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Press Release November 30, 2000 |
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Las Vegas, November 30, 2000 - Three years of price spikes and
brown outs across the country indicate that supply and demand
conditions in electricity markets will not allow major segments of
the industry to function effectively on a competitive basis,
destroying their ability to deliver the promised consumer benefits of
electricity restructuring, a report released today by the Consumer
Federation of America (CFA) and Consumers Union (CU) concluded.
"We do not have to deregulate every segment of every market," Gene
Kimmelman, Washington Co-Director of Consumers Union said.
"Deregulation is a means to an end - lower prices, higher quality,
and more real choices for consumers. If the conditions are not right
for a vital commodity like electricity consumers will be hurt by
deregulation."
"By traditional performance indicators like price and quality, a
massive market failure is occurring," Kimmelman added, "and states
like California, Nevada, and Oklahoma are having the debate that
should have taken place in the 1990s -- not a debate about when, or
how to deregulate electricity markets, but whether parts of the
market should be deregulated at all."
"In a competitive market, no private party will build needed
reserve or excess generating capacity," said Harry Snyder, Senior
Advocate at Consumers Union's West Coast Regional Office in San
Francisco. "In California, it is clear that the state government
needs to consider building and operating some generating capacity to
protect ratepayers against continued gouging by power companies."
The report, entitled Reconsidering
Electricity Restructuring: Do Market Problems Indicate A Short
Circuit or A Total Blackout?, was released in conjunction with an
appearance by Dr. Mark Cooper, CFA's Director of Research and
principle author of the report, before the Nevada Energy Policy
Committee, which is evaluating electricity restructuring in
Nevada.
"This debate should start in the states since they decide whether
to deregulate consumer markets" Cooper said, "but it must extend up
to the federal level. As California policy makers learned to their
dismay, the interstate market is critical to electricity competition
and state officials who decide to deregulate before an effective
interstate market exists must accept responsibility where ever a
market failure occurs."
The report concludes that the biggest problem facing the industry
is the failure of the interstate transmission system. It is
especially critical of proposals to deregulate transmission services,
which are a natural monopoly, not subject to competition, and
constrained by environmental and health effects, not inadequate
economic incentives.
The report recommends that states that have not restructured,
should not, not until it can be demonstrated that restructuring can
serve the consumer interest and until federal authorities demonstrate
that a workably competitive interstate market can be created. States
where Humpty Dumpty has been broken and is not likely to be put back
together again should undertake vigorous efforts to protect
residential consumers. All states should include rules to prevent
price spikes, stepped-up law enforcement against pricing abuse,
requirements to participate in effective market opening transmission
organizations, opt out aggregation for small consumers, and
aggressive pursuit of distributed generation.
The report outlines four basic policy areas that must be addressed
and recommends numerous specific measures in each area -
· Policymakers have an obligation to actively consider whether the underlying conditions are conducive to consumer abuse and to take measures to prevent it. Policy makers have an obligation to ensure that the basic conditions are adequate to support competition before they deregulate.· Nondiscriminatory access to the transmission grid must be administered by an organization imbued with the public interest and focused solely on open access and reliability.
· Demonopolization and deconcentration of generation markets must take place before deregulation, coupled with aggressive policing of markets after deregulation.
· Demand-side policies that can assist market responses, without punishing small consumers, must be adopted. These include effective expression of small consumer demand through aggregation and distributed generation, and enhancing the short-term responsiveness of markets through flexible demand reductions programs in the commercial and industrial sectors.
"Many of the entities that created the electricity market problems
or profited from them are trying to use the threat of power shortages
to blackmail consumers into relaxing environmental and siting
regulations," Cooper noted, "but until there is a thorough reform of
the supply and demand sides of the market and the highways of
commerce in between are functioning in the public interest, consumers
should resist these pressures. "
"When policy makers look carefully at all theses problems,"
Kimmelman concluded, "they may discover that deregulation does not
make sense for this industry."
The Executive summary of the report is attached. The complete
report is available at: http://www.consumersunion.org/telecom/deregdc1100.htm
The Consumer Federation of America (CFA) is a
non-profit association of some 270 pro-consumer groups, with a
combined membership of 50 million. It was founded in 1968 to advance
the consumer interest through advocacy and education.
Consumers Union, publisher of Consumer Reports magazine, is an independent, nonprofit testing, educational and information organization serving only the consumer. We are a comprehensive source of unbiased advice about products and services, personal finance, health, nutrition and other consumer concerns. Since 1936, our mission has been to test products, inform the public and protect consumers.
