Carolina energy consumers may have to fit a whole new set of words in their heads. Energy deregulation, or energy choice. Maybe consumer choice.
Over the past several weeks in the Carolinas some legislators, activists, trade groups and other organizations are proposing that the retail electric industry — the kind that serves residences, small businesses, churches, schools — be part of an unregulated business model. The idea is to remove the boundaries of traditional utilities so homeowners would be able choose from a variety of suppliers of electricity.
The idea of a free market system has broad appeal since it is one way the country has achieved its wealth. A completely free market system also has its share of abuses that have cost average people a lot of money.
ECC wants to get the basics of this out to consumers, so here is a quick column about some of the basics of electric deregulation. (There will be other columns in the future.)
An important thought about this has nothing to do with electricity. In economics there is this concept: “The law of unintended consequences, often cited but rarely defined, is that actions of people – and especially of government – always have effects that are unanticipated or unintended. Economists and other social scientists have heeded its power for centuries; for just as long, politicians and popular opinion have largely ignored it.” (Source)
That concept is worth a look when it comes to electricity deregulation. Various states have been cited when it comes to deregulating electricity.
Some states changed electric markets more than a two decades ago. This month, February, leaders in Connecticut, including the state’s consumer watchdog, pushed to remove deregulation. Undo the deregulation. The New Haven (CT) Register said it like this: “…the promise of savings through third-party power suppliers has not materialized. … consumers using third-party suppliers have paid an estimated $200 million more than utility customers who the state’s electric distribution companies continue to buy electricity for them, which is known as the standard service offer.”
The Connecticut consumer watchdog said: “Third-party electric suppliers rely on predatory sales tactics to trick folks into unwittingly signing up for contracts. What’s more, our residents – especially those who are low-income, elderly, use English as a second language, and other vulnerable populations – are getting ripped off by these third-party suppliers, which often charge significantly higher rates than the electric utility default service. Enough is enough.”
WFSB-TV reported on the Connecticut story February 4: “AARP [American Association of Retired People] calls third party suppliers a failed experiment.”
Maryland and Massachusetts are following a re-regulation path. AARP supports the Massachusetts push to reinstate the former regulatory system. (Source) WCVB-TV reported on the Massachusetts story: “The goal was to lower the cost, but the Attorney General now says the opposite may be true.”
There are other examples.
The Illinois Attorney General said residential and small commercial customers who used a third-party electric supplier paid more than $600 million more in electricity costs in the last four years. Check this editorial in Crain’s Chicago Business, “Just over two decades after Illinois made national headlines by deregulating its electricity markets, it’s painfully clear that the experiment — at least on the residential side of the equation — has failed miserably.” That is from a business publication.
In Rhode Island, the Division of Public Utilities and Carriers said nearly $28 million in higher bills were charged.
Just last week the Dallas Morning News a “Watchdog” column reported a maelstrom of accusations in the Texas electric markets, using words like gimmicks, misled with rates, salespeople knocking on your door and suggesting telemarketers calling families.
ECC noted that some Carolinas’ legislators, activists, trade groups and other organizations are proposing that the retail electric industry be part of an unregulated or much less regulated business model. One news story about North Carolina’s electric market said, “Organizers said they’re not calling for deregulation but for a regulated model that allows more competition. They pointed to a number of states as examples, including Texas, Ohio, New York, Illinois, Massachusetts, Pennsylvania and California.” Some of these states are noted in news reports above.
ECC understands that government regulation or oversight does not always work the way it should. Just read some of our blogs and you’ll see the examples. News reports point out something important, though. ECC believes that there must be reasonable safeguards in the Carolinas to make sure that customers have knowledgeable people making sure customers are protected.
Less bureaucracy, simpler systems, empowerment of the consumer — all good. Not always simple, especially when a broad sweep of a legislator’s pen makes it happen. Consumers must be on point to make sure what they want for their electric service is really what they get.