Utilities Deregulation: If It's Broken—Fix It |
by Don Wightman, President, Utility Workers of
America |
Across the United States, legislators and utility regulators are
engaged in a great social experiment known as
"restructuring" or "deregulation." The laboratory
beaker is smoking and bubbling and giving every indication that it's
ready to explode. It is time to shut down the experiment before it
causes more harm.
Pushed mostly by industries and large consumers of electricity that
hoped their rates would fall under restructuring, government officials
in many states ordered utility companies to sell off their generating
assets to the highest bidders and allow unregulated companies to
compete for the business of providing electricity to consumers. In
most states, the utility companies themselves are prohibited (or
heavily discouraged) from owning generating plants. They simply
deliver electricity over their wires and poles.
Big Business thought that restructuring would unleash a wave of new
power plant construction, with costs falling as new players built
combined-cycle plants. Economists gave their blessing to restructuring
because of their belief that prices fall whenever competition
increases.
But as is often the case with economic theory, the reality proved
to be quite different. Prices have shot through the roof. Workers have
been laid off, and the infrastructure is neglected. There is generally
less competition among the suppliers of electricity than there was
before the experiment began.
In California, prices for San Diego Gas and Electric more than
doubled last summer. Twenty million more Californians will see their
bills go up this winter, as the Public Utilities Commission just
approved emergency petitions by utilities to increase their rates.
Those companies (Southern California Edison and Pacific Gas &
Electric) blame wholesalers for price gouging and reaping windfall
profits, although a PG&E affiliate is itself one of the largest
wholesalers of electricity in the country. A class action lawsuit has
been filed alleging a conspiracy among distribution companies and
their unregulated subsidiaries to drive up the cost of power.
Consumer groups point their fingers at distribution companies like
Southern California Edison and PG&E, arguing that they reaped
windfall profits right after restructuring was implemented and should
not be granted increases now simply because wholesale prices have gone
up and profits have evaporated.
Across the country in Massachusetts, regulators just approved
increases in rates of 10% to 20% to allow distribution companies to
cover the higher costs they now pay to buy power in the deregulated
market. Those regulators argue, with Orwellian logic, that it's
necessary to raise rates in order to promote competition that will
lower rates. But one of the few competitive suppliers, Essential.com,
recently fled the state and another, Utility.com, announced that it
has stopped signing up new customers. The only "choice"
customers have is to pay higher rates.
In the Pacific Northwest, thousands of workers at Kaiser aluminum
and other industrial and mining facilities have lost their jobs as
these plant owners decided they could make more money selling their
electricity on the open market than paying for electricity to keep
their plants running. Electricity, rather than being seen as the
lifeblood of these businesses, is just another commodity that can be
sold if the price is right, even if it means layoffs and shuttered
production facilities.
From coast to coast, the story is the same. Restructuring not only
has led to price increases, but it also threatens the reliability of
supply and the quality of service that customers receive. San
Franciscans experienced rolling blackouts last year, for the first
time in the city's history. It may not be the last time. Southern
California Edison is in the process of reducing its workforce by 1,850
workers, hampering its ability to maintain facilities and answer
customer calls.
The Consumer Federation of America, in its recent report entitled
"Reconsidering Electricity Restructuring," concluded,
"the restructured electricity market is failing from
coast-to-coast." The Utility Workers agree with that statement,
as well as with the CFA's recommendations, which are consistent with
those we have long been urging. They include:
Any state that has not deregulated its utilities should refuse to
do so. This is especially true in states that currently enjoy
relatively low cost electricity. It is no accident that the states
with the lowest rates are the least likely to have restructured their
markets. Once the market is opened, it is very hard, if not
impossible, to turn back.
States that have deregulated must protect consumers from exorbitant
price increases. At a minimum, low-income families and seniors must be
protected by offering them discounted rates, as is the practice in
many states already. Regulators should also impose reasonable price
caps for all residential and small business customers.
Regulators must use all available enforcement tools to make sure
that suppliers are not manipulating the market to raise prices. The
market is now more concentrated than it was only a few years ago.
Mergers and acquisitions have reduced the number of companies that own
generating resources, and the new owners are less subject to
regulatory oversight than ever before.
State regulators must make sure that local distribution companies
(the companies that read your meters and send the bills) inspect and
maintain the infrastructure, to protect against outages and accidents,
and employ enough workers to provide high-quality service 24 hours a
day, every day of the year.
The irony of our current situation is that legislators and utility
regulators were convinced to forge ahead with restructuring utility
systems even though they had not identified problems that would call
for such a radical approach. It wasn't broken, but they wanted to fix
it. Now they've created major problems. It's broken, and we must fix
it. |