|ONLINE VERSION||MAY 2001|
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.