GRASSROOTS/Hank Kalet

Electrifying the Voters

The future of electric deregulation may not be as bright as proponents contend.

With the state governments across the country preparing to open the electricity market to competition, voters in California and Massachusetts have sent a message that deregulation is not working as well as advertised.

Voters in California were asked whether they wanted to abolish the state's existing deregulation law, while their counterparts in Massachusetts were asked whether their state's law should continue. While the issues were different in the two states, the message essentially was the same: The state legislatures should go back to the drawing board and come up with better deregulation plans before consumers should be forced to shop around.

While about 70 percent of California's voters backed the state's deregulation plan, nearly 2 million people voted to overturn it. That's three out of every 10 voters, despite a $6 million campaign waged by the utilities to save the law.

In Massachusetts, the results were similar. Nearly 75 percent of the electorate voted to continue with deregulation--helped again by a $6.6 million ad campaign paid for by the utilities and other supporters.

These results should be enough to raise questions about whether restructuring will produce the desired effect, which should be lower rates and more power for consumers.

Let's look at California. Voters there were angry that they have been made to pay for investments incurred by large utilities prior to deregulation through the imposition of transition fees. This debt, known as "stranded costs," covered construction of nuclear power or other energy-generation plants and power-purchasing contracts made by the utilities while the industry was still regulated.

These fees ate away much of the 10 percent rate cut residents were promised when the state's deregulation plan was enacted and have meant that only a handful of Californians have been willing--and in some cases able--to find cheaper alternatives. Just "100,000 customers out of a potential 10 million state-wide have switched away from their utilities" despite an $89 million publicity campaign, according to the New York Times.

And the fees have meant that major power providers like the Houston-based Enron have opted out of the residential market and are instead directing their efforts at industry, according to Harvey Wasserman in The Nation. The reason, he says, is because "the surcharges leave them no margin to compete" in the residential market.

This is not the case in the commercial market. The Times says "utilities and outside power suppliers like Enron are competing vigorously for large industrial customers, the market that, with its economies of scale, offers the greatest potential for profits."

The effect has been a significant decrease in rates for commercial users, but a net savings to consumers in California of between 1 percent and 3 percent--a far cry from the savings they were promised when the deregulation plan was adopted two years ago.

Its easy to see why a significant number of residential consumers in California feel left out in the cold.

Massachusetts voters faced a slightly different scenario. The promised 15 percent rate cuts had come through and the restructuring legislation that opened the market to competition set specific environmental goals designed to ensure that some alternative energy generation would make its way into the Massachusetts market over the next several years.

And yet, one out of every four voters still wanted to see the state's restructuring law bite the dust. Consumer groups and some environmental groups say it's because the rate cut is a mirage financed by loans that will have to be repaid with interest--to the tune of about $3,000 per family--to help pay off stranded costs. Doing so, they say, allows nuclear plants and dirtier coal- and oil-fired energy plants to remain in use and discourages the development of cleaner and safer alternative sources--despite the goals set forth in the state's legislation.

What should this mean for consumers in other states who are about to see their power markets opened to competition? Simply that the promise of rate reduction through deregulation may be worth little more than the paper the deregulation bill is written on. There are still too many questions about the state's deregulation plan and about how a deregulated marketplace will benefit consumers for the state to jump so quickly into the muck.

Consumer activists have been hard at work across the country--both Ralph Nader's Public Citizen and state chapters of Citizen Action have been active in either trying to slow the deregulation push or to ensure that restructuring legislation protects consumers from the vicissitudes of the free market.

But these small public interest groups are fighting an uphill battle. The fact is that the big utilities and other power firms have money and access and, because of this, legislation likely will favor their interests with those of residential consumers being placed far down on the list.

Because of this, consumers need to become active in the debate. Consumers need to demand that the issues of stranded costs and transition fees, alternative energy generation and access be addressed:

* Stranded costs should not be passed on to consumers in any form. To do amounts to a government subsidy or bailout of the major electric utilities that is likely to eat away at the promised savings.

* Specific goals should be set out for alternative energy generation and nuclear, coal and oil plants should be phased out. Utilities that fail to meet these goals should be prohibited from participating in an open energy marketplace.

Consumers--both residential and commercial--should be allowed to band together in any form they choose to buy in bulk. This "aggregation" is essential to ensure that residential consumers will get the same consideration from power companies as the large commercial. The current New Jersey plan, for instance, will ban towns from acting as the umbrella purchaser for their residents and businesses and offers no incentive to businesses to join with residential customers, which consumer groups say is likely to create a rate structure tilted heavily in favor of industrial users.

Deregulation is supposed to make things better for consumers. It is supposed to bring lower rates and better service.

The way things are going, that seems unlikely.

And unless consumers join the fight, it is unlikely those benefits will ever come.

Hank Kalet is news editor for two central New Jersey weekly newspapers.