Monday, January 22, 2007

AARP Cautions FERC Not to Relax Electricity Market Oversight

AARP filed comments January 19, 2007 in FERC's pending rulemaking proceeding in which the agency proposes for the first time to adopt official rules to reflect its market rate experiment of the past decade. Some of the proposed rules would mirror policies contained in prior FERC orders, but other proposed measures would further relax regulation and lessen FERC's oversight of wholesale electricity sellers.

For example, the proposed rules would make it easier for sellers to obtain and retain FERC's permission to charge unfiled market rates, would reduce restrictions on transactions between holding company affiliates that produce, trade, own and buy power among themselves, and would eliminate some rate and contract filing requirements, even for companies denied market rates because they fail FERC's market power tests.

In its comments, AARP observed as follows regarding FERC's market rate system:
[T]he envisioned benefits of restructuring have not been borne out by experience. Deregulation of sellers has not produced the promised rate reductions and competitive sources of supply. Studies have shown that in states that have adopted retail restructuring, consumers have experienced significant price increases that cannot be fully explained by fuel cost increases; rather, market power and other factors appear to be playing a significant role in the high prices experienced by consumers once price caps expire. Headline stories about consumer outrage over huge price hikes after removal of rate caps (e.g., in Maryland) exemplify the widespread concerns about today’s electricity markets and their impact on consumers. Studies of claimed savings from competition simply don’t match the experience of consumers. In fact, increasing evidence indicates that markets are not delivering the promised lower prices. * * * *

AARP has concluded that electricity markets have generally failed to provide benefits to consumers. This grim conclusion, combined with the great risk of the exercise of market power in the electric industry and the high costs borne by consumers from such abuse, causes us to urge the Commission to err on the side of caution in evaluating market power and authorizing market-based rates. Further, we urge the Commission to ground its MBR policy on fact and experience, not theory.
AARP has over 35 million members nationally, and more than 2.6 million members in New York State.

Other consumer groups including the National Association of State Utility Consumer Advocates, NASUCA, and large industrial customers previously objected to the proposed regulations. For further information about the proposed rules and comments of other parties, see "Consumer Groups Question FERC's Market Rates."

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