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Energy Bill Is Contradictory in its Electricity Demands – Senate Must Choose Between Competition and Consolidation

Feb. 24, 2004

Energy Bill Is Contradictory in its Electricity Demands – Senate Must Choose Between Competition and Consolidation


Public Citizen Analysis Reveals Bill’s Paradoxical Provisions

WASHINGTON, D.C. – The latest energy bill (S. 2095) supports diametrically opposite policies regarding electricity rate regulation, which together would result in elimination of virtually all consumer protections for electricity ratepayers, in addition to giving unbridled control over price-setting from public utilities to private companies, according to an analysis released today by Public Citizen.

The revised bill weakens the Federal Energy Regulatory Commission’s (FERC) ability to regulate consumer electric rates. In recent years, FERC has allowed the market to set electric power rates on the basis that there is adequate competition for sales of electric power. Simultaneously, the energy bill would repeal the Public Utility Holding Company Act (PUHCA), which industry insiders agree will result in massive consolidation of utility ownership, suppressing competition.

Thus, the bill would create unregulated, monopolist, giant utility owners through PUHCA repeal while deregulating electric power rates under FERC.

“So, which is it: massive utility consolidation or increasing utility competition? It can’t be both,” said Joan Claybrook, president of Public Citizen. “To vote for such a bill in an election year when utility rates are increasing should be political suicide, but many senators don’t appear to understand the bill’s implications.”

Enacted in 1935, PUHCA was designed as a vital consumer and investor protection act to limit the investment of utility profits in unrelated business ventures, prohibiting expansion-minded corporations from siphoning off profits for risky investment schemes that do nothing to improve service reliability or keep electricity rates low. The act also regulates the size, geographic spread, types of businesses and the finances of utility holding companies. Prior to PUHCA’s enactment, states had little ability to regulate multi-state utility holding companies. Between 1929 and 1936, 53 utility holding companies that had made risky investments went bankrupt after the banks called in their loans. That is why President Franklin Roosevelt sought enactment of PUHCA.

With the partial PUHCA repeals in 1992, 1994 and 1996 (all Enron-driven), at least six utility/holding company bankruptcies were declared in 2003 alone, as well as a credit downgrading of the entire industry. As Standard & Poor’s credit rating agency said on Feb. 19, “[E]xisting utility credit would be best served from enforcement of PUHCA’s provisions and restriction of utility investment in outside businesses.”

“One can only imagine the impact of full PUHCA repeal on the country’s utility investors, ratepayers and national economy,” said Wenonah Hauter, director of Public Citizen’s Critical Mass Energy and Environment Program. “Enron and California will look like appetizers.”

Despite the fact that experiments in electricity deregulation are failing and being reversed in various states – in the past year, nine states have repealed their deregulation laws – the energy bill allows utilities to enter contracts for sales of power between themselves that cannot be altered by FERC except in extreme circumstances. The current statute requires FERC to review all rates initially and make utilities refund amounts that are too high. The energy bill would reverse the burden of proof and force FERC to try to undo unlawful utility contracts without any hope of refunds for consumers.

“The energy bill promotes consolidation of utility ownership and monopoly control while pretending to be a bill that encourages utility competition. In fact, it strips away virtually all electric ratepayer protections and takes control over public utilities out of the reach of regulators at FERC and the Securities and Exchange Commission,” said Hauter. “No responsible legislator should support such a bill.”

Click here to view the full analysis.