Electric Deregulation: The Great Failed Experiment

Posted by By at 17 November, at 22 : 39 PM Print

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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