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Electricity Regulator to Utilities: We’ll Trust You

04/08/2010

You have to give the Federal Energy Regulatory Commission (FERC) credit for displaying a lot of chutzpah.  In the face of massive public anger at the bank bailouts, and with the Obama Administration and Democratic Congress trying to tighten regulation on financial speculators after the recent bank and mortgage meltdowns, the FERC has proposed a rule to loosen regulation where acquisitions of utility securities and assets are involved.

FERC recently proposed a rule that would grant blanket authorizations for hedge funds, investment banks, even utility competitors and others to acquire up to 20% of an electric utility’s assets or securities without the prior review and approval required by the Federal Power Act, as long as the acquirer promises not to do anything naughty. Public Citizen’s Energy Group, in our recent comments on the proposed rule, noted that FERC was going in the opposite direction of the majority of the country, who want tighter, not looser, regulation of financial entities and vital public services.

The rulemaking proposes an “Affirmation” that the acquirer would sign, stating that it had no intention of gaining control of the utility or passing on secrets or otherwise doing anything that FERC can anticipate that might cause anticompetitive problems or otherwise raise rates for utility ratepayers.

Yet in a recent case, as Public Citizen Energy pointed out in its comments, KeySpan Energy engaged in anticompetitive practices without even making a utility acquisition, by simply entering into a complex swap agreement with Morgan Stanley that gave KeySpan a financial interest in its biggest competitors’ profits, thereby reducing its own incentive to bid competitively in wholesale electric market auctions. FERC investigated, at the insistence of another utility competitor, but found nothing wrong.  The Department of Justice, on the basis of the same facts, got a $12 million antitrust settlement from KeySpan.  The ratepayers, who may have paid up to $157 million in excessive electric rates, got nothing.

The Federal Trade Commission also filed comments with FERC raising similar concerns about the anticompetitive incentives involved in partial utility acquisitions, such as the 20% acquisitions the new rule would enable without prior review by FERC or the public, much less prior approval as the Federal Power Act requires. These concerns are particularly important because the FERC, unlawfully in Public Citizen’s view, no longer reviews actual electric rates on a cost basis before they become effective, but leaves their determination to supposedly competitive “markets.”

FERC is clearly a trusting group, wanting to believe the very best of those that it is paid by the taxpayers to regulate.  In 1993, for example, it gave Enron Power Marketing, Inc. (in docket # ER94-24) a license to engage in electricity selling at “market rates” because, among other things, “[T]here is no evidences [sic] that Enron will engage in any self or reciprocal dealing.” Indeed, FERC did not revoke this license until long after Enron had declared bankruptcy, and the western energy market experiment had resulted in prices that were sometimes thousands of times higher than cost-based rates.  Nine years later, advocates of the retail consumers who ultimately paid these excessive rates are still trying, unsuccessfully so far, to recover some of the money they overpaid for utility services in 2000-2001. The Federal Power Act is supposed to prevent such overcharges from occurring, or at least to provide refunds with interest to consumers in a timely fashion.

Yet FERC continues to loosen regulation and or to deregulate altogether, even though only Congress has legal authority to do that.  FERC now proposes to rely on affirmations by utility speculators in electricity “markets,” rather than complying with its statute and despite the fact that electric rates in deregulated states are consistently higher than those in regulated ones.

Write your congressional representatives and tell them that you want real federal rate regulators for utilities, not “market monitors” such as the current FERC, who couldn’t even find anything wrong with the impact of the KeySpan swap agreement on “competitive” wholesale electric markets.

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One Comment leave one →
  1. 05/27/2010 7:53 am

    Really great read. Honestly!

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