Disconnected By Deregulation

Posted by Sonja Ebron

No wonder it’s gotten more difficult to keep your lights on in deregulated areas. Residential natural gas customers in Georgia, electric customers in Texas, power and natural gas customers in New York and elsewhere have all paid much more for utilities after deregulation than before. We can now add Maryland to this sorry list.

According to The Capital, the local paper in Annapolis, Anne Arundel county officials are dealing with “a staggering increase” in the number of people needing help with electric bills. Supplier competition began two years ago in the territory of the former monopoly, Baltimore Gas & Electric, forcing household electric bills to jump 72 percent. The governor negotiated a one-time $170 credit with BGE’s parent company, Constellation Energy, which is slated to appear on September bills. Nevertheless, BGE has disconnected 12,000 people through the first five months of 2008, with 5,000 disconnections just in May (before it started getting hot in Baltimore). Despite the upcoming rebate, the company expects to disconnect 30,000 ratepayers this year, an increase of 30 percent over last year.

There should be no further debate: Energy deregulation is bad for the little guy. Wherever utilities are regulated by a democratically elected public service commission, large users — factories, hotels and the like — generally subsidize households and other small users. The script is flipped under deregulation because market economics take over and regulators are muzzled. Basically, the easier you are to serve from a supplier’s perspective, the lower your rates.

In any industry, the best customer is one who buys a lot of product each month, has great credit, pays early and never calls the customer service line. The worst is one who buys a little bit, has OK credit, pays late and calls to negotiate payments all the time. Trouble is, even if you’ve got great credit and pay your bills on time, you’re still considered part of the “residential sector” and lumped in with all other households. So when industrial customers go shopping for the best rates, households are left holding the bag.

Proponents argue that rates have also increased in regulated states, and that’s true, but there’s a premium on deregulated energy. The Associated Press studied residential electric rates for 17 deregulated territories and found consumers paying an average 30 percent more in 2006 than consumers in regulated states, despite competition between suppliers. Some ratepayers swear there’s collusion between suppliers to keep prices high, but there are other explanations. Here in Georgia, for instance, the only southeastern state with deregulated energy, we pay more for household natural gas than any of our neighbors, despite the same gas, pipelines, metering infrastructure, etc.

The only difference is policy. We have 10+ natural gas suppliers serving residential customers in Georgia, each with their own advertising and regulatory budgets adding to the cost of service. Our old monopoly utility, which now charges us separately to read our meters and maintain the pipes, used to supply natural gas to the entire state with no advertising and a bare bones regulatory team. These added costs — plus high credit requirements and the fact that none of the suppliers is obliged to serve anyone — make it harder to get and maintain utility service under deregulation. The same conditions apply in Texas, New York, Maryland and the other states experimenting with deregulation.

In the interests of full disclosure, blackEnergy benefits from residential deregulation, but we don’t advocate it for the reasons above. We do our level best to aggregate household utility accounts so we can negotiate for lower rates like the larger users, and we manage to support a few good community organizations in the process. We refer people regularly for utility bill assistance, and we’ve been able to offer competitive service to people with low credit scores on occasion. But we think of our services as not unlike putting lipstick on a pig. We help people make the best of a bad situation, but we know the best solution is simply to re-regulate their utilities.