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More deregulation will be costly |
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Bill Horne,
Monday, December 10th, 2007 |
...Ohio lawmakers are once again considering deregulating electric companies. You and I can vote at the polls, but we are usually reactive rather than proactive. That makes it very difficult for us to have our voices heard...
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Folks, we live in a free-market society. This means that the market is supposed to determine the price. And, the market works very well when there are many buyers and many sellers. But, there can be a problem when there are many buyers and only one or very few sellers.
Ohio lawmakers are once again considering deregulating electric companies. You and I can vote at the polls, but we are usually reactive rather than proactive. That makes it very difficult for us to have our voices heard.
I say this because, in the past few years, utility companies and their representatives have donated somewhere in the neighborhood of $3 million to political campaigns here in Ohio.
The utilities want to deregulate because they can make more money. This is a very simple concept and easy for us to understand.
There are some things that need to be considered when deciding whether to deregulate or not. The first to come to mind is that I have been unable, over the years, to find any deregulation that lowered the cost to the consumer. I even offer a milkshake to any of my economic students that can find something, anything, deregulated that lowered the price to the consumer, "the working Americans." The sad part about this is that, to date, I have not had to pay for a single milkshake.
The second thing to consider is why did our parents and grand parents regulate something in the first place? Our predecessors realized that it did not make economical sense to have three companies putting up electric lines in the same place. This same principle applies for natural gas lines. So, our forefathers allowed monopolies, but they kept a tight rein on them.
The delivery of energy, electric is the big dog, is one of those products where the more companies there are involved the higher the price to the consumer. This is because, unlike normal marketing competition, multiple companies in the same market area lose efficiency instead of gaining efficiency.
The bill that the Senate just passed, SB 221, is 65 pages of "legaleze." I noticed, when reading the bill, such stuff as electric security plan, default service, automatic adjustments for fuel costs, maintenance costs, taxes and generating facilities.
These are all reasons why an electric company - unregulated - might choose to raise their rates. Besides all of the above, large none residential electric users will be allowed to have there own special deals or contracts. This means that we will also have to pay for this.
Now, that I have said all this, I decided to call a couple of heavyweights in the electric industry. I asked them this question: "What do you think of the new electric bill?" This was a very open-ended question, but here are the answers that were received: "The state must do something." And, "The current system is a train wreck waiting to happen."
What I hear from the producers' side is that prices have been frozen at a lower rate than they should be. For that reason, reinvestment has not been made and there is a current need for maintenance and new development.
The new development includes sulfur scrubbers and I am told that this would also take care of the mercury problem.
There are three components to companies that sell us electricity. These components are generation, distribution and transmission.
Separating them for costing is called "unbundling," and putting them all back together for pricing purposes is called "rebundling."
The Senate was able to block an amendment that would have allowed the electric companies to almost double our electric bill. A similar amendment is now in the Ohio House. Grab a hold of your billfolds and purses.
Food, gasoline and housing costs continue to take larger and larger bites of our income. It seems like the electric companies want to get what is left of our pay checks.
Folks, home foreclosures are still at a peak and this is not all caused by unscrupulous loan companies. Much of this problem is caused by the loss of family income. And, as Alan Greenspan, former head of the Federal Reserve, told Congress, "There will come a day of reckoning."
What he was referring to was that you cannot continue to squeeze the life out of the American middle class. Sooner or later we are going to wake up. When we do wake up, we are going to stop allowing everyone to push us around.
Maybe now is the time to look at America's greatest generation and see what it was that made them great. It is my feeling that their greatness came from the fact that they did not take any nonsense from anybody. Not Hitler, not their government, not their employers, not their own organizations, not each other, not anyone.
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Bill Horne is a professor of economics at Southern State Community College and a columnist for The Times-Gazette.
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