04.18.02

Senator Aims to Protect Consumers fromEnergy Bill’s Flawed Deregulation Provisions

Senator Maria Cantwell today announced a consumer protection package designed to prevent a repeat of last year’s energy crisis caused in part by flawed deregulation. The package would create safeguards from potential market failures and abuses resulting from new provisions in the Senate energy bill that further deregulate energy markets.

"California’s experience with Enron shows that we need a clear set of rules to ensure fair play in deregulated energy markets," Senator Maria Cantwell (D-WA) said. "Consumers deserve efficient electricity markets with adequate protections and effective oversight."

Cantwell’s consumer protection package would:

Prevent a repeat of soaring electricity rates in deregulated energy markets by directing FERC to establish rules and enforcement procedures for market monitoring

Require that proposed utility mergers advance the public interest

Provide effective review of utility books and records

Protect consumers from assuming the costs and risks of utility diversifications into non-utility businesses

Prevent utilities from subsidizing affiliate ventures and competing unfairly with independent businesses

The consumer protection provisions are consistent with concept of deregulation. On March 11, 2002, Federal Energy Regulatory Commission Chairman Pat Wood said "I’m probably the world’s biggest believer in markets. But I’m also the world’s biggest believer that people will take advantage of it if they don’t have a cop walking down the street."

The legislation is supported by a wide range of consumer, industry, local government, and environmental groups, including:

Air Conditioning Contractors of America American Association of Retired Persons American Public Power Association Consumer Federation of America Consumers for Fair Competition Consumers Union Electricity Consumers Resource Council National Association of State Utility Consumer Advocates National Environmental Trust National League of Cities National Rural Electric Cooperatives Association Natural Resources Defense Council Physicians for Social Responsibility Public Citizen Sierra Club Transmission Access Policy Study Group. U.S. Conference of Mayors Union of Concerned Scientists US Public Interest Research Group

Why Consumer Protection from Flawed Deregulation is Necessary:

Flawed deregulation in California was a primary contributor to last year’s Western energy crisis. Wholesale rates throughout the West spiked by as much as 1,000% resulting in retail rate increases of more than 80% with no end in sight. Californians were also subject to rolling blackouts. Wholesale markets did not return to normal until FERC put in place price caps, which are due to expire in September 2002.

April 11, 2002 President of California Public Utilities Commission testified before Congress that during the 2001 Western energy crisis Enron and its subsidiaries engaged in a series of "sham transactions" and "would trade among itself to drive the price up." (Source: New York Times)

March 5, 2002 Cambridge Energy Research Associates issued a report stating, in part, that FERC should not allow competitive markets unless there is a "critical mass" of competitive power sellers to assure effective competition. The report noted that " we’re a decade into deregulation and most power markets remain ill-defined". (Source: Wall Street Journal)

March 4, 2002 Staff of the Public Utility Commission of Texas accuse six (unnamed) market players of manipulating the market in Texas by intentionally mis-scheduling power needs to reap more than $1 million in load imbalance credits. (Source: The Energy Daily)

January 11, 2002 A coalition of major generators complained to FERC that Entergy is charging excessive rates and deny comparable service to competitors. (Source: The Energy Daily)

January 8, 2002 A coalition of generators (including Calpine, Exelon, Mirant and Reliant) charged that Entergy is abusing market power through its generator energy imbalance program, overcharging independent generating facility customers for imbalances resulting from generation under-deliveries. The coalition alleged that Entergy claimed its incremental costs of meeting the imbalance were more than $100/mwh greater than the prevailing market rate. (Source: Public Power Weekly)

October 5, 2001 FERC accused Exelon of illegally manipulating the transmission system in the Pennsylvania-New Jersey –Maryland (PJM) Interconnection to enrich its power marketing affiliate (PECO Energy). (Source: Energy Daily).

July 12, 2001 The Federal Energy Regulatory Commission (FERC) decided to develop new tests to determine whether power providers should be allowed to charge market rates for electricity. (Source: Dow Jones Newswires)

June 29, 2001 A General Accounting Office study found that FERC lacked the information or analysis needed to conclude that generators in California had intentionally withheld electricity supply to influence prices. (Source: GAO Report)

June 21, 2001 The New York Independent System Operator asked FERC for emergency action on a plan to police the market and guard against abuse in the wholesale electricity market. (Source: Energy Daily)

May 24, 2001 NSTAR, a Boston utility, accused two independent power producers of charging excessive rates in the New England market during times of power grid congestion. (Source: Energy Daily)

February 1, 2001 Consumer Federation of American and Consumers Union write President Bush claiming that FERC "has repeatedly allowed sellers to charge ‘market-based rates’ when the underlying market conditions are highly concentrated and the level of competition is far from sufficient to discipline abusive and anticompetitive behavior by electricity suppliers, or to ensure effective market functioning". (Suorce: CFA/CU Letter)

January 13, 2001 Leading economists Paul Jaskow and Edward Kahn conclude that "high wholesale prices observed in summer 2000 [in California] cannot be explained as the natural outcome of ‘market fundamentals’ in competitive markets since there is a very significant gap between actual market prices and competitive benchmark prices". (Source: CATO Policy Analysis)

September 6, 2000 Economists on the California ISO Market Surveillance Committee conclude that "uncorrected market design flaws…have enhanced the ability of market participants to exercise market power in the California electricity market" and that these flaws caused or contributed to the June 2000 price spikes. (Source: Market Surveillance Committee report)

July, 2000 The staff of the Federal Trade Commission found that "as regulation is reduced and competition is encouraged, there is a significant potential that these utilities [vertically integrated utilities] will use their existing market power in generation, transmission and distribution services to deter competition that could benefit consumers". (Source: FTC Staff Report)

May 24, 2000 New York State Electric and Gas claims that Consolidated Edison can use Local Reliability Rules to require use of its own generators – regardless of price – to relieve congestion and raise prices in the area in which NYSEG operates. NYSEG claims a proposed merger between ConEd and Northeast Utilities will exacerbate this problem. (Source: Energy Daily)

May 5, 2000 An analysis by Tabors Caramanis & Associates alleges that two transmission owning utilities, American Electric Power and Entergy, claim more transmission capacity than necessary to serve retail load in order to block competitive entry. (Source: Dow Jones Newswire)

December 21, 1999 The East Central Area Reliability (ECAR) executive committee asserted that Cinergy showed "blatant disregard" for reliability rules. The action was prompted by Cinergy "leaning" on the transmission grid and taking as much as 1,600 MW of power (which they had not purchased) during high-price periods. The power would be "returned" when prices were lower.