Editorial: Get tough on price gouging

Tuesday, March 20, 2001 | 9:23 a.m.

Wholesale suppliers of energy have argued that a shortage of fuel has propelled higher prices for electricity in the West. But that contention doesn't address the question of whether these companies are taking advantage of the situation by engaging in price gouging. The Federal Energy Regulatory Commission has opened investigations to see if California power marketers have done so, and may require refunds in some cases. The problem is that this federal agency, which regulates wholesale electricity sales to utilities, is conducting a half-hearted effort.

Federal regulators have set the bar so high to determine what's a reasonable price that it's all but certain that the wholesalers will make a financial killing. The regulators have said they are seeking refunds from wholesalers when they charged more than $430 per megawatt hour during February; in January the threshold for refunds was $273 per megawatt hour. As Sen. Dianne Feinstein, D-Calif., noted last week, before the energy crisis hit California, prices were $30 per megawatt hour. While demand has outpaced the supply of energy, it hasn't outstripped it anywhere near what utilities -- and now consumers -- are paying. The fact is that $273 per megawatt hour likely was too high a baseline -- $430 per megawatt is ridiculous when the going rate before was $400 less.

It also is discouraging that so far federal regulators are only investigating what has happened in California. Admittedly, California is the economic giant of the West -- if the Golden State were a nation it would have the world's sixth-largest economy -- so some of the biggest potential for abuse is there. But federal regulators should also be looking into other Western states that have experienced high electricity rates, including here in Nevada, to determine if gouging has spread.

Federal energy regulators and the Bush administration have resisted any wholesale price controls, arguing that they would backfire. Opponents of price caps say they would lull consumers into a false sense of security through artificially low prices, which in turn would result in them using even more electricity that would lower supplies, prompting more blackouts. Price controls indeed are risky, but if federal regulators refuse to rein in gouging by wholesalers, they might leave Congress with little other choice than to pass legislation requiring a temporary price cap. Energy Secretary Spencer Abraham acknowledged Monday that the nation is facing its most serious energy shortage since the 1970s, but he still was resisting a call for more government intervention. For that matter, Abraham said it was a myth that energy companies were engaged in a conspirac y to gouge consumers. Abraham may be right that wholesale sellers of electricity aren't actively working together, but it i! s indisputable that these companies are gouging the public with obscenely high prices.

If supply doesn't match demand, then prices likely will rise for nearly any product, whether it's a candy bar or electricity. But the Bush administration's mantra of market-based solutions for this vexing issue just doesn't wash. Electricity is an essential commodity, not a luxury that we can do without. Along the West Coast, high energy prices already are causing layoffs and business closures.

Nevada's consumers and businesses have been hit hard, too, but so far this economy has weathered the crisis. Soon, however, summer will be here and electricity use will increase dramatically, leading to much higher power bills. There are some estimates that the average Las Vegas homeowner will have a monthly $232 electricity bill by August. It's time for the Bush administration and the Federal Energy Regulatory Commission to act decisively on behalf of the West's consumers and businesses -- before it's too late.