“Electric Deregulation: The Great Failed Experiment”

Comments of Eric J. Epstein,
January 6, 2010

On August 4, 2000 Governor Tom Ridge announced that electric competition would lead to job growth, economic expansion, and decreased rates. According to Governor Ridge, “Pennsylvania’s national leadership in electric competition continues to bring dramatic savings and economic benefits to Pennsylvanians.” Gov. Ridge added, "And, according to this new report, those savings and benefits will continue for some time to come!”

The Department of Revenue released "Electricity Generation Customer Choice and Competition” (August, 2000), and predicted free market nirvana. Secretary of Revenue, Robert A. Judge Sr., forecast reductions in retail electricity prices would lead to the following economic impacts in Pennsylvania by 2004:

The real gross state product will be $1.9 billion higher; overall employment will increase by 36,400 full-time and part-time jobs, nominal personal income will increase by $1.4 billion; the price index will decrease by .47 percent; and the population will increase by 51,400 people, as workers are attracted to job opportunities in Pennsylvania.

The Department of Revenue also reported that deregulation would result in greater sales tax and Personal Income Tax collections.

Could the deregulators have gotten it more wrong?

The reality is not so dreamy. Electric companies are collecting $11.4 billion in stranded costs, shifted taxes to hostage rate payers, and dumped customers at record rates.

Deregulation shifted power plants back to the local tax rolls under the assumption that utilities would pay at least the same amount had they been subject to real estate taxes.

By 2004 homeowners were paying an average of 30% more in property taxes than they did in 1997. PPL and the other electric utility companies are paying 85% less in taxes on their plants, down from about $120 million annually to about $20 million according to a Philadelphia Inquirer analysis.

Uncollectible accounts were supposed to decrease with the price of electric.

On November 19, 2004 - the last day of a “lame duck session” - the General Assembly passed “The Responsible Utility Customer Protection Act” (SB #677 or Chapter 14) at the behest of the energy industry. This legislation - passed in secrecy and without public comment - became Act 201.

Prior to this legislation, the PA Public Utility Commission prevented most winter time utility shut offs between November through March.

Deregulation’s “Consume Protection Act” has produced a 113% increase in terminations. In the first eight months of 2008, PPL cut electricity to 28,561 customers, which was an 111% increase over the number of customers whose power was shut off during the same period in 2007. The statewide average was 24%.

In 2004, about 70% of customers who received notices saying power could be shut off called the company and tried to arrange an alternate payment schedule according to PPL. Now only 28% of those who receive termination warnings try to arrange other payment plans.

But it got worse for Joe the Plumber.

A study published by Carnegie Mellon University's Electricity Industry Center found, “On average, power users in restructured states pay 2 to 3 cents per kilowatt hour more than customers in states that didn't restructure.” (Electricity Prices and Costs Under Regulation and Restructuring, 2008)

Future shock: The Office of Consumer Advocate, in a letter to Governor Rendell on April 20, 2008, estimated approximate increases in the overall rates of residential customers, comparing rates that were in effect and rates that would be expected to be in effect for each company after the rate caps have expired:

Met Ed -54%

PECO - 8%

Penelec - 50%

Allegheny (West Penn) - 63%

These numbers are staggering and coincide with the deteriorating health of Pennsylvania's shrinking middle class. The promise of deregulation leading to more capacity, more competition and lower prices has turned out to be a profitable illusion for a select few.