By Donella Meadows
–September 3, 1998–
This week 18 New England power plants were sold to Pacific Gas & Electric of San Francisco. The small notice on page A4 of the paper, says, “The sale solidifies [PG&E’s] position as a major player in the region’s newly deregulated power industry.”
You jumped up and down for joy, right?
This week four candidates for New Hampshire governor debated not whether but how to encourage electricity marketing.
I bet you can hardly wait till power companies call at dinnertime like phone companies with their sales pitches.
This same busy week the present New Hampshire governor held a press conference at a printing company, praising the rate cut that free-market electricity will bring. That company’s electric bill is expected to drop from $431,000 to $352,000 per year.
That sounds good even to those of us with more modest bills, but in states where deregulation is farther advanced than in New Hampshire the promised price cuts are illusions. They were due to happen anyway, or they are supported by government subsidies (therefore what we save in electric bills we pay in taxes), or they are available to large users only.
Furthermore, many deregulation deals roll surcharges into ratepayers’ bills to pay off past industry investments (mainly nuclear power plants) that could never compete in a free market. Those forced payoffs are pure corporate welfare. The code for them, in case you are trying to follow the bargaining in your state, is “stranded costs.”
You are following the bargaining, right? No? You don’t have time for that? Well, don’t worry, the folks who do have time are there lobbying. They are big utilities hoping to expand markets for their excess capacity and big electricity users hoping to cut costs. They are making the same promises people made when they deregulated banks and airlines and cable companies and phone companies and hospitals. If you like the way those providers have been treating you lately, you will love what’s about to happen to the power companies.
You’re not so sure about that? It isn’t you demanding these changes? Well that’s funny. If you listen to folks who speak through microphones, you get the idea that electricity restructuring is a) inevitable, b) the best thing since sliced bread, and c) eagerly demanded by the American people.
Clearly there’s a disconnect here. The industry was shocked when, in California, which offered free-market electricity last spring, only 25,000 out of 9.9 million customers bothered to select a new power company, even after $73 million worth of frenzied advertising.
What a surprise. Haven’t we all been just waiting for the opportunity to shop for electricity? It will be as much fun as shopping for health care.
I apologize for the sarcasm, but the more I hear about electricity restructuring, the more skeptical I get. This is an enormous change in a vital service, driven not by the public but by a few people who expect to profit. Given what we’ve seen from other deregulations, here’s what seems to be in it for us:
– Avalanches of advertising, much of it misleading. (As in those $100 “checks” AT&T sends us, which are in fact sign-ups for their service.)
– Companies swallowing each other up. (Where did Pam Am, Eastern, Braniff Airlines go? Who owns your local bank now?)
– Prices dropping, then rising, while services erode. (Notice how the banks suddenly charge for every little thing. And how the airlines herd us like cattle, squeeze us in like sardines, throw bags of peanuts at us and jack up rates on routes they monopolize — as they have done at our local airport.)
– Complex rate structures with good deals only for those with time, expertise, or paid staff. (It takes hours to sort through phone or airline or health insurance options.)
– Distant management uninterested in the ordinary customer. (The health care industry is the leader here, but I also offer you this comment from a telephone industry consultant, quoted in an Associated Press report: “AT&T doesn’t want to be the service provider for the little old lady with tennis shoes. They want to be the company that provides a wide range of services to profitable customers.”)
– Redistribution of income from workers to stockholders and CEOs. (Unions are weakened, pay is whittled down, jobs are exported, management pay goes into the stratosphere.)
– Fraud. (Such as the savings and loan debacle.)
These distortions don’t happen by accident, and they don’t happen because people in industry are bad. They happen because an unregulated market rewards such behavior and punishes restraint from such behavior. If your competitor does it, you have to do it or say good-bye to your business. That’s why governments must regulate markets, and why market players should never be allowed to give money for any purpose to anyone in government.
Here’s a set of questions to ask whenever someone enthuses about the next deregulation. Is this a service that people can do without if they can’t afford it? Is it one that plain folks have the time and expertise to shop for? Is it OK to stratify it into classes, so small customers get shoddy treatment? Do we want the provider to be distant and hard to contact? Should decisions be made primarily on the basis of short-term rewards to stockholders? Can this industry restrain itself from fraudulent behavior?
If so, privatize it, deregulate it, let the market rip. If not, what’s needed is even-handed, unflinching, incorruptible, responsible-to-the-public regulation.
Copyright Sustainability Institute 1998