Lockyer Calls for Federal Regulatory Reforms

Close to three years after the energy crisis, California attorney general Bill Lockyer has called for reforming the Federal Energy Regulatory Commission?s oversight of the state?s electricity market?while increasing the clout of state agencies. Without these changes, energy sellers will still be tempted to take advantage of market flaws, asserted Lockyer in an April 13 report to Congress and state lawmakers. Governor Arnold Schwarzenegger responded broadly to Lockyer?s report, saying through a spokesperson that it?s important in a restructured market to have ?strict market monitors, and adequate protections in place to protect consumers.? Energy companies overcharged the state $9 billion for power costs while FERC has approved only about $3 billion in refunds and $85 million in settlements, according to the report. To remedy this alleged shortchanging, the AG calls on Congress to eliminate FERC?s ability to use an ?arcane? law known as the filed rate doctrine, which Lockyer says undermines the state?s ability to recover adequate refunds and creates incentives for further overcharges. ?The doctrine gives energy companies a license to steal from California ratepayers,? Lockyer said. ?We?re asking Congress to revoke that license.? ?The filed rate doctrine is the law? and has a role in relation to regulated rates, said FERC commissioner Suedeen Kelly. But she believes new policies are needed to ensure the rates are just and reasonable when market-based rates are at issue. ?FERC should never have approved California?s market design,? she added. ?Only generators that are producing truly competitive power should get market-based rates.? Under the law, once rates are filed and approved by regulated utilities, they can be challenged only prospectively, not retroactively. Specifically, the report asserts that FERC?s interpretation of the law allows it to refuse refunds for about $3 billion in overcharges racked up before October 2, 2000, or 60 days after the first rate challenge was filed at the commission. FERC defended its actions, saying that the current commission was not in place during the energy crisis. The agency conceded that statutory changes are needed before it can take more sweeping steps. ?While FERC is willing to state that more could have been done here, the attorney general?s report conveniently downplays the state?s own culpability in insisting upon a fatally flawed market design,? said Bryan Lee, FERC spokesperson. Because state policy makers resisted FERC?s advice to enter long-term power contracts at fixed prices during the height of the crisis, utilities remained stuck with spot power until January 2001, when utilities were rendered insolvent, he added. The report recommends that the California Independent System Operator (CAISO) be given additional authority to investigate and penalize market rule violations. Stopping short of calling these ideas redundant, Gregg Fishman, CAISO spokesperson, said FERC has recently expanded the grid operator?s power. Starting this summer, CAISO will be able to penalize market participants who ignore dispatch orders, he said. The AG also asks FERC to establish written criteria for market monitoring and to identify market manipulation and responses to market failures. In addition, the report urges Congress to: Change FERC?s charter to require full cooperation with state investigations of fraud, antitrust violations, and other market misconduct. Amend federal law to allow the sharing of grand jury material between state and federal investigators to increase cooperation and avoid overlapping investigations. Enact, with the governor?s input, procedures for the California Public Utilities Commission and other state agencies to refer serious market misconduct allegations to the attorney general. Encourage consumer participation in FERC proceedings by financially compensating consumers who make significant contributions to cases. Instead of amending FERC?s charter, commission spokesperson Lee suggested that provisions calling for retroactive power sales refunds be incorporated into the long-stalled federal energy bill. Ken Alex, deputy attorney general, replied he was not aware of any current legislation advancing recommendations contained in the report.

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Lockyer Calls for Federal Regulatory Reforms

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