Deregulation of the energy industry was supposed to bring lower
prices through the invisible hand of the free market. It didn't.
Ask any electricity consumer in California, natural gas consumer
in the Midwest or home heating oil consumer in the Northeast. Energy
prices have accelerated, energy company profits have skyrocketed
and consumers are at the mercy of corporations.
Why? Deregulation freed energy companies to manipulate energy supplies
in order to raise the price. Using their "market power" they withheld
energy from the market, creating artificial shortages. These manufactured
shortages have caused consumer prices to rise and corporate profits
to balloon. As Public Utilities Fortnightly observed, "The
bottom line [in California] is straightforward. ... Generators did
not generate. Peakers did not peak. Emergencies appeared to lack
solid justification. All of the evidence is consistent with a major,
sustained exercise of market power."
In fact, corporations have manipulated the energy supply fully
intending to cause blackouts, and thereby pressure state legislators
and extort more taxpayer dollars for the industry. An explosive
memorandum from Credit Suisse First
Boston to its clients reveals that the blackouts were "intended
to soften up the Legislature and the voters to the need for rate
The blackouts were a significant factor in leading the California
state government to approve $400 million in additional spending.
"The memo confirms the suspicion that the blackouts were nothing
more than blackmail by the energy industry, which brought California
to its knees so that state officials would panic and open up the
public treasury," says Harvey Rosenfield, president of the Foundation
for Taxpayer and Consumer Rights.
Big profits are to be made in rigging the energy market. Public
Citizen reports that newly formed deregulated energy companies
selling in the California market have reaped a formidable growth
in profits. The Williams Companies
earned 276 percent more in profits last year than the year before;
earned 240 percent more; and Dynegy
earned 210 percent more. Haven't heard of any of these companies?
That's because they are unregulated affiliates of existing power
companies and new independent power producers.
In the natural gas market, the Federal Energy Regulatory Commission
(FERC) has since the early '90s deregulated the interstate pipeline
industry creating natural gas marketers, who act as middle men in
the transactions of bulk natural gas purchases and pipeline shipments
For example, the California Public Utilities Commission (CPUC),
the state regulator charged with protecting consumers, has filed
a complaint with the FERC that seeks to void a natural gas transmission
contract that permits one company to dominate the transmission of
natural gas into California. The FERC had determined competition
exists despite there being only a single pipeline into Southern
California, allowing this company to charge excessive transmission
rates. The CPUC has estimated that these unjust and unreasonable
rates will cost California natural gas and electricity consumers
more than $100 million.
The home heating oil market is completely unregulated. The industry
has allowed storage inventory levels of heating oil to drop steadily
over the past few years. Much like the natural gas market, the lower
inventory levels have allowed the industry to raise prices with
the excuse that supplies are low. The consequences of energy deregulation
have even shaken the faith of the "father of deregulation," Alfred
E. Kahn, who as head of the Civil Aeronautics Board under President
Carter authored deregulation in the airline industry. "I am worried
about the uniqueness of electricity markets," Kahn told the New
York Times. "Though free markets do a better job managing rail,
phone and airline prices, they have yet to match regulators' ability
to juggle the complexities of electricity."
In Washington, the issue is shaping up as a fight between dim
and dimmer. The oil barons are proposing opening up the Arctic
National Wildlife Refuge, the coastline of the continental United
States, and even the Great Lakes to drilling, while the nuclear
power industry is looking for more government handouts to sustain
their dangerous and polluting industry.
The 50-plus members of the Congressional
Progressive Caucus maintain that deregulation of the energy
industry has proved disastrous. We call upon the FERC to intervene
to stop predatory pricing practices by deregulated energy wholesalers.
We propose requiring energy wholesalers to justify their costs to
the FERC, which would then set a reasonable rate of return on their
investment. Consumers would receive refunds for overcharges, retroactive
to 2000. Our bill, the Consumer Energy Rate Relief Act of 2001,
will reform the past error of deregulating the energy industry and
return refunds to consumers.
Deregulation has failed to deliver lower energy prices. It's time
for government to step in to protect consumers.
J. Kucinich (D-Ohio) is chairman of the Congressional