The Coastal Post - October, 1997

Deregulation, But Little Competition

BY MICHAEL S. LOVETT

Deregulation has given great occasion for the dominant power utilities to broaden their economic, political and geographic reach far outside their traditional, regulated markets. Electrical deregulation was formed from the Public Utilities Regulatory Policies Act of 1978. Although originally created to promote the use of renewable fuels while reducing U.S. dependence on foreign oil, the Act has evolved to today's partial abatement of government administration over private producers of gas and electricity by requiring the larger electrical utilities, such as PG&E, to open their transmission systems to other producers while simultaneously selling off a number of their facilities to potential investors, to give consumers alternatives.

This sounds good from a customer's point of view, but from a utility's perspective, someone has to pay for its continuing investment. Many power-generating institutions will fail to produce cost-efficient electricity, while 40% of all U.S. nuclear capacity is being shut down, a situation that will compel the utilities to write off debts that are now covered by government-approved rates. These debts total $135 billion and could adversely affect utility stocks while creating higher electric prices.

A bill passed by the state Assembly in early August would allow a $7 billion-plus bond issue to pay for a 10 percent cut in electricity prices to compensate customers. But consumer advocates claim the bill will become just another raw deal for residential and small business customers, because it would force them to underwrite most of the risks and costs of the electrical industry's restructuring.

Moreover, there are no state statutes that require a utility to ensure a customer be served under the most economical rate available, as both the Federal Regulatory Commission and State regulatory agencies hold customers to be wholly liable for finding the best rate for themselves.

And there is no guarantee that the large utilities won't drive prices far below those of their smaller competitors. As a spokeswoman for the consumer group The Utility Reform Network (TURN) observed, "It may be 20 years before we see real competition."

PG&E will remain a regulated distribution monopoly for both gas and electricity, and will ask state regulators for $1.2 billion a year in rate increases starting January 1, 1999.

PG&E.'s earnings for the second quarter of 1997 were $192.9 million, up $89.4 million from last year's quarter. With such gains why is PG&E now asking for a 25% increase in rates? Where does the money go?

Obviously a good part of it goes to sales-PG&E has plans to use the internet to sell its surplus capacity. But the internet is extremely expensive. There are merger, acquisition and takeover costs as well. PG&E, after acquiring major markets last year in the natural gas market, mostly in Australia and Texas, bought all the non-nuclear generating plants of the Massachusetts-based New England Electric System, securing 18 power plants along the East Coast.

Electric utility stocks are starting to reflect the expenditures, with the effect that utilities may no longer be able to afford to pay their dividends to the small contributor because they may choose to reinvest their capital for growth. This will probably dismay many who find their low-risk mutual and retirement funds being invested heavily in vulnerable utility stocks.

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