History says pull the plug on deregulation

September 8, 2013
The Arizona Republic

McCarthy: It's failed before in Texas, Calif.

Regarding "Utilities don’t want consumer choice" (Opinions, Aug. 26):

Just 15 years ago, Arizona embarked on an ambitious effort to deregulate the state's electricity market on the promise of more choice and lower prices for consumers. Arizona was not alone in that effort. Nearly half the Western states engaged in similar efforts and those that deregulated were severely disappointed: higher prices, less reliability and little consumer choice.

This is not to say that competition is a bad thing or that competitive markets can't work. They can and do. America's achievements are built in the competitive marketplace. The question is whether deregulation works in a market for a commodity everyone needs and few understand, and where the cost to enter and compete is massive in cost and lengthy in process.

In the late 1990s, the answer to that question in many states, Arizona included, was yes. What followed was disastrous for states and consumers alike. In California, electricity rates increased as much as threefold, forcing state leaders to urge residents to scale back energy use to avoid blackouts during the winter months.

The outcome of deregulation in Texas has also been problematic. Texas deregulated in 2002 and electricity prices in the deregulated portions of the state for a decade were 46 percent higher than in the regulated areas. If Texas had not deregulated and their prices remained at the national average, Texans would have saved more than $10 billion in the past 10 years. Ironically, their prices were below the national average for 10 years prior to deregulation, so they could have saved even more.

Complaints from customers in Texas have been at least five times greater during deregulation. The most common complaints relate to billing, which is no surprise since most Texas electricity companies charge extra fees on customer bills.

Meanwhile in Arizona, customer-service rankings are high and prices are below the national average because our Corporation Commission has done a good job. Our regulated system ensures that all of our customers (including those in rural areas) are served and the grid is maintained.

Texas now faces challenges with electricity reliability. It had at least nine reliability emergencies last year alone, and recently received a warning from the North American Electric Reliability Corporation for the risks associated with dwindling power-generation reserves and the lack of incentives to build new ones.

But stunningly, in the face of abject deregulatory failure, the call has been sounded once again. Deregulation could possibly lower rates for large commercial and industrial users who already enjoy far lower rates than do residential consumers. But the possibility for small consumers and those most vulnerable to have lower rates is even more remote.

We formed the Arizona Power Consumers Coalition to protect our state against the dangers of deregulation. Our group is a statewide coalition of business organizations and community groups as well as more than 300 elected officials and other individuals.

Imagine rolling the blackouts that have occurred in California and Texas as a result of deregulation occurring in Phoenix in July and August. Imagine what would happen to those who already face economic challenges if the pricing scenarios that led to threefold increases in California occur here during the summer.

Fortunately, those charged with deregulating Arizona in the late 1990s recognized that the challenges of deregulation were significant and the outcome uncertain. We took the slow road so that we could assess the outcome of similar efforts in neighboring states.

Once history was written, Arizona did the smart and responsible thing and pulled the plug on an idea that has turned out to be disappointing at best and most accurately described as a complete failure.

Diane McCarthy is a former Arizona Corporation commissioner and state legislator. She is a co-chairwoman of the Arizona Power Consumers Coalition.

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