought a politician as you can find on the Democratic side of the senate, and this move on her part hardly dispels that impression. In this game, she's as phony a johnny-come-lately populist as Joe Lieberman is.
William Massey, the Democratic member of FERC who led the argument last year in favor of price controls, asked Californians not to rush to judgement, to give the system a chance -- essentially claiming that it's not as bad as it looks.
The system to monitor price spikes and automatically trim
them if suspicious is based on a method used in New York, among other places.
But price spike trimming is no help as long as general prices can still
be pushed up gradually through holding back supply, which the generating
companies resumed doing last fall and have continued doing right up to
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