Senator Feinstein Introduces Bill to Establish
Cost-of-Service Based Rates for Energy Suppliers when
their Wholesale Prices are ‘Unfair and Unreasonable’

Energy Committee Chair Senator Frank Murkowski (R-AK) and Ranking Member Senator Jeff Bingaman (D-NM) to Schedule Hearing on Bill Before End of February
February 8, 2001

Washington, DC – With California in its fourth week of a stage three energy emergency, U.S. Senator Dianne Feinstein (D-Calif.) today introduced legislation to direct the Federal Energy Regulatory Commission (FERC) to establish cost-of-service based rates when the agency finds “unjust and unreasonable” wholesale rates are being charged by energy suppliers.

“I believe that the role of the Federal government in this crisis is to provide an interim period of price stability and prevent price gouging until the market straightens itself out,” Senator Feinstein said. “Cost-of-service based rates provide this stability by guaranteeing suppliers a reasonable rate of return for their power, while protecting consumers from high prices that bear no relationship to production costs.”

In the legislation, cosponsored by Senator Barbara Boxer (D-Calif.), a “cost-of-service based rate” is defined as a rate, charge, or classification for the sale of electric energy that is equal to: (A) all the variable and fixed costs for producing the electric energy; and (B) a reasonable return on invested capital.

With respect to the California energy crisis, the FERC found that rates were “unjust and unreasonable” on November 1, 2000. But despite that finding, the agency has refused to take action within its authority to control rates, which have skyrocketed to as much as $3,000 per megawatt hour.

On January 22, 2001, Senator Feinstein introduced legislation that would give the Secretary of Energy the authority to establish either cost-of-service based rates or an interim wholesale price cap, if the FERC finds that rates are unjust and unreasonable. The legislation introduced today is an alternative to the January 22 bill and is based on feedback Senator Feinstein received from key stakeholders.

“I had planned on introducing my legislation as an Amendment to the Pipeline Safety bill,” Senator Feinstein noted. “But the Chairman of the Energy and Natural Resources Committee, Senator Murkowski and the Ranking Member of that Committee, Senator Bingaman, have agreed to schedule a hearing on the legislation before the end of the month, if it is introduced as a stand-alone bill rather than as an amendment.”