Archive for the ‘Consumer Protection’ Category

We just filed a protest at the Federal Energy Regulatory Commission challenging a group of financial institutions’ efforts to create a new loophole. First, a little background:

On February 27, a group of private equity and investment bank lien holders of a collection of US power plants called MACH Gen filed for permission to restructure. The lien holders are the private equity firms Angelo Gordon (through its control of Silver Oak); Cayman Islands-based Solus, and Deutsche Bank.

Deutsche entered into a Total Return Swap with the private equity firm Energy Capital Partners which, among other things, gives Energy Capital Partners the ability to direct and control the way Deutsche’s MACH Gen board member votes. In their own words: “The Applicants do not concede that the indirect interest of ECP Polaris through the TRS equates to ownership or control of the voting securities of a public utility for the purposes of the Commission’s consideration of this . . . Application.”

So Energy Capital Partners, which will in fact control a board seat through its Total Return Swap with Deutsche Bank, is claiming at FERC that this Total Return Swap does not in fact constitute control.

Similarly, Citigroup, through an affiliate it created SOL, entered into a total return swap with Solus, providing Citi with 5.8% of the equity in MACH Gen. But this total return swap does NOT convey control over a board seat.

Determination that a Total Return Swap conveys control of a public utility is important, in part, because the U.S. Executive Branch, the Federal Reserve and Congress are actively engaged in a robust debate about defining and limiting control that certain financial institutions have over energy commodity assets. I first testified before Congress in 2008 about the dangers of financial institutions controlling energy assets, and testified again before the Senate in 2011.  The U.S. Senate Banking Committee held a January 2014 hearing, “Regulating Financial Holding Companies and Physical Commodities,” which included testimony by the Federal Reserve, FERC and the U.S. Commodity Futures Trading Commission.  The U.S. Federal Reserve in January 2014 announced an Advanced Notice of Rulemaking concerning its authority allowing certain financial institutions to control physical energy assets.

If FERC allows this Total Return Swap loophole to stand, Public Citizen predicts expanded use of such financial agreements to undermine various federal government efforts to regulate control over energy assets. Allowing this loophole will establish a dangerous precedent that will harm the public interest.

Tyson Slocum is Director of Public Citizen’s Energy Program. Follow him on Twitter @TysonSlocum

Tom Donohue, president and CEO of the U.S. Chamber of Commerce, gave his annual “State of American Business” speech this week.  It came with the usual complaints about how corporations are “burdened” by important public protections needed to hold corporations accountable for wrongdoing, such as access to the civil justice system.

One example of such “burdens” according to the U.S. Chamber and it’s so called Institute for Legal Reform is an individuals’ right to turn to the court system when they suffer losses at the hands of Big Business. The U.S. Chamber has continuously sought to restrict consumers’ right to go to court.  Individuals already face numerous and unreasonable obstacles to access the courts, but based on Donohue’s speech, the industry still wants more. And it is seeking to combat any potential advances that would restore some of our rights as consumers in the marketplace.

One such advance which the U.S. Chamber and its financial industry friends are apoplectic about, are some recent developments at the Consumer Financial Protection Bureau (CFPB). The CFPB is in the midst of studying one of industry’s more forceful tools to restrict consumers’ rights: the use of forced arbitration and bans on class actions in financial services contracts.

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A version of this appears on National Journal’s Energy Insiders blog.

You wouldn’t know it because it still costs you more than the GDP of Burundi to fill up your Ford F150 at the pump, but the US is awash in crude oil. We’re producing so much fracking oil in places like Bakken and Eagle Ford that by 2015 no other country on Earth will produce more oil than us. I call it the Sarah Palin Effect, after the Vice-Presidential Candidate’s rousing chants of “Drill Baby Drill” on the 2008 campaign trail. The takeaway from Palin’s mantra was the more oil America drills, the lower the prices we pay for gasoline.

exportsObama’s Cabinet is embracing Palin’s Petroleum Plan with gusto, but with a twist: “Export Baby Export”. His Energy Secretary, Dr. Ernest Moniz (who looks like he stepped off the set of American Hustle), cribbed from her notes when he recently told reporters that the 39-year-old ban on exporting American-Made oil is outdated. I can still hear the popping of Big Oil’s champagne corks, because lifting the ban on crude oil exports will mean two things: higher gasoline prices for US drivers, and fatter profits for oil companies.

First, we need to understand why Palin’s Petroleum Proliferation hasn’t resulted in dramatically lower gasoline prices (gasoline prices during Obama’s Oil Boom have actually increased 54% since 2009). Global oil infrastructure makes it relatively easy to physically deliver the commodity in most parts of the planet, so there are generally prevailing universal benchmark prices. As a result, Wall Street traders price oil based on global events and trends, and right now they’re chasing Chinese demand rather than bulging US production. That’s because as America approaches the title of The Planet’s Largest Producer, it’s still only a puddle in the sea of global supply and demand. Even if we open all federal onshore and offshore areas to new drilling, it will have an “insignificant” impact on gasoline prices.

Ending the four-decade-strong ban on exporting US produced oil will raise prices for households and small businesses. While the domestic oil glut isn’t moving global benchmark prices, it is keeping US gasoline prices down a tad, as the excess capacity means it’s cheaper for US refiners to access select US landlocked crude (Light Louisiana Sweet, Mars and Bakken Clearbook) and turn it into useful products like gasoline. But these savings are being offset by record exports of refined petroleum products, which are exempt from the export ban. Because the ban only applies to crude oil, there’s no restrictions on exporting refined petroleum products, which is why they are now the largest physical export in the US economy, as we’re exporting more than 3 million barrels of refined petroleum like gasoline and diesel every day. A Public Citizen analysis finds that, absent increased exports of refined gasoline, average U.S. gasoline prices over the past year would have been as much as 3.5% lower. We predict that if the oil can be exported without first refining it, we will likely see a higher rate of exports, and a bigger price increase for American motorists. So if the millions of barrels of American oil were now free to be sold outside our borders, our refiners will be competing with China for our oil, and we’ll see prices increase.

So why would ObamaPalin support overturning a law that protects consumers? Because Big Oil’s influence on our political system is extreme: their lobby arm, the American Petroleum Institute, spends more than $200 million annually to influence how Americans think about energy policy, and companies like Exxon and Shell are spending even more to do the same.

Exporting fracked oil, or opening millions of new acres to drilling in our oceans and in our federal parks won’t produce enough extra oil to lower global prices, but the additional hundreds of thousands of barrels of daily production will mean huge profits to the companies extracting it. And central to their strategy is moving this oil out of America and into more lucrative global markets. But what’s good for Big Oil isn’t OK for households and small businesses, as there will be a net job loss from exports, with any additional oil jobs trumped by losses incurred by non-oil businesses, both large and small, due to higher gasoline prices.

Sarah Palin’s – whoops I mean President Obama’s – focus on oil is ultimately misguided. As our current domestic oil boom painfully illustrates, the US cannot produce its way to affordable gasoline, because the underlying commodity price is set by factors outside our borders. As long as we remained tethered to oil, we won’t be able to deliver affordable or sustainable energy for our families. Renewable energy, energy efficiency, the electrification of the transportation sector and other investments in a sustainable energy infrastructure are the only options.

NA-BZ765_OILEXP_G_20140122181803Tyson Slocum is Director of Public Citizen’s Energy Program. Follow him on Twitter @TysonSlocum

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Recently, the Senate Judiciary Committee held a hearing titled “The Federal Arbitration Act and Access to Justice: Will Recent Supreme Court Decisions Undermine the Rights of Consumers, Workers, and Small Businesses?”

So, will recent U.S. Supreme Court decisions undermine the rights of consumers, workers and small businesses? The answer is a resounding yes.

In fact, the court’s rulings already have begun to have an impact. Thousands of consumer and employment disputes with corporations have and will be dismissed and disregarded because of language buried in the fine print of take-it-or-leave-it terms in everyday consumer and employment contracts.

These provisions, called forced arbitration clauses, require consumers and employees to resolve their disputes in secret, costly arbitration proceedings instead of in court. (See a PDF list of selected cases in which forced arbitration clauses and class-action bans were enforced as a result of recent Supreme Court rulings.)

The Senate hearing highlighted a handful of recent harmful Supreme Court decisions, including AT&T Mobility v. Concepcion and American Express v. Italian Colors. These cases have expanded corporations’ ability to deny consumers their legal remedies. Big businesses can now use forced arbitration clauses to prohibit participation in class actions, even if class actions are the only economically viable way for consumers to pursue their cases.

The evidence has long been clear that forced arbitration is not a legitimate alternative method to resolve disputes, despite what the U.S. Chamber of Commerce and other business entities contend. In practice, forced arbitration is used to squash valid legal claims from ever going forward. As a result, companies are repeatedly let off the hook for egregious and illegal conduct, including discriminatory acts in the workplace, faulty home building, illegal charges and fees on cell phone bills, abusive treatment of the elderly in nursing homes, and other misconduct.

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The Federal Trade Commission (FTC) is hosting a workshop today on “native advertising” – the practice of blending ads with news and other content in such a way to make it difficult to distinguish paid and unpaid content. The agency will tackle issues concerning the popular marketing tool’s blurred lines between advertising and editorial content. Public Citizen’s President Robert Weissman, alongside industry representatives from Buzzfeed, The Wall Street Journal and others, will speak on the panel addressing best practices in transparency and disclosure.

The use of native advertising and sponsored content – content created by or on behalf of the advertiser that “runs within the editorial stream [and] integrates into the design of the publisher’s site” – has become increasingly pervasive, as companies seek online marketing tools that are not obvious attempts to sell goods and services. A marketing research firm predicted that spending on sponsored content would rise by 22 percent between 2012 and 2013, up to $1.88 billion.

Because marketers pay for, and often create, sponsored content, and the end goal is commercial, it should be clearly labeled as advertising, pursuant to FTC disclosure rules. (Marketing industry leaders claim that sponsored content is not always advertising, so it should not be labeled as such.)

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