Consumer Reports has given deregulation, not just of energy but also four other industries, a scathing rebuke in a new report titled “Deregulated.” While consumers have made some gains under deregulation, Consumer Reports said, on balance they’ve lost ground. “Service has typically deteriorated. Consumer rights have sometimes suffered. Claimed price cuts are often not all they seem. And when free markets have gone bad, deregulated industries have seen no contradiction in getting multi billion-dollar government bailouts,” the study concluded after examining the results of deregulation on five industries that directly impact consumers — airlines, telephone, cable TV, banking and electricity.

Although the publication notes that electric deregulation is still in its infancy with only a handful of states participating, the early signs are not good, particularly the signs coming out of California. There are signs the pendulum already may be swinging back on electricity deregulation nationwide, as it has in the bellwether state.

“We know from bitter experience in California that more regulation is needed,” Loretta Lynch, president of the California Public Utilities Commission, told Consumer Reports.

Those who continue to support deregulation chalk up the recent California utility debacle and the Enron scandal to “poor implementation of fundamentally sound theory — a pardon they don’t allow for the deficiencies of regulation,” Consumer Reports said.

While many are quick to note that prices under deregulation have come down, Consumer Reports said that inflation-adjusted power prices were falling before deregulation and have declined less quickly since deregulation was enacted. In addition, the marketplace has become more adversarial toward consumers, and the absence of strict rules has inspired aggressive tactics, it added.

Power rates have fallen because of regulated cuts, not free markets, the report noted. Customer satisfaction ranges widely, with the worst reports coming in California, and there are no guarantees against blackouts. There are new consumer rights on billing and slamming. The Infrastructure has remained regulated. And residential choice is abundant in some states, but limited in others. There also have been some technological advances particularly in Internet-controlled thermostats, some of which were used in Pennsylvania to reduce peak demand for air conditioning and electric heat.

“It’s too soon to meaningfully assess electricity deregulation because it has not honestly happened yet,” the study noted. Although 16 states and the District of Columbia have officially deregulated their electric utilities, most have dictated rate cuts of up to 20% often in conjunction with rate freezes.

“New Jersey has gone so far as to rob Peter to pay, well, Peter; it financed a 2% electric rate cut by selling $2.5 billion in securitized bonds to be repaid by ratepayers.

“Artificially declining prices and rate stability are just the opposite of what is in store for consumers. Rather, they can expect more volatile price swings and spikes,” Consumer Reports said, quoting a study by the Federal Reserve Bank of New York. “Officials in Pennsylvania, who promote their state as the national model for electricity deregulation, won’t promise that deregulation will deliver prices lower than regulated rates. ‘There are no guarantees in the marketplace,'” the study said, quoting Glen Thomas, chairman of the Pennsylvania Public Utility Commission.

“There are no guarantees against blackouts either,” the study noted. “Californians know all too well the fickle nature of market forces, which produced blackouts and prompted the state to suspend deregulation in 2001. Market forces also bankrupted the state’s utilities and prompted a $10 billion fleecing of state taxpayers.”

Consumer Reports added a little anecdote about Rick Snyder, a sales director for a software manufacturer, and his wife, Sharna Law, who runs a travel-accessories company. They cut their electric rates by 10% to 5 cents/kWh when they switched electric providers from Pacific Gas & Electric (PG&E) to Enron, but then had to switch back to PG&E when Enron dumped them after power prices spiked to 40 cents/kWh in February 2001.

“The amazing thing here is Enron had electricity to sell because they had, in a sense, booked it up to serve customers,” the CPUC’s Lynch told Consumer Reports, which also noted that Enron and other energy merchants are under investigation by state and federal regulators for potential market manipulation.

And the Snyders were left paying 110% more for their power last year even though they used 10% less electricity.

“Given the mandated rate cuts and freezes in 11 states we studied with at least a 12-month track record, it was no surprise that we found declining prices in all but California,” the study said. “That continues a long-term national pre-deregulation trend begun in 1983, when prices peaked at 10.4 cents per kWh; inflation-adjusted residential electricity prices have stayed the same or declined in 33 of the last 40 regulated years.

“For all the hype about choice, few consumers have actually chosen to dump their old utility. Pennsylvania has had the greatest number of consumers switch to competing suppliers: 530,000 of five million residential consumers, as of April. But since then, 180,000 switched back to their original utility because NewPower, owned in part by Enron, no longer wanted them [New Power also announced Tuesday that it will file for Chapter 11 bankruptcy protection; see related story]. That jolt of free-market reality is a major setback for the Pennsylvania success story.”

Consumer Reports‘ advice to consumers: “Watch the ratings. Whenever deregulation provides choice, service ratings such as those produced by Consumer Reports or the American Customer Satisfaction Index (www.theacsi.org) become more important.”

It also suggested there be tougher electric service reliability standards in place and “tough financial penalties” for failing to maintain sufficient generating-capacity margins.

“Deregulation should never be no regulation. Free markets are ever changing, and players are always devising new mischief. Government must remain vigilant of abuses and respond swiftly.”

To read the Consumer Reports July 2002 report go to https://www.ConsumerReports.org.

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