Albion Monitor /Commentary

How Electric Deregulation "Rate Cut" Will Cost You More

by Russell Sadler

See also:
How Electric Deregulation Will Cost You Thousand$
in our last issue
(AR) ASHLAND -- It is supposed to be the best thing since sliced bread, the Bright New Idea, the Next Best Thing. It is supposed to save consumers money. It is postponed. There are technical difficulties, we are told. It was really postponed because of lack of interest. It is going over like screen doors in a submarine.

"It" is California's elaborate plan to "deregulate" electric utilities. It was supposed to go into effect in January 1 but has been postponed for at least six months. The computer program to manage the state's power distribution grid in the "new competitive environment" is more complicated that the economists thought it would be and is not yet tested.

The cost of maintaining the wires will fall heavily on residential electric customers
The real reason for the postponement is more likely a lack of interest. Despite a $72 million advertising campaign less than one percent of California utility customers have signed up with "competitive" power companies. Those that have signed up are the usual suspects -- the large industrial power consumers who are behind the drive for "deregulation" because it frees them from helping pay the costs of maintaining the distribution system.

Californians have reason to be suspicious of electricity "deregulation." It is an elaborate political fraud to reduce electricity costs for large volume users and absolves existing utilities of billions of dollars imprudently spent on nuclear power plants.

There is no other way to explain a system that creates a new elaborate bureaucracy to manage power transfers -- the Independent System Operator -- and a brokerage to buy and sell power supply contracts with a host of new middlemen who expect ratepayers money to stick to their fingers as the electricity passes through them. The California scheme is elaborate reregulation not "deregulation."

"Deregulation" advocates claim they are "ending the monopoly of Pacific Power & Light, Southern California Edison and San Diego Gas & Electric." That is a half truth. The California Assembly is really allowing the utility industry to separate the lucrative generating business from the unprofitable electric distribution business.

Power generating will be "deregulated" so generating companies can cream off lucrative large-volume power users. Power distribution companies remain heavily regulated. The new law requires them to deliver electricity generated by anyone to any customer over their wires. The cost of maintaining the wires will fall heavily on residential electric customers because the distribution utilities will no longer have income from the large power users to help pay the bills.

This deal is so bad no one is falling for it except the large volume power users who are behind "deregulation" in the first place. The hustlers who cobbled this monstrosity together knew the public would need an incentive to fall for their snake oil salesmanship. The California Assembly ordered an immediate 10 percent reduction in rates as soon as "deregulation" goes into effect and lasting until 2002.

The State of California plans to float $7.4 billion in bonds to finance the 10 percent rate cut
How do they do that? Did someone finally invest a real free lunch? The State of California plans to float $7.4 billion in bonds to finance the 10 percent rate cut and begin paying off $28 billion in "stranded utility costs," the payments utilities make on bad investments in failed nuclear powerplants and high cost energy contracts for coal, wind and solar power signed during the 1970s Arab oil embargo. Utilities have been trying shuck these costs for decades and it is one of the hidden agendas driving utility "deregulation" legislation in Sacramento, Salem, Ore., Olympia, Wash., and Washington, D.C.

California will repay the $7.4 billion bond issue by charging all the electric customers in the state a so-called Competitive Transition Charge that will pay off the $28 billion in "stranded costs" in four years and the bond issue in 10 years. The interest charges alone make that one of the most expensive 10 percent rate reductions in human history.

California's Competitive Transition Charge will amount to 45 cents of every dollar billed for the sale of electricity for at least a decade. That is rather expensive "cheaper" electricity. This shell game is not fooling many Californians. Less than one percent of the state's utility customers have signed up for service from "competitive" utilities.

Bills "deregulating" Oregon electric utilities died in committee at the end of the legislative session, but the utility lobby persuaded Oregon's surprisingly naive Public Utility Commission to create a "Customer Choice" plan allowing utility customers in four Oregon com their own utilities."

Several "independent utilities" are trying to cream off lucrative large volume industrial customers. Few are interested in residential customers. In St. Helens on the lower Columbia River, customers can choose from Portland General Electric, now owned by Enron; another Enron subsidiary; and Electric Light, a South Carolina company that owns no generating facilities.

Electric Light installed a billing computer in Portland. It buys its power from Illinova Energy Partners in Seattle. Illinova is an "energy marketing" company that also owns no generating capacity. It buys electricity on the spot market from anyone selling, including Bonneville Power Administration, PacificCorp and -- you guessed it -- Enron. It looks like the "customer choice" in St. Helens is Enron, Enron or Enron.

"Deregulation" is supposed to be the future. If Oregon is seeing the future of electric utilities in St. Helens it is simply exchanging one monopoly for another with a new cast of characters as middlemen creaming off large volume industrial customers with lower rates while driving up the cost of electricity for residential and small business customers.

No advocate of electricity deregulation has satisfactorily explained how it can lower rates in a region with some of the lowest electric rates in the country while preventing export of the Northwest hydroelectric power to the Southwest. There is a reason for that. It cannot be done.

Deregulation hustlers expect to make the Northwest a national sacrifice area in order to sell the region's low-cost hydroelectric power in California and the Southwest.

Russell Sadler is a syndicated columnist who teaches journalism and environmental studies at Southern Oregon University in Ashland

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Albion Monitor January 12, 1998 (

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