Sen. Cantwell’s Statement (as prepared) on Consumer Protection Amendment to Energy Bill
"Mr./Mdme. President, I rise today to offer an electricity consumer protection amendment to the flawed deregulation provisions in the energy bill.
"It is not widely known that the electricity title in this bill includes new provisions to further deregulate our energy markets. Indeed, many of these provisions were included without adequate opportunity for review by this body.
"For the first time, this bill gives the Federal Energy Regulatory Commission the statutory authority to allow market-based rates, a key component of deregulation. It also lowers the standard by which mergers of utilities can take place and repeals a current law that had been a cornerstone of consumer protection. Given the sweeping changes in this bill, I think we must proceed very cautiously on this path towards further deregulation.
"After last year’s energy crisis, we should be asking ourselves how better to protect consumers, not how to make it loosen the rules for how utilities must operate in the marketplace. My amendment is written to protect consumers from a repeat of last year’s Western energy crisis.
"After all we have learned from the energy crisis and the collapse of Enron, it is plain to see that we need a clear set of rules to ensure fair play in deregulated energy markets. The fact is, that consumers deserve efficient electricity markets with adequate protections and effective oversight.
"As the bill now stands, we are giving the Enrons of the world more power to manipulate markets. In fact, without a consumer protection amendment, this bill sends the special interests in the energy industry a special present: virtual free reign to overcharge consumers.
"Mr./Mdme. President, these are common sense ideas. That’s why this amendment has gained the support of a wide range of consumer, industry, local government, and environmental groups. They are united behind the idea that we should protect consumers from this bill’s energy deregulation plan.
SUPPORT FROM CO-SPONSORS AND GROUPS
"I am pleased to be joined by Senators Dayton, Wellstone, Feingold, Boxer, Wyden, Murray, and Stabenow in this effort.
"Groups ranging from the American Association of Retired Persons to the American Public Power Association to the Consumers Union and the Sierra Club to the U.S. Conference of Mayors all stand behind the consumer protection measures in this amendment.
"The full list of supporting groups also includes the Air Conditioning Contractors of America, Consumer Federation of America, Consumers for Fair Competition, Electricity Consumers Resource Council, National Association of State Utility Consumer Advocates, National Environmental Trust, National League of Cities, National Rural Electric Cooperatives Association, Natural Resources Defense Council, Physicians for Social Responsibility, Public Citizen, Transmission Access Policy Study group, Union of Concern Scientists, and US Public Interest Research Group.
"Their voice is loud and clear: after last year’s energy crisis, it unacceptable to launch a new round of deregulation without first putting in place adequate consumer protections.
"I’d like to read from a letter signed by the Consumers Union, Sierra Club, NRDC, Consumer Federation of America, and others:
(Letter, cont.) "This amendment would add important and much-needed protections to legislation that actually repeals already weak consumer protections in current law. S. 517 repeals most of the Public Utility Holding Company Act (PUHCA), including provisions that have been in place for over six decades, and does almost nothing to ensure that consumer protections will be maintained. Now, with the exposure of Enron’s questionable trading deals, we need these protections more than ever to prevent energy companies from manipulating prices and supply. We need to strengthen consumer protections, not weaken them."
"Consumers for Fair Competition wrote: "In the wake of the West Coast electricity crisis and Enron collapse, Congress should only pass electricity legislation if it takes needed steps to protect consumers and prevent a repetition of these crises."
"Mr./Mdme. President, I would like to enter into the record letters of support I have received from these organizations.
IMPACT OF WESTERN ENERGY CRISIS ON CONSUMERS
"My constituents and the constituents of my colleagues from the West, particularly California, Oregon, and Idaho, have seen first hand the devastation caused by the Western energy crisis: wholesales rate spikes of more than 1,000%; aluminum workers put of out of work because electricity costs were too high for their companies to operate; and an economic slump in California, Oregon, and Washington directly related to last year’s high energy prices.
"In my home state of Washington we are still paying the price for the lack of consumer protections during the energy crisis. Ratepayers in my home of Edmonds, Washington are paying 88% more than they did before the crisis, with no relief in sight. When I go home to work in the state, I find that my mom keeps the temperature set at 65 degrees because energy prices are so high. The high cost of energy is literally eating a hole in the pocket of consumers.
"Nowhere do consumers know the importance of proper safeguards more acutely than in the West. In the wake of what happened there, why would we would even consider reducing consumer protections and lowering legal standards? Why would we promote further deregulation and at the same time abandon consumer protections?
"Ask anyone from California whether they want more deregulation without consumer protection. They’ll all tell you the same answer: after Enron and the western energy crisis we should strengthen consumer protection laws, not weaken them. They know that with out adequate consumer protections electricity markets may not work to protect consumers. They know it because they’ve seen it time after time. It’s the oldest game in the book, and they hate it.
"One need look no further than a February 2001 poll in which California residents were asked if they supported the legislature’s decision to deregulate the electricity market. By nearly 40%, Californians opposed the deregulation plan. A July 2001 survey by the Mellman Group revealed that North Carolinians opposed deregulation by a 14% margin and by a 40% margin thought that deregulation would cause rate increases. In March of this year, a different Mellman survey showed that 60% of Montanans thought that deregulation had caused higher electricity rates.
PUHCA AND THE FEDERAL POWER ACT
"Mr./Mdme. President, I think it is important to review how we got to this point, beginning with the first major piece of legislation to protect ratepayers, passed during the first term of Franklin Delano Roosevelt’s presidency.
"In the 1920s our system of utility regulation began to fail consumers. Complex corporate structures made it impossible to offer adequate consumers protections. By 1932, 45% of all electricity was controlled by three groups. Because of their market power and complex and misleading corporate structure, the utilities owned by these holding companies were able to charge excessive rates which were passed directly to consumers.
"In response to this situation, this body passed into law the Public Utilities Act of 1935 to help bring the system under control and offer consumers adequate safeguards. The two key titles of the Public Utilities Act – PUHCA and the Federal Power Act – put in place important consumer protection regulations. PUHCA required utilities to either largely operate within a single state, or be subject to strict federal regulation by the SEC. The Federal Power Act created a consumer protection framework for the transmission of electricity in interstate commerce and wholesale rates for electricity.
"Today, we are faced with an energy bill that repeals key consumer protections from these pieces of legislation without offering new protections for a new environment. I do think we should update our laws regulating energy markets to reflect new technological and economic conditions. But we must do so with consumer protection in mind.
"Just think about the energy crises of the past. In the 1920s, when corporate structures got out of control and retail consumers suffered the consequences, we responded with the Public Utilities Act. During the 1970s energy crisis, we responded with the Public Utility Regulatory Policies Act.
THE CHALLENGE TODAY
"But today we are faced with the prospect of responding to the Western energy crisis of 2001 with more of the same medicine which helped cause the crisis in the first place. I believe the Western energy crisis was really precipitated by two factors: obviously, California adopted a restructuring plan without adequate thought and deliberation, and the fact that FERC, the Federal Energy Regulatory Commission, signed off on it. Then FERC allowed generators in the West to charge market-based rates without first ensuring that those markets were sufficient in their competition and that they were adequately monitoring those markets over time.
"The definition of insanity is watching something fail and then doing it again. And that is what we are headed towards doing. It would be insane for us to enact further flawed deregulation without at least addressing the importance of providing consumer protections.
"And consumers know that they are ultimately the ones who will get stuck holding the check. And they are right. Mr./Mdme. President, this amendment addresses the need for consumer protection from deregulation by creating safeguards from potential market failures and abuses.
"The amendment would prevent a repeat of soaring electricity rates in deregulated markets by directing FERC to establish rules and enforcement procedures for market monitoring to protect electricity consumers.
"The market rate provisions of this amendment are actually quite simple in concept. For the first time in this bill, Congress would give FERC the statutory authority to allow energy companies to charge market-based rates — a lynch-pin in the move toward deregulating our nation’s energy markets.
"Mr. President, I believe that it’s crucial that before we go further down that path, FERC needs statutory guidance on just what factors it should consider before it allows market-based rates to be charged. That is, before FERC opens up energy markets, it should have to ensure that those markets are going to operate efficiently and not gouge consumers.
"The bill as currently written does not offer adequate consumer protections, especially in view of the House of Representatives' own electricity bill, which reads like a wish list for big energy companies.
PROBLEMS WITH THE CURRENT BILL
"The bill as currently written does not offer adequate consumer protections, especially in view of the House of Representatives' own electricity bill, which reads like a wish list for big energy companies.
"The electricity provision of this bill right now actually lowers the overall merger standard, repeals PUHCA, and transfers the review from the SEC to FERC.
"The provision in our amendment would maintain current law with regard to the merger standard. This is an important point. Some will argue that maintaining current law is somehow too onerous. But I don't believe that's true at all.
"In fact, there have been 30 major utility mergers and acquisitions over the past three years alone. This is a testament to the need for laws that protect consumers from consolidation in the utility sector. It is also a powerful reminder that current law is in no way too prescriptive. And maintaining the merger standard currently on the books is all we’re doing with this amendment.
"The electricity provisions in this bill also fall short on the issue of insulating consumers from the economically devastating effects of energy markets gone horribly awry. The primary difference between the Senate energy bill as it’s currently written and what we’re trying to accomplish with this amendment is simple. It’s the difference between preventing dysfunctional markets from happening in the first place, and post hoc investigations that are unlikely to provide relief for consumers harmed by skyrocketing energy prices.
"I don’t think many of my colleagues realize that this bill, for the first time, gives FERC explicit statutory authority to allow companies to charge market-based rates. Mr./Mdme. President, FERC decided administratively to start allowing market-based rates in the mid-1980s, without specific Congressional direction.
"And while the Energy Policy Act of 1992 affirmed the direction FERC was moving regarding the opening of the nation’s transmission system, it did not contain this explicit authority for FERC to grant market-based rates.
"In sifting through the ashes of the California experiment, it is now obvious that FERC did not pause to consider the constraints—whether real or manipulated--on natural gas transportation into the state, which in turn drove up the price of electrical generation. FERC approved a system without assessing the market power of what became known as the "big five" energy companies in the California crisis—including the Enron.
"It is also clear that FERC approved the California proposal without assurances that the state’s Independent System Operator (ISO) could effectively monitor market conditions. I have heard from numerous utilities involved in the California market that the ISO began declaring emergencies purely subjectively because its mechanisms for assessing where physical megawatts actually existed—and whether these shortages were real or imagined – were so incredibly flawed.
"In addition, it has been repeatedly alleged that the ISO declared these emergencies for political reasons—because utilities such as those in my state were obligated to sell into the California market, first under a Department of Energy order and later under an order from FERC itself, when emergencies were declared. FERC did not have the market monitoring practices in place that it would need to assess these claims.
"In summary, the essence of our amendment is the notion that it should be FERC’s job to prevent flawed deregulation if it is there job to allow market-based pricing. But with this legislation, we would explicitly permit them to authorize to market-based pricing while at the same time lowering the legal standards for utility mergers and without first putting in place adequate oversight. To that end, it requires FERC to put in place rules and procedures necessary to:
(1) maintain competitive markets;
(2) effectively monitor markets;
(3) prevent the abuse of market power and manipulation
(4) and ensure the maintenance of just and reasonable rates.
"The amendment would also require utility mergers to advance the public interest and for utility books to be fully open. It would protect consumers from absorbing the costs of utility diversifications and prevent them from subsidizing unrelated affiliate ventures on the backs of consumers.
"Mr./Mdme. President, this amendment does not take away FERC’s authority to allow market-based rates. It does not stop the move towards deregulation. In fact, it is entirely consistent with the concept of deregulation. It simply says that we need a roadmap for consumer protection in this new market-oriented environment.
"I am reminded by something FERC Chairman Pat Wood said on March 11. "I’m probably the world’s biggest believer in markets," Wood said. "But I’m also the world’s biggest believer that people will take advantage of it if they don’t have a cop walking down the street."
CONCLUSION
"Mr./Mdme. President, this amendment provides the cop walking down the street for our electricity markets. With all that we have read and seen of what happened during the Western energy crisis and the role that Enron and other power companies played in it, how can we even consider further deregulation without putting in place real consumer protections? It is practically malpractice for us to even think about new deregulation without also thinking about how to protect consumers. We ought to beef up consumer protections, not water them down.
"This is a critical amendment for consumers. We need to show consumers that we will work to protect them for further deregulation. This amendment accomplishes that goal.
"Mr./Mdme. President, I yield back the balance of my time."
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