Utility deregulation not so good for consumers

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Last January, the Public Utilities Commission of Ohio issued a ruling that may result in standard service for Columbia Gas being phased out by 2017. Will gas deregulation be good for Ohio residential consumers? Perhaps the better question is whether residential consumers benefit from the regulatory change process.

In theory, the commission considers all views when making regulatory changes, but commission hearings provide little opportunity for residential consumers to learn or be heard. According to Joseph V. Maskovyak, staff attorney for the Ohio Poverty Law Center, “commission hearings do not provide meaningful information for the average customer. The information consumers want—the impact on monthly bills—is either unknown or not disclosed during the hearings.”

Residential consumers are typically unaware of commission hearings. A case in point was the decision in January 2013 to turn down the Turning Point Solar project. In two years of hearings, there was relatively little residential customer input.  Only when the decision hit the newspapers did residents grasp what had happened and then flood the commission with hundreds of petitions supporting the project—at a point too late.

Adding to the problem is that the budget of the Office of Ohio Consumers’ Counsel was cut in July 2011 by a third. Its staff has been reduced by half, and its consumer call-in center has been closed. “Budget cuts have reduced statewide outreach, education and mobilizing residential consumers about major utility issues,” said Michael R. Smalz, senior staff attorney at OPLC.

Smalz sees no evidence to suggest that residential consumers necessarily receive lower prices or greater reliability when utilities are fully deregulated. “This shouldn’t be a surprise,” he said. “After all, residential consumers lack the time and expertise to understand a complex market and navigate the maze of competing rate plans. By contrast, large industrial and commercial consumers, with dedicated staffs, have a real understanding of the system. Plus, they would bring economic clout to the bargaining table in a deregulated environment.”

As to deregulating natural gas, Ohio consumers were first able to choose their gas provider in 1997. The Dispatch reported last year that those who did collectively paid $885 million more than they would have with regulated prices and that in Georgia, the only state with deregulated natural gas, consumers paid 37 percent more than when gas was regulated.

Ohio has been transitioning to deregulated electricity since 2001. Last December, the commission initiated proceedings to determine the feasibility of deregulating electricity. How does deregulated electricity work elsewhere?

The Texas Coalition for Affordable Power reported in December 2012 that as of the prior June, the average residential electricity price in deregulated states was 13.6 cents per kilowatt hour, compared to 11.7 cents in regulated states. From 2002 to 2010, consumers with deregulated providers paid an average of $3100 more than consumers with regulated providers.

According to an August 2012 survey, the rates for consumers in regulated San Antonio were lower than the rates offered by 16 of the 18 providers that serve unregulated Houston. The city of San Antonio’s website states that the average CEO pay for major Texas unregulated providers grew from $2.7 million in 2000 to $7.5 million in 2011 and that “deregulation has had the unintended consequence of discouraging the building of new power plants.”

Ohio has also been moving toward telecommunication deregulation. Senate Bill 271, which died in the House last December, would have allowed phone companies to discontinue mandated basic phone service or charge unregulated prices, so long as at least two other companies offered some service at a single point within each of their exchanges (the area covered by the first three numbers of a phone number). The bill did not require that alternatives be available for all or that the alternatives be competitive in price.

The OCC warned that Senate Bill 271 would have forced basic service consumers to switch to more expensive services and pay for unwanted add-ons, and enabled providers to drop service in less profitable areas. According to the Ohio Association of Area Agencies on Aging, nearly all 3000 low income seniors in 10 southeast Ohio counties who earned less than $2130 per month and received state funded home health care used land lines. More expensive cell phone service was likely not a real option for these folks.

Now, because of resistance encountered here and in other states, Maskovyak senses the industry will approach deregulation on a national basis. “I’m hearing the telecoms are headed to the Federal Communications Commission.”

“The free market system works well in most respects,” said Smalz, “but not when consumers have to purchase necessities like electricity in a complex market with myriad confusing options and minimal consumer protections.”

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