Deregulation failed ‘Joe the Plumber’

Posted by By at 6 July, at 22 : 19 PM Print

by Eric Epstein

Columnist Glen Thomas follows a litany of writers proclaiming the success of electric deregulation based on a single and misleading indicator – an increase in  the number of suppliers selling out-of-state and subsidized fuel products at inflated prices.

Defenders of deregulation cannot deny their promises, erase history or hide the economic facts on the ground. Deregulation was supposed to grow the economy, increase tax collations, and cut rates. At least that’s what Mr. Thomas and his cohorts promised 10 years ago.

On Aug. 4, 2000, Gov. Tom Ridge announced  that electric competition would lead to job growth, economic  expansion, and decreased rates. According to Ridge, “Pennsylvania’s national leadership in electric competition continues to bring dramatic  savings and economic benefits to Pennsylvanians.” Gov. Ridge added, “And, according to this new report, those savings and benefits will continue for  some time to come!”

So, let’s check out the report. The Department of Revenue  released “Electricity Generation Customer Choice and  Competition” (August, 2000), and predicted free-market  nirvana. Secretary of Revenue, Robert A. Judge Sr., forecast  reductions in retail electricity prices would lead to the following economic impacts in Pennsylvania by 2004:

The real gross state product will be $1.9 billion higher;     overall employment will increase by 36,400 full-time and  part-time jobs, nominal personal income will increase by  $1.4 billion; the price index will decrease by .47 percent;  and the population will increase by 51,400 people as workers are attracted to job opportunities in Pennsylvania.

The Department of Revenue also reported that deregulation would result in greater sales tax and Personal Income Tax collections.

Could the deregulators have gotten it more wrong?

Electric companies are collecting $11.4 billion in stranded costs, shifting taxes onto the backs of property owners, dumping customers at record rates, and celebrating 20 percent to 30 percent rate increases.

Deregulation moved power plants to the local tax rolls under the assumption that utilities would pay at least the same amount to which they had been subject under real estate taxes. Oops, they did it again. By 2004 homeowners were paying an average 30 percent more in property taxes than they did in 1997. Meanwhile, electric utility companies are paying 85 percent less in taxes on their plants, down from about $120 million annually to about $20 million.

But it got worse for Joe the Plumber.

Uncollectible accounts were supposed to decrease with the price of electric. Yet, deregulation’s “Consumer Protection Act” has produced a 113 percent increase in terminations. In the first eight months of  2008, PPL cut electricity to 28,561 customers, a 111 percent increase over the number of customers whose power was shut off during the same period in 2007. The statewide average was 24 percent.

This is a hell of a “success story” for the third oldest state in  the nation where citizens living under the federal poverty level has increased from 19 percent to 25 percent over the last 10 years.

Here, where the rubber meets the ideological road, a study  published by Carnegie Mellon University’s Electricity Industry Center found, “On average, power users in restructured states  pay 2 to 3 cents per kilowatt hour more than customers in states  that didn’t restructure.”

PPL ratepayers now enjoy the “choice” of choosing between  a 20 percent to 30 percent generation rate increase, and face a 5.3 percent distribution  rate increase next year.

These numbers are staggering and coincide with the  deteriorating health of Pennsylvania’s shrinking middle class.  The promise of deregulation leading to  more jobs, lower taxes,  and affordable prices has turned out to be a profitable illusion for a select few.


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