There are some disturbing signals coming from the newly deregulated utility market in Texas. A fine was recently–and somewhat futilely–levied on the bankrupt Enron Corporation for “gaming” the utility grid last summer. Enron found a loophole (the old over-scheduling trick made infamous in California) in the state’s carefully wrought system and exploited it to maximum advantage. And they weren’t the only ones–five other companies stand accused of doing the same thing. The Public Utility Commission is currently negotiating with them to recover the $29 million in ill-gotten profits they earned before the loophole was closed in January. We are told that this “flaw” has been corrected, but it’s only a matter of time before the companies find another one. Who do you think is smarter, the Texas legislature, which wrote the dereg bill three years ago, or the legions of analysts, accountants, and attorneys marshaled by the energy companies? The sudden resignation earlier this month of the board chair of ERCOT, the state agency that monitors the grid on our behalf, was a less than encouraging development on that front.
Then there was the abrupt exit of New Power from the Texas energy market, also in early June. New Power, a spin-off of Enron, was once one of the most promising up-and-comers in Texas’ new deregulated utility market. Enron’s fall dragged them under, along with 80,000 residential customers in Texas, all of whom will be involuntarily switched to other providers. Due to glitches in the new system, many of those customers had been waiting for months to switch to New Power in the first place. We might be better off without New Power anyway. The company employed multi-level marketing a la Amway to sign up new customers. They were also the ones who determined rates in part based on a customer’s credit rating. Welcome to the new world of the free market!
When pressed on the disturbing early results, the architects of the Texas plan, Rep. Steve Wolens (D-Dallas) chief among them, have fallen back on the fact that people are still getting lower prices than they got a year ago, under regulated markets. Less frequently mentioned is the fact that those lower prices are mandated by the dereg legislation passed three years ago, and that they are only temporary price controls. Eventually, the so-called “price-to-beat” will be lifted, and we’ll be on our own.
It’s not that deregulation doesn’t work. It’s just that it works for the wrong people. As a recent survey in Consumer Reports demonstrated, deregulation of a variety of industries has generally resulted in poor service and often higher costs for consumers. The report studied deregulation efforts in air travel, telecommunications, banking, cable television, and electricity. Yes, airfares have gone down, but they were going down anyway, roughly as fast in the 20 years prior to dereg as in the 20 after, the magazine found. Bank fees are generally higher now than they were prior to dereg. (And need we mention the bank failures of the 1980s?) Cable dereg was an unmitigated disaster: Rates went through the roof, and virtually nobody has a choice of providers. But cable is just entertainment, and electricity is, well, electricity–a hell of a lot more important. Results have been mixed, and it’s early yet to render a verdict on the experiment. But it’s never too early to ask why the hell we had to conduct the experiment in the first place. Not with California’s experience–rolling blackouts, billions in productivity lost–looming over our heads. And it’s certainly not too early to start thinking about how to get out of this mess, before it gets away from us. The folks that rammed it down our throats–Enron–are long gone anyway. -NB