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 increases.”
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; Calpine Corporation 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 capacity.
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.