Gray: Don't Give the Grid Away, Advocates Say
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NEWS RELEASE
May 22, 2001


CONTACT: Doug Heller - 310-392-0522 x309

Gray: Don't Give the Grid Away, Advocates Say

Fed "Power Grab" would leave California Defenseless
Citizen advocates are calling on Gov. Davis not to agree to a Bush-Cheney administration proposal that would strip California of its control over electricity lines. An April 26, 2001 order by the Federal Energy Regulatory Commission (FERC) offered to impose illusory emergency price caps on wholesale power suppliers in exchange for California turning over control of its transmission system to FERC.

Consumer advocates, lawmakers and the Governor have urged that the state buy the transmission lines -- though not at an inflated price as the Gov. has proposed -- in order to be able to levy fees for the wholesale generators' use of the wires. Stepping in to protect the wholesale energy companies that are now gouging the state, the FERC order requires the utility companies and the California Independent System Operator (ISO) to file a plan to create a federally regulated Regional Transmission Organization (RTO) no later than June 1, 2001. In exchange, FERC offered to establish a "mechanism for price mitigation...during a reserve deficiency." In other words, the FERC would control prices only when the state had declared a Stage 1, 2 or 3 Alert.

"This is a terrible plan with strings attached that would expose California even more to the energy thieves and their political allies in Washington," said consumer advocate Doug Heller with the Foundation for Taxpayer and Consumer Rights. "With the clear failure of FERC and the Bush administration to protect Californians, it would be foolish for Governor Davis to give away the grid."

The FERC order would wait until an emergency to impose price controls regardless of whether prices were skyrocketing prior to the official declaration, and it would set prices at the cost of the most expensive power plants. It also allows for companies to sell power at even higher prices, under certain conditions. Consumer advocates consider the FERC's so-called "price mitigation" plan useless for Californians, as so much of the market manipulation and price gouging has occurred during non-emergency times.

Additionally, price caps or controls, particularly those based on a highest bid system, result in prices far higher than the actual cost of running most plants, according to FTCR. The citizen advocates say that the only sound method of achieving wholesale rate stabilization and fairness is by regulating electricity rates on a "cost-of-service basis," which includes a reasonable profit for the power generators. Such cost-based rates would have lowered the wholesale price for power by an estimated 1000% if they had been in effect during the first part of 2001, according to FTCR.

"Price caps are an attempt to cover-up the failure of deregulation. The only solution to the unregulated wholesale energy market is strong regulation that stops the gouging associated with deregulation and the inevitable profiteering under the loophole-ridden mitigation scheme proffered by FERC," said Heller.

Fed Power Grab--more deregulation, higher prices

In December 1999, FERC issued its Order 2000, in which it encouraged utilities to divest their transmission facilities to new "regional transmission organizations" (RTO), private intra- or interstate grid managers. The transmission system is the grid of high voltage power lines through which electricity travels before moving to smaller power lines that distribute power into homes and businesses.

By turning the grid over to an RTO, the utilities diminish the regulatory role of state utility commissions. In May, 2001, the state of Florida added barriers to the formation of an RTO by its investor-owned utilities when it became clear that forming the RTO would mean "a stripping off of jurisdiction from the state level," according to an official with the Florida Public Service Commission (Palm Beach Post, 5/12/01). Florida officials are concerned that ratepayers will see higher rates in the RTO system.

"FERC is looking to federalize the entire energy system. California made the mistake of federalizing electricity generation, we can't afford to make that mistake again. If even Florida, under Governor Jeb Bush, has stepped in to protect their grid from President Bush's deregulation plans, California's leaders ought to be suspicious of this unsavory deal," said Heller.

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