Statement of Senator Feinstein
On the Federal Regulatory Commission’s Possible
Consideration of a New Price Mitigation Order
June 12, 2001

“I have received a number of media requests for my reaction to reports that the Federal Energy Regulatory Commission (FERC) is considering an order that would ‘mitigate prices’ 24 hours a day, seven days a week -- not just during energy emergencies.

Price mitigation appears to be a way to avoid using the words ‘price cap’ or ‘cost-based rate,’ which some members of FERC and the Bush Administration find objectionable. Frankly, I don’t care what they call it, as long as they get the job done. In effect, this order would be a flexible price cap, set at the price of the least efficient megawatt of the least efficient plant.

This sounds good on the face of it, and it may well be. However, this situation is rife for manipulation. The minute prices are linked to cost of operating the least efficient plant, an incentive for plants to be inefficient is created. I am concerned that this order will continue to provide energy generators the opportunity to manipulate prices, as I believe they have been doing.

The State of California has been dramatically overcharged for far too long. On November 15, 2000, FERC found wholesale rates to be unjust and unreasonable, yet they have refused to regulate. FERC is supposed to a regulatory commission -- not a commission of generators, by generators and for generators.

Finally, in the last two weeks, prices have dropped dramatically. While everybody is claiming credit for this price drop, we do not yet know to what the drop is attributed -- it may be the prior FERC action or it may be that the generators simply know that there are now investigations going on, that the eyes of the world are upon them, that the Senate has changed hands, that the bill that Senator Smith and I introduced has been scheduled for markup, and the heat is on.

I intend to do my due diligence, to talk with others, and to try and ascertain whether the FERC order, if it is acted on and approved, will stabilize the situation or whether it is a kind of Trojan horse.”