Later Friday, federal energy regulators lifted price caps on wholesale California electricity following an emergency request from the managers of the strapped power grid.

The operators said lifting the caps would give California greater access to electricity supplies at a time when the power grid is stressed to capacity.

Gov. Gray Davis suggested the decision would spark new rounds of price increases and demanded a congressional investigation.

The ruling was ``an outrageous assault on the consumers and businesses of California by a federal agency answerable to no one,'' Davis said.

The Folsom-based California Independent System Operator, which manages the state's power grid, said lifting the price caps was justified because it has ``become increasingly difficult to manage these (power) negotiations while at the same time balancing supply and demand.''

The moves came a day after California encountered an unprecedented power crunch, with electricity supplies for the state's 34 million people so perilously low that California only narrowly avoided blackouts.

The power crunch has been blamed on cold weather in the Northwest, the shutdown of some generating plants for repairs or other reasons and the effects of utility deregulation in California.

On Thursday, during the emergency, power plants capable of producing 2,400 megawatts were off-line because they had exceeded their pollution limits. One megawatt is sufficient to power about 1,000 homes.

On Friday, the South Coast Air Quality Management District agreed to let some of those polluting power plants return to operation and restore about half of that lost generating capacity. However, those plants will have to pay daily fines.

``This is an attempt to balance the obvious and immediate need for power generation with protecting the environment and public health here in the South Coast Basin,'' said district spokesman Sam Atwood.

Restarting the over-polluting plants should provide a cushion for the state, said Stephanie McCorkle, a spokeswoman for the ISO.

In addition, hundreds of companies voluntarily cut consumption Friday to avoid imposed outages.

``We're still encouraging conservation efforts,'' said Lori O'Donley, spokeswoman for the ISO. ``We're optimistic that we won't have to'' impose shutdowns on commercial customers.

Federal energy regulators are working with the state to find power that can be diverted to California during the crunch, moves that could include increasing hydroelectric generation out of state.

The power grid's managers were able to avoid blackouts Thursday by shutting down the enormous state and federal pumps that push water from Northern California to central and southern regions.

The phased-in deregulation of California's $20 billion electrical power industry was supposed to lower prices by creating greater competition. But demand for electricity has outstripped supply, in part because of a growing population and a booming high-tech economy.

Electricity is also in short supply because energy companies held off building new power plants while deregulation was in the planning stages. In addition, deregulation has forced utilities to sell off their power-generating assets, such as dams and plants, and import electricity from neighboring states, where power demand is high right now because of a cold snap.

Copyright © 2000 The Associated Press

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