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Promoting a sustainable energy future
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  Analysis of Electricity Title (XII) in Omnibus Energy Bill (H.R.6)Subtitle A: Reliability Standards Section 1211 – Establishes electric reliability organizations that enforce reliability standards that are overseen by FERC. These standards would develop the equivalent of improved communication standards between major participants (operators of power plants, transmission lines, etc). This is the only component of the energy bill that effectively addresses some of the root causes of the August power blackouts that affected the Midwest and Northeast. Subtitle B: Transmission Infrastructure Modernization Section 1221 – Overturns nearly a century of local control over the siting of electric transmission lines. It not only authorizes FERC to overrule local and state governments in the siting of transmission lines, but extends this authority to distribution facilities. This section also allows such projects to acquire rights-of-way through eminent domain. Most provisions do not apply to most of Texas. Subtitle C: Transmission Operation Improvements Section 1231 – Grants FERC the authority to force many municipal utilities and rural co-ops to open their transmission lines to power marketers. Section 1235 – Forbids FERC from issuing a final rule on Standard Market Design until 2007. Standard Market Design is a controversial deregulation proposal that would federalize the nation’s electrical grid, kicking states out of their traditional role in protecting consumers. Subtitle D: Transmission Rate Reform Section 1241 – This section allows a monopoly industry (transmission line owners) to charge consumers more by replacing cost-of-service ratemaking with incentive-based rate making. This is asinine, as cash “incentives” won’t provide any “incentive” in an inherently monopolistic industry like transmission. Rather than improve reliability (as is its stated purpose), this incentive-based rate making will simply act as a tax increase on consumers – with consumers receiving no guarantee that the higher rates they will be paying will lead to better service. This tax increase on consumers will be charged not only by builders of new transmission lines, but owners of existing lines will be able to now pass on higher rates for routine maintenance and operation costs. The August blackout was caused not by inadequate transmission line capacity but by poor management of power across plentiful lines – a problem associated with deregulation. This section ignores the recent experience of the telecom industry, which went on a billion-dollar building spree of cable lines following the deregulatory Telecommunications Act of 1996. But the building spree in the inherently monopolistic lines sector resulted in massive over-capacity, which directly led to the crash of many telecommunications companies. Section 1242 – This should be known as the Section Written for Southern Company and Entergy. This section, otherwise known as “participant funding,” protects large, vertically-integrated utilities like Atlanta-based Southern Co and Louisiana-based Entergy by forcing unregulated power plants to pay their own cost to connect to the grid. The alternative to this section would have socialized the costs of connecting new generation to the grid among all market participants, under the theory that all market participants benefit from the entry of new generation into the market. But the real impact of this section is to protect the lucrative hold Southern has over its territory (stretching from Georgia to Mississippi). When this section is coupled with repeal of PUHCA (Subtitle F), Southern Company will be assured of being one of the most powerful energy companies in the United States. Southern will be able to use its lucrative monopoly franchise (now guaranteed with Section 1242) as a platform to expand into new markets and news industries currently limited by PUHCA. Southern Co and Entergy have contributed more than $5.4 million to federal candidates since 1999, with 68% of that amount dedicated to Republicans, and have spent an additional $30 million lobbying the federal government during that time. Southern Co is the single largest contributor from the entire energy industry in Enron’s wake. Entergy special provision: In addition, this section provides a special exemption for an Entergy interconnection agreement with Duke Energy Hinds that FERC rejected as violating its transmission pricing policy. Entergy is protected by lines 24-25 on page 65 of the bill, section 1242, Subtitle D. This special interest provision ensures that Entergy, which happened to have had a pending rehearing application for its Duke Energy Hinds interconnection contract, will be included in the new participant funding provision. Lines 24-25 state that the new rules apply to: “(B) an interconnection agreement pending rehearing as of November 1, 2003.” Subtitle F: Repeal of the Public Utility Holding Company Act (PUHCA) The 68 year old consumer and investor protection statute would be completely abolished within 12 months, opening up ownership of approximately ONE TRILLION DOLLARS worth of electric generation, transmission and distribution assets and natural gas distribution assets to any kind of company, anywhere, for the first time since 1935. In its place, FERC would have a virtually meaningless right to look at the “books and records” of conglomerates the size of GE, ExxonMobil, J.P. Morgan and Berkshire Hathaway, in the off chance that FERC could discover whether these vast conglomerates have affiliates whose activities have in any way affected their affiliated utility’s rates. State review of such huge companies, the adequacy of which review would clearly be absurd in any case, would have even more restricted rights to look at these affiliated books and records. The roaring 20s of utility holding company Enron-like abuses, which resulted in 53 utility holding company bankruptcies and 16 interest defaults, lengthening and deepening the Great Depression, will return. Indeed, Enron’s ability to abuse electric contracts came from several partial repeals of PUHCA by Congress in 1992 and 1996. Rather than reversing these partial repeals in light of their disastrous consequences, however, Congress is now proposing to repeal PUHCA altogether. But far worse, in 1935 state commissions regulated over 90% of electricity rates. Now, utilities have switched to owning Exempt Wholesale Generators (a 1992 partial PUHCA repeal) instead of state-regulated, rate based generating facilities. EWG rates are exclusively regulated by FERC and FERC now allows contracts to be negotiated by utilities themselves, without review by FERC. Still, the Supremacy Clause of the U.S. Constitution requires that such contract rates be passed through to retail ratepayers. Another part of the energy bill, section 1241, allows higher than cost of service rates for use of the monopoly transmission grid (which, with PUHCA repeal, can now be owned by anyone from Rupert Murdock to Warren Buffett to ExxonMobile to investment banks and pharmaceutical companies). These FERC-blessed rates must also be passed through to retail electricity consumers. The only thing state utility commissions will have any control at all over will be (some) distribution facility costs; the rest will be determined by FERC, which has abrogated its review to “the market.” However, with PUHCA repealed, interstate holding companies will also be free to buy up many distribution companies. David Sokol of utility Mid-American, has stated that there are about ten times too many electric distribution companies. In other words, he (and Warren Buffett’s Berkshire Hathaway, major owners of Mid-American) plan to buy them up and consolidate them. He admits there will be “substantial consolidation” in the utility industry once PUHCA is repealed, but says this is a good thing. The only problem: PUHCA is allegedly being repealed in order to encourage competition! The repeal of PUHCA means we will have again the huge utility holding companies, only this time owning unregulated utility monopolies, thanks to FERC’s wholesale electricity and transmission deregulation, and the fact that Congress is rendering meaningless any effective state utility regulation. Subtitle G: Market Transparency, Enforcement, and Consumer Protection Section 1281 – Orders FERC to establish an electronic information system in an attempt to monitor prices charged by unregulated power companies. But FERC and other federal and state regulators have had access to similar information during the California energy crisis, but energy traders like Goldman Sachs, Morgan Stanley, Merrill Lynch, Enron and others proved to be far too savvy and sophisticated for FERC to effectively regulate. As a result, this section provides no genuine tools for regulators to stop complex price manipulation schemes. A far better solution would be a full revision of FERCs discredited market power measurement (Supply Margin Assessment), because until market power is resolved all other efforts to monitor market manipulation will be ineffective. In addition, the section preserves exclusive CFTC jurisdiction to collect info from entities under CFTC jurisdiction – but the Senate’s rejection of an amendment on November 5 that would have re-regulated exempt energy traders like Enron and Goldman Sachs failed. As a result, the CFTC can’t regulate but a handful of energy traders, making this section even less effective. Section 1282 – This section prohibits the filing of false price information and a prohibition on round trip trading. But how can this be enforced? Again, there is nothing in this section that will allow FERC or any other regulators to effectively keep up with the sophisticated schemes cooked up by Goldman Sachs and other major power traders. Congress can pass all the laws and prohibitions it wants, but as long as the cops have no ability to even see the crooks in action, then the laws are meaningless. Section 1286 –“Sanctity of Contract.” This innocuous looking section would actually undermine most of the consumer protection provisions of the Federal Power Act. There are pending cases on the “sanctity of contract” question that FERC will probably lose in the courts of appeal, yet this section of the energy bill would prospectively codify FERC’s wrong position on contracts and eliminate all consumer protections. The Federal Power Act requires that FERC review wholesale rates BEFORE they are collected to insure that they are “just and reasonable, and not unduly discriminatory or preferential,” or to order refunds once the lawful rates are determined. Section 1286 would instead codify FERC’s ability to allow two utilities to negotiate a contract between them at “market” rates, have it go into effect without ever being reviewed by any utility regulatory body under any standard—much less, whether its just and reasonable, unduly discriminatory or preferential, or not—and then PROHIBIT FERC from changing such utility negotiated rate unless FERC meets an extremely heavy burden of proof under the so-called “public interest” standard of contract review that derives from a long line of quite different cases called the “Mobile-Sierra” doctrine. The “public interest” standard as defined in those cases is so difficult to meet that it’s almost never been met. Thus, the Federal Power Act will be statutorily changed from requiring utilities to meet the burden of justifying any rate increase as “just and reasonable, and not unduly discriminatory or preferential,” to having FERC and consumers be given the burden of trying to meet an nearly impossible standard of showing harm to the public interest. Moreover, the Supremacy Clause of the U.S. Constitution will then require state utility commission’s to pass on these never-reviewed, utility-set rates and will protect them under the “filed-rate doctrine.” The public would actually be better off repealing the Federal Power Act than allowing such an unacknowledged reversal of consumer protections to take place, because – with admittedly unregulated wholesale rates – no federal laws would require such unreviewed rates to be passed on to consumers. Section 1287 – This section allows the FTC to issue rules to “protect” electricity consumers who choose alternative electricity supplies from slamming, cramming and other tactics employed by companies in the telephone industry. But this section is totally irrelevant, as 96% of the 41 million Americans in “deregulated” states have NO access to an alternative energy supplier. With no effective competition, these rules will apply to virtually no American. Subtitle H: Merger Reform Section 1291 - This section is actually a first step in gutting merger review by FERC by authorizing a study by the Department of Energy (DOE), which, like FERC, is currently committed to deregulating electricity, to look into eliminating FERC’s merger review authority, to remove “unnecessary duplications or delays in merger and disposition review.” Section 1292 - This section immediately reduces FERC’s ability to review mergers and dispositions of facilities by greatly increasing the price of the transactions FERC can review from $50,000 to $10,000,000 (ten million dollars). Utilities will be able to structure most deals into contracts of less than ten million dollars, and thus avoid FERC review altogether for the acquisition of huge amounts of electric capacity. The section adds some ability of FERC to review holding company mergers that affect a “public utility,” and attempts to strengthen the standard of review of FERC over mergers, since FERC only has to find a merger “consistent with the public interest,” a very low threshold, particularly compared to the strict structural limitations of PUHCA. But at the same time the section expedites merger reviews, and of course, the preceding section gives DOE oversight of mergers if FERC takes too long or imposes too many troubling consumer-protection “conditions” on mergers. In any event, the preceding section appears designed to eliminate any effective FERC merger review altogether as “redundant” within one year. more resources
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