Swamp alive and well in your utilities

The Federal Energy Regulation Commission (FERC) determines your electric bill, sets taxes on gasoline, regulates hydroelectric dams and the water behind them, and governs the building and operation of natural gas, oil lines, and high-voltage electric transmission lines. The agency was created by Congress to protect consumers, small businesses, and industries from price gouging, while ensuring ample energy supplies. Oddly, it is not financed by your taxes but by the utilities, pipelines, and other energy cartels that it should regulate. By law it should determine prices to consumers and profits to utility companies that are just and reasonable.

However, FERC, a small agency is an example of re-stocking the swamp we were promised in 2016 would be drained, and instead lining the pockets of Wall Street thieves. Though it supposedly regulates the complex U.S. system of energy markets in over half the country, it has recently assisted in and backed manipulation of power prices and vast profits for the energy industries; it should serve customers’ interests, not those of the industry.

Electricity markets — the U.S. third largest industry — operate under the control of FERC. Auctions are held whereby hundreds of power plants in a market bid to sell electricity at a certain price. The bids are then grouped from lowest to highest until abundant electric capacity is determined. Bids above that point are eliminated. But all get the uppermost price set by the highest approved bidder, no matter how low their original bid!

Another example: FERC allowed pipelines to charge users 54% more than their net profits to cover federal income tax, even though Congress removed this tax in 1986. In 2018, those profits were no longer allowed to go to pipeline executives, but to the government. In response, many companies shifted their structures from partnerships to corporations with the compliance of the Trump administration and thus exempted these corporations from paying higher taxes on corporate profits-especially with corporate tax cuts in 2018. When interest rates fell, the commission supported the continuation of higher profit margins that ignored the cheaper costs to the industry of borrowed capital.

On his first day in office Trump promoted Cheryl LaFleur, the former CEO of National Grid USA — a longtime defender of the industry — from commissioner to head of FERC; and forced out the former chair, Norman C. Bay, a previous chief legal prosecutor for New Mexico respected for justly enforcing FERC’s regulations. With only two commissioners, the agency had no quorum and couldn’t function. Trump, as with many unfilled positions in the administration (even until today), dawdled in failing to appoint new commissioners; and $50 billion worth of new energy projects were impeded. This cost countless jobs and tax income not generated by the proposed projects-e.g., a natural gas pipeline, a huge compressor station for natural gas propulsion, and eight liquefied natural gas terminals for exporting fuel recovered from fracking. After 200 days he finally got around to nominating two more FERC commissioners: an outspoken foe of environmental and consumer groups, and an adviser to Mitch McConnell of Kentucky-both industry insiders.

When LaFleur was head of FERC she took no action on strong evidence of manipulation of the New England electricity auctions. Following nomination of new commissioners, she was removed as chair in favor of Kevin McIntyre, an energy industry lawyer with powerful clients from the oil, natural gas, hydroelectric and electric power industries. Predictably, McIntyre also declined to litigate solid evidence from consumer and environmental organizations that electricity auctions are rigged to benefit power plant owners-the auctions described above-to the disadvantage of consumers and businesses. A Congressional study shows that consumers are in effect paying the taxes pipelines no longer owe — about $2 billion — and this inflates corporate profits 54%! Makes one wonder about NRG.

A fair and reasonable solution would be utility charges based on the industry’s actual costs and a markup for reasonable profits. But the Trump administration and the GOP are politically determined to undermine any attempts at effectively regulating this or most other industries or sectors.

In fact, Trump’s first federal budget proposed privatizing federal electricity assets-including the Bonneville Power Administration’s transmission network in the Pacific Northwest-for a bargain deal. The administration offered 75 cents per dollar of value invested by taxpayers! Certainly, privatizing these public assets would have meant higher costs to consumers. “Art of the deal”??

Most regulatory agencies are now headed by insiders from the industries they are supposed to regulate. Regulation is intended to safeguard the common good (e.g., FDA, EPA, FAA, OSHA) but Trump’s regulatory agencies are operating as servants of the very industries they should be overseeing. The political dynamics of FERC and GOP attempts at government downscaling have not made government smaller; they have made the failure of reasonable government oversight greater and more dangerous. “The forgotten men and women of our country will be forgotten no longer.” (?) Just ignored by regulators who are industry insiders.

Thomas A. Regelski is an emeritus distinguished professor at the State University of New York at Fredonia. Send comments to tom.regelski@helsinki.fi.