|Williamsport Guardian (August-September)|
Why is my electric bill doubling?
By Jim Buck
When it comes to electricity deregulation, hindsight is 2020.
In the wake of the California energy crisis, in which deregulation led to massive price increases, rolling blackouts and the bankruptcy of one of Pennsylvania Gas & Electric (PG&E), one of the state’s largest utilities, it is hard to remember why deregulation seemed like such a great idea.
But there was a time about 10 years ago when electricity deregulation was all the rage, and dozens of states, including Pennsylvania, Ohio, Maryland and California all wrote electricity deregulation into law.
California was the first, thus, and so it felt the impact earlier than the rest.
Supporters of deregulation made confident predictions in the 1990’s that free-market competition would lead to lower electric bills for consumers. Rates, we were told, would drop somewhere between 10 and 25 percent.
In the areas of Pennsylvania where rate caps have actually expired (ex Pike County), exposing customers to the free market, the reality has been electricity bills that are 75 – 100 percent higher.
What went wrong?
The die hard believers in deregulation (sounding much like Iraq war optimists) claim that, despite the horrors in California (where the state has sued the utitlities and the Federal Energy Regulatory Commission in an effort to recover some of the billions it spent during the crisis to keep the lights on) and the current soaring of deregulated electricity rates, all is well and lower rates are just around the corner.
Not so, say critics, such as Citizen Power of Pittsburgh, which is pushing for a return to the status quo, when the electric utilities were state-regulated monopolies.
In California, James McClatchy, owner of the Sacramento Bee, has concluded that re-regulation is not enough. He advocates complete public ownership of power plants.
McClatchy points out that California’s two municipally owned power systems remained immune from the crisis that shook the state. The Sacramento Municipal Utility District and the Los Angeles Department of Water and Power kept rates stable for their customers and even sold excess power into the grid to help other parts of the state.
Both of these public power suppliers had enough to go around because they had made smart investment in alternative energy sources such as wind power and because each of them had a long history of actively promoting energy conservation.
What was the point of regulating electrical utilities in the first place?
Electric power was generated and sold on a small scale in the 1880s. The earliest generators (invented by Thomas Edison) cranked out direct current, which could only be transmitted over short distances. Municipalities often bought the juice to light downtown streets, but the generators were private, for-profit companies, General Electric being one of the earliest.
This changed dramatically when Nikolai Tesla installed alternating current generators at Niagara Falls giving birth to another well known company, Westinghouse. The AC current could be efficiently transmitted over great distances.
From the 1880s until the 1970s, the electric industry grew at a sustained steady rate. Generators increased in efficiency, and along with economies of scale the price of a kilowatt hour fell from one decade to the next to the next.
Electricity generation and transmission was not just a local business anymore. Regional grids crossed state lines. And as the big companies bought out the smaller ones to consolidate their holdings, it became apparent that the patter of the industry was toward large corporations having a monopoly position across entire regions of the country.
America had experience with the railroads, which had already become large regional monopolies requiring federal regulation to prevent price gouging and other abuses. The same approach was taken with electricity.
So what changed?
In the 1970s, everything went haywire at once. Oil prices spiked due to Mid-East fighting and the formation of OPEC, thus shrinking the U.S. economy. For the first time in history, U.S. electricity usage began shrinking. This came just at the time when the industry giants were discovering that nuclear power, in which they had invested heavily with government encouragement, was much, much, much more expensive than they had ever dreamed possible. Think Three Mile Island.
For the first time in history, Americans started paying more for electricity.
And as America’s politics moved steadily to the right through the 80’s and 90’s, even Democrats started to talk about the evils of big government and the glories of the free market.
Government regulation meant electric companies could sell power at a rate only slightly above the costs of generating the juice. Spooked by losses on nukes, there was little private investment in new energy sources. Freeing the market, it was hoped, could spur development of alternative energy sources by offering the prospect of higher profits.
Though higher rates were the inevitable short-term result of deregulation, the public was told over and over to expect lower rates. Millions were spent marketing that message and millions went to pay industry lobbyists who “helped” lawmakers write the deregulation laws. At the very time his company was helping to gouge California electricity customers, Enron’s Ken Lay, was helping to write the Bush administration’s energy policy!
Given such cozy ties between energy sector heavyweights and elected officials, is it any wonder electricity deregulation has turned out so badly?