Deregulation Of Electric Utilities Essay, Research Paper

Have you ever tried to get your utilities turned on for a new house or apartment? You call the electric company to make an appointment. Their response is to tell you ?we?ll be right out to turn your power on?, right? No, that?s not how it happens. Usually the soonest appointment you can get is about two weeks from the day you call. When you try to get a time that they will be there, you hear ?It?s an all day appointment?. This means you have to miss a day of work and sit around a house, without power, all day waiting for someone to show up and turn it on. What an incredible waist of your time, but what can you do. It?s not like you can call another power company right? Well as of late 96, you can. Then Governor Pete Wilson signed the law that ended the monopoly held by PG&E, Southern California Edison (SCE) and San Diego Gas & Electric (SDE&E), opening the state of California to competition. This is the same thing that happened in the eighties with AT&T. The phone lines were the same, but you could choose which company, MCI, Sprint, AT&T or others, you wanted to provide your long distance service. AT&T had to change the way it did business, so will the power companies. They will have to become more customer service oriented in order to retain customers. Competition will give ratepayers more flexibility when dealing with a power company. The break up will strengthen the economy by creating new markets, businesses, products and services.

Deregulation will force utility companies to become more ?user friendly? to retain customers. Besides price, customer service is one of the biggest reasons people choose one company over another. In fact, most people are willing to pay a higher cost for better service. Some entrepreneurs understand this and are creating companies based on customer service. John R. Emshwiller and Kathryn Kranhold write in THE WALL STREET JOURNAL:

?As its name suggests, Friendly Power Co. of La Jolla, Calif., is basing its marketing on being, well, friendly, says Scott Levine, the company’s chairman and co-owner. Of course, there will be low electric prices, he says. But just as important, “we will call people by their names and not put them on hold for a long time” when they call, he says. To get his message out, Mr. Levine has hired telemarketing firms and plastered the company’s slogan, “Know who your friends are,” on billboards, coffee mugs, hats and pens. ? (http://www.friendlypower.com/art18.htm)

With companies being created on the idea of better customer service, customer can expect to see all of the Energy Service Providers (ESP) to be very responsive to their needs and concerns.

Competition will be one of the largest driving forces of change in the way utilities do business. Customers will be able to shop for the lowest rates, giving them significant savings. A study done for Citizens for a Sound Economy, a concerned citizens group advocating market-based solutions to public policy problems, showed that,

The long run price decline in electricity would likely reduce residential customers bills by as much as $30 per month holding consumption constant at current levels. Based on the current bill of $69 per month, the decline is substantial, at least 43 percent on average. (www.hubcap.clemson.edu/customerchoice)

There was an immediate 10 percent rate decrease mandated by the law to offset the bonds used by utility companies to recover some of their stranded costs. Some groups claimed this was a scam to fool voters. But according to John Herrington, former secretary of energy under President Ronald Reagan,

Without the bonds, it is unlikely that a consensus would ever have been reached on the bill and consumers would therefore never realize deregulation’s long-term savings, which the U.S. Department of Energy predicts could reach 30 percent or more by 2010. This prediction is supported by experience in other industries such as long-distance telecommunications and railroads; consumer savings during the first two years of deregulation ranged from about 5 percent to 15 percent, but after 10 years rates were down as much as 45 percent. (http://www.uniontrib.com/news/utarchives)

Residential consumers in America spend approximately $100 billion dollars a year on electricity. Just a 30 percent decrease in utility cost will save customers more than $ 300million dollars a year. (H.R.655, sec.2, LIBRARY of CONGRESS HOME)

Along with lower rates, you can also choose your ESP. Many customers are taking advantage of the opportunity and switching. Larry Williams writes in The Harold ?In tiny Peterborough, N.H., 17,000 customers already have made personal choices of power suppliers from among 30 national competitors in an experiment intended to set the stage for full deregulation by 1998. ? (www.friendlypower.com/art09.htm) With more and more customers switching, the utilities will have to work harder to keep their customers.

In addition to choosing companies with lower rates, consumers will be able to choose an ESP. that supports their moral beliefs. For example ?John Schaefer, an engineering consultant in Santa Cruz, Calif. his company, Clean Power Works, has become an electric-service provider that hopes to sign up environmentally conscious customers by selling “clean” power from such sources as the sun and the wind. ?(John R. Emshwiller and Kathryn Kranhold) Environmentalists hope that this will help reduce the amount of pollution caused by power plants. Charles Linder Floyd has a different approach.? Mr. Floyd is pastor at the Second Mount Moriah Missionary Baptist Church in Lynwood, Calif., and has set up Christian Energy Electrical Co. with the idea of plowing electricity-sales profits into inner-city projects. ?(John R. Emshwiller and Kathryn Kranhold). This provides the consumer the ability to effect the industry on there moral beliefs. If more people buy their electricity from a ?clean? ESP, then more power plans that use sun and wind to create power will be built.

Ratepayers will also be able to adjust the consumption to take advantage of off peek hours. A good illustration of this is found in the Executive Summary done for Citizens for a Sound Economy.

For instance, while some consumer choice exists now, the normal residential consumer has to pay the same price during the morning and evening peak periods to heat water as she or he pays on the weekends or during the low-demand early morning hours. Under competition this regulatory induced intransigence will fade and the prices during off-peak hours will fall. Competition will encourage residential consumers to buy larger electric hot water heaters with timers that heat during the lower-priced, late night or early morning hours, idling the heating elements during the high-priced daily peaks. As competition stimulates consumers to respond in this way, total cost per unit of hot water falls. This argument obviously extends to all consumers and across days and months. (www.hubcap.clemson.edu/customerchoice)

Not only can you lower your electric bill by controlling how much power you use, but also by when you use it.

The end of the monopoly will create opportunities that will improve the economy. In an interview with Steve Lyons, a Direct Access Lead SDG&E, said ?Utility companies like deregulation even though their profits may drop because they will gain access to a greater market place. Instead of just San Diego we will we have the ability to service all of California.?(Lyons, Steve) The electric companies are willing to give up guaranteed income for the opportunity to gain a larger market to sell their services to.

Entrepreneurs will have opportunities to start new businesses and create products. In the Executive summary done for Citizens for a Sound Economy, it is discuss that, ?We expect that entrepreneurs with new ideas and approaches will enter as resellers and marketers to ensure that what is currently idled capacity gets efficiently used throughout the day/month/year.? (www.hubcap.clemson.edu/customerchoice) Eastern Maine Electric Co-op?s (EMEC), a non-profit consumer-owned electric utility, deregulation web site states ?If deregulation accomplishes what its proponents hope, energy costs will eventually drop. Investment in new businesses would then theoretically increase, resulting in more jobs. ? (http://www.emec.com/deregulation/index.html) Someone will have to invent the hot water heater that heats on of peek hours. As the new and existing companies expand, they will create new jobs.

Large manufacturers stand to gain the most from deregulation because they are attractive to power companies. According to EMEC, ?Large industrial accounts are very attractive to utilities, because large amounts of energy can be sold in one place. Due to economy of scale, this makes it possible to generate electricity less expensively per kiloWatt-hour, and it means the generation utility can charge a lower price and still make a profit.? (http://www.emec.com/deregulation/dereg3.htm) The large manufacturers will be able to lower the cost of producing products. This allows them to lower the selling price to consumers, making the dollar in your pocket go farther.

While there may be concerns about deregulation, history has shown that it always benefits the consumer. The break up of AT&T has lowered the cost of long distance phone rates, created new products and increased the quality of service. Deregulation of airlines made flight affordable for most Americans. The GoldWater Institute reports ?In 1971, before deregulation, only 50 percent of Americans had flown on an airplane. Seventeen years later, 75 percent had. ?(GoldWater Institute). It stands to reason that the same will be true in the deregulation of electric utilities.

Work Cited

Citizens for a Sound Economy Foundation. Customer Service, Customer Choice.

5 May 1999 .

Larry Williams. ” Power deregulation: who benefits? Giant change may help

economy and consumers.” THE HERALD March 16, 1997

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John R. Emshwiller and Kathryn Kranhold. ” California’s power deregulation isn’t

as open as it looks. Many entrepreneurs have signed up, but few are expected to survive.” THE WALL STREET JOURNAL February 17, 1998

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” H.R.655, sec.2.” LIBRARY of CONGRESS HOME. February 10, 1997.

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Lyons, Steve. Personal interview. 27 April 1999.

Eastern Maine Electric Co-op. Deregulation. 20 April 1999

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Goldwater Institute. How I Stopped Worrying & Learned to Love Deregulation

14 May 1999