Electrifying the Voters
The future of electric deregulation may not be as bright as proponents contend.
With the state governments across the country preparing to open the electricity
market to competition, voters in California and Massachusetts have sent
a message that deregulation is not working as well as advertised.
Voters in California were asked whether they wanted to abolish the state's
existing deregulation law, while their counterparts in Massachusetts were
asked whether their state's law should continue. While the issues were different
in the two states, the message essentially was the same: The state legislatures
should go back to the drawing board and come up with better deregulation
plans before consumers should be forced to shop around.
While about 70 percent of California's voters backed the state's deregulation
plan, nearly 2 million people voted to overturn it. That's three out of
every 10 voters, despite a $6 million campaign waged by the utilities to
save the law.
In Massachusetts, the results were similar. Nearly 75 percent of the electorate
voted to continue with deregulation--helped again by a $6.6 million ad campaign
paid for by the utilities and other supporters.
These results should be enough to raise questions about whether restructuring
will produce the desired effect, which should be lower rates and more power
Let's look at California. Voters there were angry that they have been made
to pay for investments incurred by large utilities prior to deregulation
through the imposition of transition fees. This debt, known as "stranded
costs," covered construction of nuclear power or other energy-generation
plants and power-purchasing contracts made by the utilities while the industry
was still regulated.
These fees ate away much of the 10 percent rate cut residents were promised
when the state's deregulation plan was enacted and have meant that only
a handful of Californians have been willing--and in some cases able--to
find cheaper alternatives. Just "100,000 customers out of a potential
10 million state-wide have switched away from their utilities" despite
an $89 million publicity campaign, according to the New York Times.
And the fees have meant that major power providers like the Houston-based
Enron have opted out of the residential market and are instead directing
their efforts at industry, according to Harvey Wasserman in The Nation.
The reason, he says, is because "the surcharges leave them no margin
to compete" in the residential market.
This is not the case in the commercial market. The Times says "utilities
and outside power suppliers like Enron are competing vigorously for large
industrial customers, the market that, with its economies of scale, offers
the greatest potential for profits."
The effect has been a significant decrease in rates for commercial users,
but a net savings to consumers in California of between 1 percent and 3
percent--a far cry from the savings they were promised when the deregulation
plan was adopted two years ago.
Its easy to see why a significant number of residential consumers in California
feel left out in the cold.
Massachusetts voters faced a slightly different scenario. The promised 15
percent rate cuts had come through and the restructuring legislation that
opened the market to competition set specific environmental goals designed
to ensure that some alternative energy generation would make its way into
the Massachusetts market over the next several years.
And yet, one out of every four voters still wanted to see the state's restructuring
law bite the dust. Consumer groups and some environmental groups say it's
because the rate cut is a mirage financed by loans that will have to be
repaid with interest--to the tune of about $3,000 per family--to help pay
off stranded costs. Doing so, they say, allows nuclear plants and dirtier
coal- and oil-fired energy plants to remain in use and discourages the development
of cleaner and safer alternative sources--despite the goals set forth in
the state's legislation.
What should this mean for consumers in other states who are about to see
their power markets opened to competition? Simply that the promise of rate
reduction through deregulation may be worth little more than the paper the
deregulation bill is written on. There are still too many questions about
the state's deregulation plan and about how a deregulated marketplace will
benefit consumers for the state to jump so quickly into the muck.
Consumer activists have been hard at work across the country--both Ralph
Nader's Public Citizen and state chapters of Citizen Action have been active
in either trying to slow the deregulation push or to ensure that restructuring
legislation protects consumers from the vicissitudes of the free market.
But these small public interest groups are fighting an uphill battle. The
fact is that the big utilities and other power firms have money and access
and, because of this, legislation likely will favor their interests with
those of residential consumers being placed far down on the list.
Because of this, consumers need to become active in the debate. Consumers
need to demand that the issues of stranded costs and transition fees, alternative
energy generation and access be addressed:
* Stranded costs should not be passed on to consumers in any form. To do
amounts to a government subsidy or bailout of the major electric utilities
that is likely to eat away at the promised savings.
* Specific goals should be set out for alternative energy generation and
nuclear, coal and oil plants should be phased out. Utilities that fail to
meet these goals should be prohibited from participating in an open energy
Consumers--both residential and commercial--should be allowed to band together
in any form they choose to buy in bulk. This "aggregation" is
essential to ensure that residential consumers will get the same consideration
from power companies as the large commercial. The current New Jersey plan,
for instance, will ban towns from acting as the umbrella purchaser for their
residents and businesses and offers no incentive to businesses to join with
residential customers, which consumer groups say is likely to create a rate
structure tilted heavily in favor of industrial users.
Deregulation is supposed to make things better for consumers. It is supposed
to bring lower rates and better service.
The way things are going, that seems unlikely.
And unless consumers join the fight, it is unlikely those benefits will
Hank Kalet is news editor for two central New Jersey weekly newspapers.
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