November 17, 2003
Why Senators and Representatives Should Defeat the Energy “Deal”
An energy deal has finally emerged in Congress—and it will cost consumers dearly. At every turn, the conferees have chosen to lock in high-cost, shortsighted policies that enrich energy producers at the expense of low-cost, consumer friendly alternatives. The result will be a permanent and unjustifiable transfer of wealth from consumers’ pocketbooks to energy producing companies.
The deal is bad not only because it has a lot of short-term give-aways to powerful energy interests, but because it establishes the wrong long-term direction for energy policy. The strategy appears to be simple – ignore opportunities to reduce energy consumption and throw money at all the entrenched industries, leaving taxpayers to foot the bill.
1) The Energy Deal opens the door to potential increased costs by repealing the Public Utility Holding Company Act.
For the first time in seventy years multistate holding companies will be allowed to buy up local electric utilities and transfer the assets beyond effective oversight by state authorities. Some in the industry predict that 90 percent of the utilities will be gobbled up, and the oil and gas companies, whose coffers are overflowing from the recent natural gas and gasoline increases, are chomping at the bit to lead the merger wave.
When several companies were exempted from PUHCA in the 1990s, it resulted in trumped-up energy shortages and inflated costs to consumers—the perfect example is the California energy crisis of 2000 and 2001. That market manipulation cost consumers in California $10 billion during the crisis and high-priced contracts that were written at the height of the California crisis will cost another $20 billion over the next ten years. Scandals, cross-subsidies and abusive transfer pricing will be much more likely as a result of the repeal of PUHCA.
2) The Energy deal fails to do enough to reduce energy consumption.
One of the first energy policy acts of the Bush administration was to lower the minimum efficiency standards for air conditioners and this deal fails to correct that mistake. This increases the demand for electricity and places greater pressure on natural gas prices because summer-peaking power plants are natural gas guzzlers. Since 2001, natural gas prices at the point of extraction have increased by $40 billion. Other initiatives to increase appliance efficiency and reduce both electricity and natural gas consumption have been allowed to languish by the administration and are nowhere to be found in the energy deal.
3) The Energy deal fails to increase the energy efficiency of automobiles.
Refusing to increase the fuel efficiency of cars, light trucks, and SUVs, keeps energy demand a couple million barrels per day higher than it should be. This will keep the domestic market tight, exactly what the oil companies want. Since 2001, the domestic refining and marketing industry has added over $30 billion to the national gasoline bill.
4) The Energy Deal locks in high-cost energy sources.
Subsidies for an Alaska natural gas pipeline lock-in natural gas at $8 per thousand cubic feet, four times the average price of natural gas in the late 1990s. Subsidies of next-generation nuclear power plants will drive an unwanted, unproven technology into the market, while at the same time limiting nuclear power producer’s accident liability. The first generation of nuclear follies cost consumers over $100 billion.
There are profound environmental problems posed by this “energy deal,” but these are four good consumer reasons to reject this deal. It is impossible to predict with precision how much this deal will cost consumers. However, given the past experience and the complete failure to reduce pressures on energy markets by promoting efficiency, there is no doubt that it will impose an unnecessary burden on consumers of hundreds of billions of dollars in the long term.
Senior Director of Public Policy and Advocacy
Consumer Federation of America