Senators Feinstein and Gordon Smith Introduce Legislation
To Impose Temporary Wholesale Rate Cap or Cost Based Rates on Energy Sold in the Western Region
April 24, 2001

Washington, DC – In order to provide reliability and stability to the Western Energy market, U.S. Senator Dianne Feinstein (D-Calif.) and Gordon Smith (R-OR) today introduced bipartisan legislation that would direct the Federal Energy Regulatory Commission (FERC) to impose a temporary wholesale rate cap or cost-based rates on energy sold in the Western region.

The legislation is cosponsored by Senators Patty Murray (D-WA), Maria Cantwell (D-WA), and Joseph Lieberman (D-CT).

“The Federal Power Act gives the Federal Energy Regulatory Commission the responsibility for regulating interstate power,” Senator Feinstein said. “We are bringing in this legislation because FERC has not fulfilled its responsibility.”

“This legislation would force FERC to provide reliability and stability in the Western energy market and ensure that there is not a massive transfer of wealth from states in the region to power suppliers.”

Specifically, The Energy Reliability and Stability Act of 2001 would:

• Require FERC to set either a temporary price cap or cost based rates within 60 days of enactment of the bill. This order would remain in effect until March 1, 2003.

• Require any state participating to allow its utilities to recover costs from ratepayers and a state must pass electricity rates onto ratepayers.

• Allow a state regulatory authority to determine the manner in which wholesale rates are passed onto consumers. This allows for tiered or real time pricing and the flexibility for setting an energy baseline.

• Require a state to meet in-state demand for electricity before allowing an electric utility from selling energy into a state that does not qualify for cost-based rates or a regional price cap.

“The cost of electricity in California in 1999 was $7 billion. In 2000, it climbed to $32 billion,” Senator Feinstein continued. “And based on current estimates, it will rise to $65 billion this year. That’s almost a tenfold increase since 1999.”

“This legislation is designed to force FERC to do its job so that the financial crisis does not get any worse than it already is.”

In addition to addressing the electricity crisis, the Feinstein-Smith legislation would help lower the price of natural gas being sold in the West. The legislation would:

• Direct FERC to end the temporary suspension of the natural gas transportation rate cap, which was lifted in February 2000. This is important because the price of natural gas in Southern California is now about 3 times the cost in New Mexico ($15 per Decatherm vs. $5 per Decatherm). When the transportation costs were capped, this difference was never more than about 70 cents; and

• Direct FERC to require that anyone selling natural gas in a bundled transaction into California to disclose the commodity and transportation components of the price. When a company purchases both the transportation and commodity components of natural gas, there is currently no reporting requirement about a company’s profit on each transaction.

• Require that all future orders to sell natural gas or electricity to an affected state include a reasonable assurance of payment as determined by FERC. Presently, the Federal government is responsible for any unpaid energy sales resulting from an emergency order;

On November 1, 2000, the FERC found that rates in California were “unjust and unreasonable.” But despite that finding, the agency has refused to take action within its authority to control rates, which have risen to as much as $1,400 per megawatt hour.

On March 15, 2001, Senators Feinstein and Smith announced an agreement to introduce this legislation.