Electric Dereg May Hit You In the Pocketbook
The electric bill for American consumers should, in theory, be less shocking as US power companies break free of government regulation.
But buyer beware.
Economists say utility deregulation should knock as much as $30 off the average monthly electric bill, saving Americans $107 billion a year.
Add a dash of politics, and the math becomes more complex.
A growing number of state and federal lawmakers plan to end 60 years of regulation, but the result could bring higher electric bills.
"There's a lot of happy talk about competition," says Rob Sargent, spokesman for MassPIRG, a consumer advocacy group in Boston. "But the plans we've seen ... give quite certain protection for utilities and much looser protections for consumers."
They warn that one issue, "stranded costs," could eventually leave Americans with much higher utility bills. Stranded costs are the $200 billion in debts at some utility companies, much of it from construction of nuclear power plants.
Utilities want to become more competitive by unloading these debts - preferably before deregulation - onto consumers by raising rates.
Northeast Utilities of New Hampshire, for example, has sued the state because the proposed deregulation plan does not allow the company to charge customers for stranded costs accumulated from its Seabrook nuclear power plant.
A federal judge has temporarily halted the plan.
As utilities scramble to pay off debt, the question is who should take the hit - a utility's shareholder-owners or its customers. Consumer advocates, such as Mr. Sargent, say, "We want to make sure ratepayers aren't bailing out shareholders."
Industry officials say utilities should be able to recover "legitimate stranded costs" from customers, says Jim Owen of the Edison Electric Institute, an industry group in Washington.
Under government regulations, utilities were often encouraged to pay up front for everything from employee pension plans to nuclear plants, covering the debt with gradual rate hikes over 30 years.
Deregulation would change the rules, Mr. Owen says, and utilities have a right to be paid for services already rendered.
But this argument gets little sympathy from free-market purist Bill Armistead of the libertarian group, Citizens for a Sound Economy in Washington. "Because of deregulation, the average phone bill went down 40 percent. Airline tickets have come down. Trucking prices have come down," he says. "If we treated electricity like a freely traded commodity, prices would fall by 26 percent across the US."
But that number may not tell the whole picture, says Bob Johnson of the Electricity Consumers' Alliance, a coalition of small businesses and seniors groups based in Indianapolis. Deregulation may help consumers on the East and West Coasts, where power is expensive, he says, but not in the hinterland, where costs are cheaper.
Idaho's hydropower dams, for instance, produce some of the cheapest electricity in the country.
"If you restructured the utilities in Idaho," says Mr. Johnson, consumers would pay higher rates."
In Washington, lawmakers are working to start deregulation nationwide on a level playing field.
A House bill with growing bipartisan support would set a date for nationwide deregulation, but leave the details up to each state.