Sunday, March 05, 2006
Editorial: Electric deregulation hurts consumers
The free-market model is failing miserably. As states around the nation consider extending rate caps, the real solution is to rethink the entire experiment.
From the RoundTable blog
Read the latest entries
While it is a heretical notion to those who worship at the altar of the free market, not every industry works well under the model of unfettered capitalism.
Rate caps and other artificial mechanisms set in place during the 1990s to soften the impact of electric deregulation on consumers are about to phase out. It is becoming inescapably clear that the traditional model for electric generation and distribution -- regulated utilities -- worked far better than the "efficiencies" of the free market.
Just ask electric customers in Maryland, who are facing price hikes of 40 percent to 80 percent.
Or customers in Delaware looking at increases of 117 percent.
Closer to home, folks in communities like Salem and Radford have seen steep hikes -- while some electric companies, especially those generating most of their electricity from cheaper coal or nuclear plants, rake in huge profits.
According to a recent article in The Wall Street Journal, states across the nation are thinking about extending or reimplementing rate caps.
"High prices almost guarantee a political reaction," Kenneth Rose, senior fellow at the Institute of Public Utilities at Michigan State University, told The Journal.
But political half-measures won't fix the fundamental problem: the deregulation of the electric industry that swept the nation over the last decade.
Unless legislators across the nation understand that deregulation was a fundamental error that must be completely rectified, they will probably only make the problems worse.
Remember California in the clutches of Enron and other energy traders? Legislators there tried to institute price caps, but only on the utilities. Utilities could charge only so much for the electricity they delivered to customers, but the wholesale providers of power faced no similar restrictions.
The result was predictable: California's largest utility declared bankruptcy.
Defenders of deregulation must ignore both history and present-day reality to contend that a true market system based on genuine competition is developing or has realistic potential.
A study last year by the State Corporation Commission concluded that retail competition in Virginia's electric market was virtually nonexistent, and "little, if any" competition could be found in any other state.
Those who wish to impose a free-market model on the electric industry forget that the industry itself helped develop -- and benefited enormously from -- the regulated monopoly model that dominated the 20th century.
Early pioneers in the industry realized that attracting the huge investments needed for the capital costs of power plants and distribution networks would be impossible if individual utilities were competing in the same area.
Allowing electric utilities to operate as monopolies also resulted in efficiencies of scale that couldn't be achieved in a competitive market.
It was, for the most part, a mutually beneficial arrangement. Electric customers got reasonably low rates and reliable service. Utilities, and their investors, got a guaranteed rate of return.
Deregulation, on the other hand, has been an unmitigated disaster that continues to worsen as consumer protections phase out.
It's time to admit that electric deregulation is a failure.
