Washington, DC – The federal push to deregulate and restructure the electric utility industry threatens to increase the price of electricity by tens of billions of dollars a study released today by the Consumer Federation of America concluded.

The study, entitled All Pain and No Gain, found that repeated examples of the abuse of market power, excessive scarcity overcharges, inefficient transactions costs, and a sharp increase in the cost of capital swamp any conceivable efficiency gains.

“Policymakers in the states who are closest to the people paying the bills have been convinced to stop or slow deregulation,” Dr. Mark Cooper, Director of Research at the Consumer Federation of America, and author of the report said. “But, in a remarkable disregard for consumer interests, Congress and the Federal Energy Regulatory Commission (FERC) are charging ahead.”

Congress proposes to repeal the Public Utility Holding Company Act (PUHCA), which, if properly implemented, could have prevented many of the market abuses that have hurt consumers in deregulated markets. Simultaneously, FERC is seeking to impose complex spot markets on all utilities. “A move that ensures that every electron sold to consumers fetches the highest price the market will bear,” Cooper added.

Congress and the FERC have also proposed to force public and cooperatively owned utilities into the market experiment. These utilities serve one quarter of the nation and have avoided the serious economic pains of restructuring by not playing the deregulation game. These thriving utilities will likely pay a heavy price under the proposed FERC rules.

Governors, regulators and consumer representatives all across the country are speaking out against this irresponsible federal policy. The study urges federal policymakers, “Rather than charging ahead with restructuring and deregulation, Congress and FERC need to step back and fully understand the implications of the massive fraud and financial meltdown that has occurred in the electricity industry.”

The study bases its conclusion on a comprehensive examination of the behavior of electricity markets that have been deregulated as well as simulations of the impact of deregulation on prices in states that chose not to restructure their markets. The report concludes that the fundamental conditions of supply and demand create numerous sources of price increases that regulators cannot control.

• Market power abuses: In a deregulated system, generators and transmission owners have demonstrated the ability to manipulate the market and withhold supplies to drive prices up. While a tenfold increase in California has attracted most attention, market power cost increases of 20 to 30 percent have been documented across the country.
• Excessive scarcity overcharges: Generators and transmission owners enjoy excess profits when the price of scarce resources is bid far above their costs in tight markets. These overcharges can add 50% to the wholesale price of electricity.
• Increased Transaction costs: De-integration of the industry raises costs by requiring more numerous and more complex transactions and undermining coordination in the industry. Transaction costs increases could raise prices another 12 to 22% and added demand for more facilities can add even more to the total bill.
• Rising capital costs: Merchant generators demand a quicker recovery of costs and a higher return capital. This short-term perspective increases the cost of capital by between 20 and 60%, which raises the overall cost of service.

“Congress’ first goal must be to reinforce consumer and investor protections. It should drop the Electricity Title from the Energy Bill and strengthen PUHCA,” Cooper concluded. “FERC should reevaluate its Standard Market Design and conduct a survey of national transmission needs, then implement a strategy to repair the country’s transmission system and maintain a secure reliable source of electricity for all consumers.”