Energy Policy Act of 2002 – More Deregulation with Daschle-Bingaman Plan

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The Daschle-Bingaman proposed amendment to S. 517 addresses a range of energy, environmental and economic issues. While there are a number of points of concern (including taxpayer subsidies of the nuclear and oil industries), the Foundation for Taxpayer and Consumer Rights has focused its concern on two sections of the plan: Sec. 203 and Sec. 223.

Section 203 — Affirmation of Market Based Rates

Problem: This section allows FERC to authorize power generators and traders to sell electricity at “market-based” rates. FERC refused to intercede during the California energy crisis, and FERC allowed massive price gouging in California, because energy prices were nominally market-based. The Daschle-Bingaman proposal provides FERC with minor additional powers in determining whether wholesale electricity rates are just and reasonable, but in doing so the plan leaves intact the deregulation program that devastated California. The lack of effective rate regulation will be exploited for profiteering purposes in other states as wholesale generators and traders gain more control over electricity markets nationwide. With the FERC preparing to lift price caps and return to business as usual, consumers across the country, as well as those in California, should not be left vulnerable to the vagaries of the unregulated electricity market.

Solution: Proposed section 203 should be replaced with the re-imposition of “cost-based” regulation of electricity rates. FERC, under this provision, would apply the same regulatory principles that have guided electricity ratemaking for the last century, allowing power generators to recoup their costs of production and a reasonable profit while protecting consumers from the arbitrary price spikes, market manipulation and profiteering that go along with unregulated electric rates.

Section 223 — Repeal of PUHCA

Problem: This section repeals the Public Utilities Holding Company Act (PUHCA) of 1935, which prevents big interstate utilities from exercising monopoly power. The repeal of PUHCA would give energy companies the ability to buy utilities and merge with one another to form ever-larger, more powerful companies with no mandate to provide quality service to their customers. It was after winning an exemption from PUHCA regulations in 1994 that Enron was able to become a major gouger in energy markets. The protections against energy industry consolidation and market dominance would be replaced merely with government officials’ “access” to power company books (Sections 224 et seq). Enron and the California crisis demonstrate clearly that we need more energy company accountability, not less.

Solution: PUHCA repeal should be removed from this proposal. As Reps. Dingell and Markey noted in a January 30, 2002 letter to SEC Chairman Pitt, “the parallels between the circumstances leading to PUHCA’s enactment and present day events are striking.” If lawmakers seek to update PUHCA it should be done independent of this massive bill, as it deserves a careful review rather than the daisy-cutter approach contained in the Daschle-Bingaman plan

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