April 9, 2003
HELP PREVENT ENRON-STYLE MARKET MANIPULATION – OPPOSE THE ENERGY BILL
We are writing to express our strong opposition to H.R. 6, the Energy Policy Act of 2003, and to urge you to vote no on this ill-timed, anti-consumer legislation that will make Enron-style con games increasingly likely, and would leave federal regulators with no way to stop them.
H.R. 6 would repeal the Public Utility Holding Company Act (PUHCA) – and with it nearly seven decades worth of effective, proven consumer protections. Since its passage in 1935, PUHCA has worked to prevent consumer and investor abuses by preventing complicated corporate structures, affiliate transactions and consolidations that prevent effective regulation. These protections are as important as ever, particularly in the aftermath of the Enron debacle, the mergers that have swept through the electric industry, and the collapse of meaningful competition in California and other states. This scandal would have been much worse but for the provisions of PUHCA, and would not have been nearly as tragic had PUHCA been fully enforced.
Moreover, the bill tramples on states rights by creating new federal transmission siting authority. It would also expand Federal Energy Regulatory Commission (FERC) control over the actual transmission of electricity, further eroding the role that states have traditionally played in setting rates. And, the bill mandates “incentive-based transmission rates” that will increase costs for consumers by unjustly rewarding companies for transmission construction that they are already being well compensated for.
What’s worse, we still don’t have all of the facts about what went wrong in the western electricity market. FERC recently released a report on market manipulation in the California market. The findings were remarkable – it wasn’t just Enron ripping consumers off, but more than 30 other energy companies as well. While we believe that FERC’s report does not go far enough to compensate consumers for the billions that they lost, the Commission is proposing other reforms and further investigations.
Given that FERC – the federal regulator charged with overseeing the electricity market – is still investigating what went wrong and figuring out what to do about it – it makes no sense to take action now that may only exacerbate the problems. Moreover, the evidence is substantial that electricity deregulation is a failure everywhere it has been tried – even in “success” story states like Texas and Pennsylvania.
In Texas, prices will go up by 30 percent in the parts of the state where electricity has been deregulated – that means over 90 percent of Texas consumers will pay about an additional $1.7 billion because of deregulation. Already, little more than a year into deregulation, Texas has seen gaming, price spikes, bankruptcies, cancelled power plants, transmission constraints, inaccurate billing and operation problems that rival California. This is hardly the success story that deregulation proponents seem to think it is.
Pennsylvania, another supposed success story, had the tenth highest residential electricity rates in the nation prior to deregulation. After deregulation, the State’s rates still rank tenth. The number of consumers who are voluntarily switching their electricity provider is plummeting. Again, this does not make the Pennsylvania experience worthy of being considered a success.
It’s the same in state after state that has tried electricity deregulation – Connecticut (a lack of competition and prices over $100 million higher for consumers), Massachusetts (rate increases of over 14 percent and a lack of competition), Montana (prices rising so much that employers are fleeing the state), and Ohio (retail competition drying up into almost complete non-existence), among others. In addition, states like Arkansas, New Mexico, Oklahoma and Arizona have halted moves toward deregulation.
Acting in the absence of knowledge is foolhardy. But taking action that promotes something that we know is a failure is just poor public policy. By adopting the electricity title in H.R. 6, the House would leave consumers, including small businesses, ever more vulnerable to unseemly market manipulations that will inevitably lead to higher prices and more blackouts.
Please oppose this irresponsible electricity title. Vote no on H.R. 6.
Adam J. Goldberg
Consumers Union Washington DC Office
Mark N. Cooper
Director of Research
Consumer Federation of America
U.S. Public Interest Research Group