Energy Commission Proposal to Expand California’s Crisis

Washington, DC, June 15, 2001— The Competitive Enterprise Institute is urging the Federal Energy Regulatory Commission (FERC) to reconsider its plan to set price caps on electricity. The Commission is set to fix limits on the price of wholesale power around the clock and through all of the western United States. The price limits are currently in place only in California and only during severe shortages.<?xml:namespace prefix = o ns = “urn:schemas-microsoft-com:office:office” />


“The proposals FERC is considering are exactly the opposite of what California needs,” said CEI president Fred L. Smith, Jr. “Price caps and other bureaucratic restrictions are exactly what has plunged California into its present crisis. Extending the same failed strategy across the West will only worsen the situation.”


The proposal to apply price caps to energy prices is an especially puzzling response, given their historical effects. Limiting the price will give producers no incentive to invest in expanded production, and customers no incentive to conserve. A real solution to California’s energy woes would involve freeing prices paid by both wholesale and residential customers, allowing the market to drive both new investment and price levels.


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