Governor Davis Must Protect Consumers From Deregulation Without FERC

The Federal Energy Regulatory Commission (FERC) refused to take the necessary steps to control the outrageous power prices that electricity deregulation has brought to the California energy market. The FERC outlined so-called “market solutions” in an effort to “guide markets to self correct,” according to FERC Commissioner Linda Key Breathitt. Consumer advocates say that this order does nothing to assure the reliability and affordability of California’s electricity system.

“Federal regulators have blatantly ignored the failure of electricity deregulation and they continue to blindly appeal to the unregulated marketplace to control itself,” said Doug Heller, consumer advocate with the Foundation for Taxpayer and Consumer Rights (FTCR). “FERC has tossed the electricity bomb pack in Governor Gray Davis‘s lap. He can no longer pin his hopes on Washington. He must now act to end the deregulation experiment and move California towards a reliable and affordable public power system.”

The FERC order fell short in the following ways:

• Wholesale rates will not be regulated on a cost-of service basis;
  

• Does not make refunds available for San Diego consumers;
  

• Make future refunds for excessive prices more difficult to obtain;
  

• Sets a temporary $150 soft-cap on wholesale rates, which provides no relief for current high energy prices;
  

• Does not place private power generators under the scrutiny and regulation of the California Public Utilities Commission.

No Refunds to San Diego Consumers

The FERC order failed to provide relief to the consumers of San Diego who were the first and only consumers to pay fully deregulated prices for electricity. San Diego residential and commercial ratepayers were hit with 300% rate increases this summer as wholesale electricity prices sky-rocketed. Although the FERC, as well as a host of public agencies and private groups, found that this summer’s rates were unjust and unreasonable, the regulators refused to punish the power companies and order refunds for the San Diego victims of deregulation.

“San Diegans were the lab rats of this miserable deregulation experiment, yet FERC has refused to punish the power company culprits and relieve the innocent victims, the people and businesses of San Diego,” said Heller

Long-Term Contracts Do Not Solve the Problem

The FERC relies on long-term contracts, also known as bi-lateral contracts, to solve the problems of energy deregulation. According to FTCR, these contracts will not ensure fair and appropriate energy prices, rather, it will only lock California consumers into whatever private deals the utilities arrange with the private power generators. These are the same power corporations that have manipulated the California market this year and have forced the state to the brink of rolling blackouts.

“Whether the private utilities buy energy from power companies on the open market or through secret contracts, Californians will continue to suffer under this foolish energy scheme,” said Heller. “Californians need the economic security and system reliability that comes along with public oversight of our electricity system and will not be ensured through private contracts.”

Changes to ISO Board are Insufficient

The FERC also proposed an eventual transition from a power industry dominated Independent System Operator (ISO), the organization that runs manages the electricity transmission system, to an independent, “non-stakeholder” board. The order retains an advisory role for power companies. Consumer advocates note that the private ISO structure is insufficient to protect consumers from supply manipulation and price gouging, regardless of its board membership. The transmission system should be a publicly-owned and managed system, according to FTCR.

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