Has Bush Seen The Light?

Conservatives hate to meddle in the markets. So it would be hard to find a more unlikely advocate for federal price controls than California Congressman Duncan Hunter, whose voting record nearly every year gets a 100% rating from the American Conservative Union. But when the owner of a small metal shop in El Cajon showed Hunter his December electric bill--$115,000 for the month, four times what the man had been paying before the state's electricity crisis began--Hunter changed his mind. "I came to the conclusion that this wasn't free enterprise," the San Diego County Republican says. On the day George W. Bush was inaugurated, Hunter introduced a bill authorizing the new Administration to impose caps on "unjust and unreasonable prices in the electric-energy market."

The Administration wasn't interested. For the past six months, Bush and Vice President Dick Cheney have rarely missed a chance to say what a huge mistake government controls of California energy costs would be. But the argument has been slapping up against an obvious political problem: Bush's free-market principles mirror the financial interests of his backers in the energy industry--top executives who are cashing in stock options for tens and hundreds of millions of dollars while their corporate profits are tripling. "The consequence of the inaction has been a massive transfer of wealth from the ordinary citizens of California to rich energy barons in Houston, Charlotte and Atlanta," California's Democratic Governor, Gray Davis, told TIME. The state's wholesale energy bill grew from $7 billion in 1999 to $27 billion last year, and could reach $55 billion this year.

With 54 electoral votes, California isn't used to getting the cold shoulder from Washington. But if the plight of the state's ratepayers hasn't forced Bush to rethink the wisdom of price caps, the plight of its Republicans may have. Control of the House in next year's midterm elections could depend on half a dozen endangered G.O.P. seats in California. That's why House majority whip Tom DeLay told Bush two weeks ago that he shouldn't count on Republicans to beat back price caps. There may be collateral damage at the other end of the Capitol as well. Sources say Senate minority leader Trent Lott has warned Bush aides that California's problems could infect 10 Western states, endangering Colorado's Wayne Allard, Idaho's Larry Craig and Oregon's Gordon Smith. And while Bush may be writing off California's votes, plenty of Democrats covet them, including putative presidential contender Joe Lieberman, whose first act as a new committee chairman last week was to launch hearings into the state's energy crisis.

So Bush is in a bind--caught between his principles and moneymen on one side and the prospect of summertime blackouts, spiraling prices and mutinous legislators on the other. He needs a way out, and may have found one. This week a little-known agency called the Federal Energy Regulatory Commission meets in a special session, its first with two new Bush appointees in place. For the past year, FERC has ignored pleas for sweeping electricity price controls in California and other Western states. Last fall, at a congressional subcommittee hearing in San Diego, chairman Curtis Hebert suggested that consumers should learn to live with higher electricity prices. "If the truth kills Granny," he declared, "let her die." When things got really bad last spring, FERC limited prices only during the worst power emergencies. But this week FERC is expected to approve full-time price controls.

Why is FERC relenting? The argument against price caps is that they do infinitely more harm than good, as Jimmy Carter and Richard Nixon discovered when they allowed government bureaucrats to clog the gears of a free market. Price caps, says Energy Secretary Spence Abraham, are merely a formula for "an increase in the scope, duration and frequency of blackouts."

But Davis, along with virtually the entire California congressional delegation, Democratic and Republican, says the market now is anything but free. It is being manipulated, in their view, by energy companies that have wrung billions out of California consumers by squeezing supply to create artificial shortages. Why else, they say, would California power suppliers like Enron Corp.--a Houston-based trading giant headed by one of Bush's top donors and informal energy advisers--be seeing their revenues jump 281% in the first quarter? Even a respected free-marketeer like Alfred Kahn, the father of airline deregulation, has had enough. "The notion that caps automatically interfere with the increase of supply in the electric industry is absurd," he says.

Word of FERC's expected action comes as Californians are getting a break from towering prices. Last Wednesday, Davis says, the state paid only $29 million for its power--a sharp drop from the $100 million a day it spent in mid-May. While FERC credits its own emergency measures for the lower costs, Davis political adviser Garry South says it is more likely the result of unseasonably cool weather and power companies "trying to lay low until the posse passes by."