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California Rate Hike Punishes Consumers for Illegal Corporate Behavior

March 27, 2001

California Rate Hike Punishes Consumers for Illegal Corporate Behavior

WASHINGTON, D.C. — The 40 percent rate hike approved today by California?s Public Utilities Commission (PUC) will unfairly force consumers to subsidize price gouging by power generators, Public Citizen said today. Rather than boost rates and further harm already beleaguered consumers, the federal government should cap the wholesale price of power.

The PUC approved the rate hike after claiming it was necessary to send price signals to consumers to conserve and to give the state and the utilities more room to cover escalating bills from purchasing increasingly expensive wholesale electricity. The rate hike will be in addition to a 9-15 percent rate increase the PUC approved in January and a 10 percent increase already scheduled for next year. Before January?s and today?s rate hikes, California had the ninth highest residential electric rates in the nation, according to the Energy Information Agency.

But raising rates to force consumers to conserve won?t work when wholesale prices do not reflect free market prices, because the effectiveness of price signals depends upon a functioning market, said Tyson Slocum, senior researcher at Public Citizen?s Critical Mass Energy and Environment Program. Citing the lack of competition in the wholesale market, the California Independent System Operator and the Federal Energy Regulatory Commission have both accused power producers of manipulating supplies to keep wholesale market prices artificially high. As long as a handful of corporations illegally manipulate the system, price signals can never be an effective tool to entice consumers to conserve, Slocum said. Further, the proposal is at odds with that of administrative law judge Christine Walwyn, who recently advised the PUC that rate increases were not necessary.

In addition, it is important to remember that the price freeze was enacted as a compromise in the 1996 deregulation legislation: Consumers would pay 100 percent of the utilities? mortgage payments, and their electric rates would be frozen until they finished paying off the utilities? bills. Abandoning the rate freeze without providing consumers a refund for their past overpayments allows the utilities to get off scot-free.

“Once again, politicians and regulators abandon consumers in favor of their corporate campaign contributors,” Slocum said. “Approving a rate hike will result in consumers subsidizing the power generators? price gouging. The proper way to restore order is for the Federal Energy Regulatory Commission to impose region-wide wholesale price caps and to assess heavy fines on the thirteen power generators who are intentionally overcharging and therefore creating this crisis.”