Exclusive to the Dallas Morning News July 23, 1998	Word Count: 777

Electric deregulation would turn up the heat on Texas consumers

The heat wave plaguing Texas and much of the rest of the U.S. provides a powerful lesson in economics. Record temperatures mean a record demand for electricity. In free market parlance, the higher the demand the higher the prices sellers charge. As consumers, you and I can either pay the higher prices or cut back on our usage.

As Dallas residents know all too well, for some consumers cutting back electricity consumption by turning off the air conditioner has been a death sentence. About two dozen people have died in Dallas County since June 1, and several of those heat-related deaths have been attributed to the victims turning off their air conditioners out of concern over high electric bills. Public health officials here have told consumers to keep their air conditioners on, no matter the cost, promising financial assistance for low income households.

The current heat wave and surge in demand for electricity has taken a toll on human life and consumer spending. Blackouts have been threatened in several parts of the country. These impacts would only be magnified if the current trend towards electric deregulation takes hold in Texas. Why? Competitive markets do not provide a safety net for consumers who cannot afford an essential service, such as electricity. Moreover, companies unrestrained by regulation inevitably use their freedom to charge higher prices during times of greatest need.

Public policy must recognize the essential nature of electric service. The sad fact is that under the current regulated system, Texas does relatively little to assist lower income households with energy bills. According to a recent report by the Texas Ratepayers’ Organization to Save Energy, 1.4 million low income customers in Texas spend $1 billion a year on electricity. Electric bills run from 13 to 44 percent of total household income for these families.

Federal funding for energy assistance for Texans declined more than 30 percent in recent years, serving only an estimated 8 percent of eligible households in the state. Texas ranks near the bottom of all states on state-mandated bill payment and energy assistance programs. If Texas decides to deregulate the electric market, these programs must not only be continued, but expanded to prevent tragedies such as heat related deaths.

Although the impact is most severe on lower income households, all family budgets are hit hard when electric prices skyrocket. Record temperatures trigger a rise in the cost of electricity when usually idle generators are powered up, or additional power is purchased in the wholesale market. But just like price gouging by retailers during a hurricane, deregulation allows suppliers -- particularly those with market power -- to capitalize during times of greatest need.

The recent rush of mega-mergers in industries such as banking, health care and telecommunications have raised serious concerns about the danger of concentrating economic power among few companies. Deregulation combined with market power will have serious consequences which directly affect our wallets, and in the case of electricity, possibly our health and well being.

A case in point is California, which deregulated its electric market earlier this year. On July 14, the price of reserve power during peak demand hours jumped 1000 times higher than normal, resulting in California consumers paying an estimated $1.5 million to cover their electricity needs for just three hours of the day. When electric usage in that state began to reach capacity levels, the profit motive of the only supplier with electricity to spare dictated the response: raise the price dramatically.

Similar responses to power shortages occurred in the wholesale market in the Midwest, where some utilities ran up their prices 230 times higher than normal in late June. Members of Congress have called on federal regulators to investigate and possibly impose price caps. Fortunately, Texas has not experienced the same price hikes.

Because electricity markets are dominated by a few large companies, they are likely to be plagued by abuses by any one player. Even in the best of times residential customers have less bargaining power than large commercial users. That leads to a wider gap between what homeowners and commercial customers pay for their power as utilities shift costs to captive residential users.

Fortunately, it is not too late for Texans to learn what other states are finding out the hard way. Without vigorous policies to protect consumers’ pocketbooks, deregulation is a very risky proposition. Such policies would mitigate market power, ensure reliability and provide relief to low income households.

Early claims that deregulation would yield lower prices and improved service to consumers are proving to be nothing more than hot air. Just the kind of hot air Dallas residents don’t need added to their weather forecast.

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Janee Briesemeister is a senior policy analyst with the Southwest Regional Office of Consumers Union, publisher of Consumer Reports.