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Heated Senate Hearing Pits Republicans vs. Democrats in Energy Debate

June 20, 2001
CONTACT: Shane M. Hedges
Governorís Office

Washington, DC -- Two days after federal regulators approved an energy price mitigation plan, Montana Governor Judy Martz and California Governor Gray Davis testified with sharply differing viewpoints before the Senate Governmental Affairs Committee on Wednesday.

"This crisis could have been avoided if California had taken timely action. Instead of acting, Governor Davis has unfortunately engaged in a prolonged exercise of blame shifting," said Governor Martz. "A series of mistakes made by California, and a failure by the state to take corrective action once problems first arose more than a year ago, led directly to this crisis."

"I don't say this to be disagreeable," continued Martz. "I say this from a Montana perspective - a state that has been hurt by the California electricity crisis. I also say this to make sure that other states do not make the same series of mistakes California made in recent years."

Martz told the Committee that the 1996 California restructuring law had a number of unusual elements. It forced California utilities to divest much of their electricity generation. It required utilities to rely completely on volatile spot markets to buy all their power, something no other state did. It also imposed regulatory rules governing spot market sales that increased wholesale market prices. It froze retail rates.

Martz also pointed out that California didn't reform its generation siting laws which she said are among the "most burdensome in the world." This was a crucial mistake, she argued.

Martz also told members of the Committee that if California "had allowed cost recovery, the utilities' credit would not have been destroyed, PG&E would not have gone bankrupt, and the State would not be spending its surplus buying electricity and bailing out the very utilities whose credit it destroyed. The bankruptcy of PG&E could have been avoided if the State had allowed cost recovery."

Governor Davis has continually blamed President Bush and the Federal Energy Regulatory Commission for not doing enough to address the Western energy crisis. But FERC voted unanimously earlier this week to expand price limits beyond those already in place during power emergencies.

Martz and seven other Western Governors, while content with the FERC order, have joined President Bush and most Republicans in arguing against the imposition of federal price controls because they believe controls do nothing to meet the problems of the energy crisis because they do not increase supply or decrease demand.

Davis, continuing not to acknowledge responsibility on his part, told the Committee the current rates "are unlawful and the commission must act to control prices. They must then order refunds for prices in excess of just and reasonable levels."

Countered Martz, "California's neighbors - Montana included - will find that they must continue to supply the power that California needs, since California refuses to provide for itself. The time for blame shifting is over. FERC has taken strong action to mitigate high prices in California. The time has come for the State to buckle down and do its job - to ensure adequate electricity supplies for California consumers and businesses. Then Montana will have a more secure economic outlook."

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