America’s Energy Consumer Protection Agency Fails; People Face Enron-Style Market Manipulation While Agency Looks On

For Immediate Release


Phone: 202-588-1000

America’s Energy Consumer Protection Agency Fails; People Face Enron-Style Market Manipulation While Agency Looks On

Statement of Tyson Slocum, Director, Public Citizen’s Energy Program

WASHINGTON - Today, the House Committee on Energy and Commerce’s Subcommittee on
Energy and the Environment holds an oversight hearing to examine the
performance of the Federal Energy Regulatory Commission.

Today, lawmakers will have an opportunity to highlight serious
shortcomings at the Federal Energy Regulatory Commission (FERC). The
agency’s primary responsibility is to ensure that all electricity rates
under its jurisdiction are “just and reasonable.” This mission – if
properly carried out – would provide one of the strongest consumer
protections in the federal government by helping to protect ratepayers
from Enron-style price-gouging. But the agency is failing miserably. In
these tough economic times, people need an agency that will
aggressively fight energy companies that abuse the market. FERC is not
yet that agency.

Public Citizen therefore urges Congress to pass legislation
requiring FERC to return to a system in which rates are set by the cost
of providing the power, rather than being set by the market. Cost-based
rates should remain in place until a full investigation of the agency’s
failures can be carried out.

FERC has long failed to enforce its authority, instead relying on
“markets” to produce rates that are “just and reasonable.” A recent
enforcement action by the U.S. Department of Justice (DOJ) exposed
FERC’s failure to protect households. On Feb. 22, the DOJ required
power company KeySpan to pay $12 million to settle allegations that the
company manipulated the New York power market by scheming to
intentionally withhold power to create an artificial shortage. Central
to this manipulation plan was entering into a swap agreement
orchestrated by Wall Street investment bank Morgan Stanley with
KeySpan’s largest competitor to control its competitor’s power plant
output, thereby controlling local supply. FERC examined this same
evidence but concluded in February 2008 that no law had been violated.

FERC has delegated much of its Federal Power Act enforcement
responsibilities to Regional Transmission Organizations (RTOs), leaving
these non-governmental entities effectively in charge of
market-monitoring and determining whether power company practices are
delivering “just and reasonable” rates. Public Citizen, along with more
than 40 other organizations, in 2007 petitioned the agency to review
whether RTOs really produce “just and reasonable” rates, but FERC never
acted on our request.

In 2008, the Government Accountability Office (GAO) recommended that
FERC require “improved vigilance” in enforcing its new merger authority
under the 2005 Public Utility Holding Company Act (PUHCA 2005). The GAO
noted that consumer groups were concerned that, “unbound by PUHCA
1935’s limitations on the types of companies that could own utilities,
utilities could become part of more risky financial structures, as had
been the case in the 1930s, compared to the traditional low-risk
utility structure.” However, the GAO found that FERC had approved all
utility and holding company merger applications filed since 2005 and
had not changed its merger reviews to incorporate its new PUHCA 2005

While FERC has recently pursued some admirable initiatives involving
energy efficiency and renewable energy, this is overshadowed by the
agency’s continued tolerance of Enron-style market manipulation. People
deserve a federal agency that will challenge energy company market
abuses. FERC has a long way to go.


Public Citizen is a national, nonprofit consumer advocacy organization founded in 1971 to represent consumer interests in Congress, the executive branch and the courts.

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