By Eric Epstein
Governor Tom Ridge predicted that electric competition would lead to job growth, economic expansion, and decreased rates. According to Governor Ridge, “Pennsylvania’s national leadership in electric competition continues to bring dramatic savings and economic benefits to Pennsylvanians.” (August 4, 2000) The success of electric competition would shave business costs and give employers more money to invest thereby creating multiplier effects on the state economy. “Competition” would also produce savings that would give consumers more money to spend.
Mr. Ridge’s Secretary of Revenue, Robert A. Judge Sr., stated: “We expect electric competition will help create more than 36,000 jobs between 1998 and 2004, and have a major positive impact on our state’s economy. And millions of Pennsylvania families and employers continue to save money on their electric bills — without even lifting a finger.”
The Department of Revenue also reported to Governor Ridge and the General Assembly that deregulation would result in greater sales tax and Personal Income Tax collections.
Could the deregulators have gotten it more wrong?
The reality is not so dreamy. Electric utilities are collecting $11.4 billion in stranded costs, increased taxes on rate payers, and dumped customers at record rates.
Deregulation shifted power plants back to the local tax rolls under the assumption that utilities would pay at least the same amount had they been subject to real estate taxes. However, after PPL collected over $2.86 billion in “stranded costs” for building ill-advised nuclear power plants, they claimed that their generating stations had depreciated overnight, and were only worth a fraction of pre-deregulation estimates.
By 2004 homeowners were paying an average of 30% more in property taxes than they did in 1997. PPL and the other electric utility companies are paying 85% less in taxes on their plants, down from about $120 million annually to about $20 million according to a Philadelphia Inquirer analysis.
Deregulation was a great bargain for PPL. Last year the Company reported over a $1 billion profit on $6.5 billion in revenue, and set records in consumer cruelty.
But it gets worse.
Chapter 14 – a law enacted in 2004 during a “lame duck session” -made it easier for utilities to shut off service to consumers if they fall behind in their payments. In the first year of “energy reform” – 2005 - Chapter 14 produced a 113% increase in terminations. In the first eight months of 2008, PPL cut electricity to 28,561 customers, which was an 111% increase over the number of customers whose power was shut off during the same period in 2007. The statewide average is 24%.
Uncollectible accounts were supposed to go down with the price of electric. The promise of deregulation leading to more capacity and more competition and lower prices has turned out to be a profitable illusion for a select few.
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.” (Electricity Prices and Costs Under Regulation and Restructuring, 2008)
By contrast, the Department of Revenue released a report in August 2000 – “Electricity Generation Customer Choice and Competition” - that guaranteed free market nirvana:
“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.”
Decide for yourself if electric deregulation has delivered on its bold promises or served as yet another corporate failout. But don’t take too long. PPL is set to jack-up residential rates by 35% in 2010.
Mr. Epstein is Chairman of Three Mile Island Alert, Inc., tmia.com a safe-energy organization based in Harrisburg, Pennsylvania and founded in 1977.
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