The Sacramento Municipal Utility District did not join the statewide grid but has felt the pinch of rising wholesale gas and electricity prices.
"The Sacramento utility would be the first to admit that price caps are not an ideal solution," spokesman Richard Ferreira told the panel. "However, we must face facts; the alternative is runaway high prices for a significant period of time."
The Federal Energy Regulatory Commission, which has the power to impose price caps, has so far declined to do so, even though it found prices were "unjust and unreasonable."
In the last 10 years, no new power plants have been built in the state while demand has grown steadily. This trend has created "a crisis of supply," an industry analyst told the panel.
Price caps could further discourage companies from building new plants in California, critics said, because they reduce the chance that investors will recoup their costs.
"Any price caps would have to be set high enough to give sellers a fair return on their investment," Peter Fox-Penner, an energy industry expert, told the panel.
He also said it is difficult to enact price caps for a short period of time and cautioned that price caps should be a "last resort."
California must adopt long-term solutions to the energy crisis, said Alaska Sen. Frank Murkowski, the Republican leader of the Energy and Natural Resources Committee.
"California needs to look to the future," he said. "It needs to recognize that electricity does not appear magically at the plug."
Gov. Gray Davis and the state legislature are taking steps to address the situation, Davis said in a letter to Murkowski and Sen. Jeff Bingaman of New Mexico, the highest-ranking Democrat on the committee.
They are working to streamline the lengthy process to approve new power plants, which energy producers said have deterred them from building new plants in California. Davis estimated the state will have 2,000 megawatts in new production by the end of 2001.
The governor supports the purchase of long-term energy contracts as a way to hedge against price fluctuations. But the state Assembly narrowly rejected a plan yesterday that would have allowed the state to purchase the contracts on behalf of the utilities.
Many witnesses on the Senate panel supported the use of long-term contracts.
As the crisis in California drags on, utilities and consumers in other Western states are beginning to feel its impact. Already, some Washington utilities have raised consumer energy rates, while Idaho and Oregon utilities plan to do the same.
"The virus in California is affecting the Pacific Northwest dramatically," said Sen. Larry Craig, R-Idaho. "The brownouts of California right now could be the brownouts of Idaho and Montana and Oregon next summer."
Western governors are holding a summit to discuss the crisis in Portland, Ore., today and tomorrow.