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Press
Release Contact:
Friday, June 15, 2001
Adam Goldberg
or David Butler - 202-462-6262
Consumers Union Washington DC Office
Harry Snyder or Michael McCauley - 415-431-6747
Consumers Union West Coast Regional
Office
Janee Briesemeister or Rafael Ayuso - 512-477-4431
Consumers Union Southwest Regional
Office
CONSUMERS UNION CALLS ON FERC TO IMPOSE
COST-BASED ELECTRICITY RATES FOR WESTERN U.S.
Petition
Cites Dysfunctional Market and Federal Regulator's
Failure to Rein in Unjust and Unreasonable Prices
WASHINGTON, D.C. - Consumers Union called on the Federal Energy Regulatory Commission (FERC) today to impose cost-based electricity rates for the western United States. In a petition filed with FERC, the consumer group maintained that the action is necessary because the agency's limited efforts to address the western electricity crisis have failed to provide meaningful relief to consumers who are suffering from exorbitant energy prices. While recent news accounts indicate that FERC will take additional enforcement action next week, Consumers Union remains concerned that these measures will fall short of what is need to protect consumers.
"Over the past year, wholesale
electricity prices have skyrocketed from ten to twenty times the prices charged
a year ago," said Adam Goldberg, policy analyst at Consumers Union. "These
staggering increases are not the result of natural market forces but rather
a seriously dysfunctional one that is producing unjust and unreasonable electricity
prices for millions of consumers."
During the period from February 2000 to February 2001, the average wholesale
cost of electricity in the California market went from $30 per megawatt hour
to $361 per megawatt hour - an increase of 1200 percent. Prices on the California
spot market recently went as high as $3,880 per megawatt hour. In the Pacific
Northwest, average prices for power have been well over $200 per megawatt hour
and occasionally as high as $700 per megawatt hour.
Because of the high wholesale prices, retail electric rates for consumers have risen substantially. Residential electricity customers, particularly those living on low or fixed incomes, are finding it increasingly difficult to afford basic utility service. And large and small businesses have been forced to cut back on production, lay off workers and cancel planned capital investments.
There is considerable evidence that increased wholesale energy prices are not the result of competitive market forces but of a market that enables energy producers to gouge consumers. A recent report by the California Independent System Operator showed that approximately 29 percent of the state's overall wholesale energy costs are attributable to market power. The agency concluded that the degree of market power exercised by energy providers in the California wholesale market has added $6.2 billion to the state's energy bill since May 2000.
Last November, FERC concluded that electricity rates in California were unjust and unreasonable, but has taken only limited steps to police market abuses. Its most recent order in April subjected generators to price mitigation during periods when state power reserves dropped below 7.5 percent. During these periods, generators in California are limited to charging the marginal cost of the highest cost generator in operation.
But the order was roundly criticized by state officials and consumer advocates because it only applies to the real-time market during periods of extreme scarcity and allows rates based on the cost of the least-efficient, most expensive power plant. The order also exempts marketers and power imported into California, and fails to address high natural gas prices.
"Over eight months ago, FERC recognized that regulatory action was necessary to protect the public from unjust and unreasonable electric prices in California's wholesale market," said Harry Snyder, senior advocate with Consumers Union's west coast regional office. "But the actions taken by the Commission thus far have failed to result in just or reasonable prices by any historical or legal standard."
On Monday, June 18, FERC Commissioners are scheduled to meet to review the agency's April order. FERC is widely expected to extend the terms of the order to cover electricity 24 hours a day in all of the western states. However, this action does not adequately protect consumers because it still allows energy companies to charge exorbitant rates. It is also unclear whether the agency will take action to address high natural gas prices or to close the loophole in April's order that exempts marketers and imported power.
"FERC appears poised to set its so-called ceiling price at the cost of the least efficient generator paying the highest price for natural gas and pollution credits,"said Goldberg. "That means the vast majority of generators make a windfall profit at the expense of consumers."
Consumers Union's petition urges FERC to immediately suspend the authority of energy sellers to charge market-based rates in the Western States Coordinating Council for three years. Instead, the group has recommended that the agency use its statutory authority to impose cost-based rates determined by an analysis of each seller's cost of service. The petition calls on FERC to order refunds for any unjust or unreasonable rates and charges and to implement reforms that will help establish a genuinely competitive market.
"It's time for FERC to enact
meaningful protection for consumers who have been at the mercy of energy industry
profiteers," said Snyder. "Unless FERC acts to protect the public,
the western electricity crisis will continue to intensify, which could affect
the national economy and tip the whole country into a recession."
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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.
