Today the House Energy & Commerce Committee checks in on the most powerful federal agency that few have heard about: the Federal Energy Regulatory Commission, or FERC. Once a sleepy agency with limited jurisdiction, the Commission’s authority mushroomed in response to Enron-led lobbying for deregulated electricity markets, giving FERC reign over roughly 70% of America’s wholesale power. Today’s oversight hearing should be Congress’ wake up call, as FERC continues to give wide deference to power sellers at the expense of consumers. FERC’s primary statuary mandate under the Federal Power Act is to ensure that all electric rates are “just and reasonable”, making this one of the most powerful consumer protection statutes – if FERC bothered to enforce it. But it doesn’t.
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 when the DOJ required power company KeySpan (now owned by England-based National Grid) 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. The company withheld power from its power plant and controlled the output of its largest competitor (through the Morgan Stanley swap contract) – a strategy nearly identical to what Enron did during the California electricity crisis of 2000-01.
FERC examined this same evidence but concluded in February 2008 that no law had been violated. It is estimated that this manipulation strategy cost New York consumers at least $157 million, but DOJ only ended up with a $12 million settlement.
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. These RTOs have become Frankensteins, never explicitly authorized by Congress and now far beyond the control of FERC.
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.