A Choice That May Jolt
For consumers, deregulation of the retail electricity industry has been mostly talk so far. Real action has been limited.
Few people can choose their own power provider. And those who have a choice aren't jumping to make one.
California's investor-owned utilities report that requests for a transfer to another provider are much fewer than forecast. For example, just 1 percent of Southern California Edison Co.'s 4.2 million customers had chosen as of last month to go with another power company when that option becomes available.
California has put off opening its power market until March because of problems with a pricing system.
Nonetheless, the transition from monopoly to competition will speed up. Massachusetts is scheduled to start March 1. Other states, including Pennsylvania, Washington, New York, and Idaho, have pilot programs.
The big push for deregulation has come from major corporate users of power. They hope their size will put them in a good position to bargain for lower rates.
Aware of this possibility, state legislators have been requiring utilities to trim electricity rates for residences by 10 to 20 percent initially. That sounds great. But note a few cautions:
* Power generation amounts to only 20 percent of the usual consumer's bill. The rest is accounted for by the cost of transmission and distribution, which will remain regulated as a monopoly. So initial savings will be 2 to 4 percent - perhaps a bit more than $1 or $2 on a $60 a month charge. Most consumers probably won't get too excited about that, especially since the business of choosing a new power provider may take time.
One reason for the small savings is that utilities are insisting on compensation for the bulk of the "stranded costs" of old power plants - some obsolete - built under the old regulated system with the approval of public authorities. That is only just.
* In the longer run, the free market in some degree will set electricity rates. Our faith in that process indicates that rates will fall in the long run. But in other deregulated markets, some rates rose (cable TV), and some fell (long-distance telephone).
Those whose rates have in effect been subsidized by the system - such as rural users - may see price hikes.
* Competition could cut costs - but reduce reliability of service. Under state regulation, utilities were protected from competition in return for providing reliable and sufficient power to meet peak demands.
The millions of customers who lost their power in northern New England and eastern Canada in this month's historic ice storm will attest to the desirability of reliability.
With competition, power generators will not have much financial incentive to provide capacity used only sporadically. Regulators should stipulate that entry into a market requires a power company to provide, say, 10 percent extra capacity to assure greater reliability.
In reality, electric utilities will be reregulated - not really deregulated. Electricity is so important to voters that legislators had better move with caution. If change brings nothing but shocks to consumers, politicians could get a bad jolt themselves.