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America’s Energy Consumer Protection Agency Fails; People Face Enron-Style Market Manipulation While Agency Looks On

March 23, 2010 

America’s Energy Consumer Protection Agency Fails; People Face Enron-Style Market Manipulation While Agency Looks On

Statement of Tyson Slocum, Director, Public Citizen’s Energy Program

Note: Today, the House Committee on Energy and Commerce’s Subcommittee on Energy and the Environment holds an oversight hearing to examine the performance of the Federal Energy Regulatory Commission.

Today, lawmakers will have an opportunity to highlight serious shortcomings at the Federal Energy Regulatory Commission (FERC). The agency’s primary responsibility is to ensure that all electricity rates under its jurisdiction are “just and reasonable.” This mission – if properly carried out – would provide one of the strongest consumer protections in the federal government by helping to protect ratepayers from Enron-style price-gouging. But the agency is failing miserably. In these tough economic times, people need an agency that will aggressively fight energy companies that abuse the market. FERC is not yet that agency.

Public Citizen therefore urges Congress to pass legislation requiring FERC to return to a system in which rates are set by the cost of providing the power, rather than being set by the market. Cost-based rates should remain in place until a full investigation of the agency’s failures can be carried out.

FERC has long failed to enforce its authority, instead relying on “markets” to produce rates that are “just and reasonable.” A recent enforcement action by the U.S. Department of Justice (DOJ) exposed FERC’s failure to protect households. On Feb. 22, the DOJ required power company KeySpan to pay $12 million to settle allegations that the company manipulated the New York power market by scheming to intentionally withhold power to create an artificial shortage. Central to this manipulation plan was entering into a swap agreement orchestrated by Wall Street investment bank Morgan Stanley with KeySpan’s largest competitor to control its competitor’s power plant output, thereby controlling local supply. FERC examined this same evidence but concluded in February 2008 that no law had been violated.

FERC has delegated much of its Federal Power Act enforcement responsibilities to Regional Transmission Organizations (RTOs), leaving these non-governmental entities effectively in charge of market-monitoring and determining whether power company practices are delivering “just and reasonable” rates. Public Citizen, along with more than 40 other organizations, in 2007 petitioned the agency to review whether RTOs really produce “just and reasonable” rates, but FERC never acted on our request.

In 2008, the Government Accountability Office (GAO) recommended that FERC require “improved vigilance” in enforcing its new merger authority under the 2005 Public Utility Holding Company Act (PUHCA 2005). The GAO noted that consumer groups were concerned that, “unbound by PUHCA 1935’s limitations on the types of companies that could own utilities, utilities could become part of more risky financial structures, as had been the case in the 1930s, compared to the traditional low-risk utility structure.” However, the GAO found that FERC had approved all utility and holding company merger applications filed since 2005 and had not changed its merger reviews to incorporate its new PUHCA 2005 responsibilities.

While FERC has recently pursued some admirable initiatives involving energy efficiency and renewable energy, this is overshadowed by the agency’s continued tolerance of Enron-style market manipulation. People deserve a federal agency that will challenge energy company market abuses. FERC has a long way to go.
Public Citizen is a national, nonprofit consumer advocacy organization based in Washington, D.C. For more information, please visit www.citizen.org.