|PULLING THE PLUG ON MONOPOLIES?|
Local Utility Deregulation
June 3, 1997
in this forum:
How will deregulation lower costs? How will the deregulation affect state-run electric companies? Will deregulation force local companies to compete against corporate giants? Will deregulation end energy conservation? Who will pay the stranded costs? Will the U.S. gov't use its leverage as a consumer? Additional Comments
The Republican House Commerce Committee's guide to Utility Deregulation.
Representative Dan Schaefer's Homepage.
Representative John Dingell's Homepage.
Resources for the Future question the impact of electricity deregulation.
General information, schedules and past Freshmen Forums.
Return to @the Capitol.
Scrutinize the work of several major Congressional committees in online forums with the chairs and ranking members.
Follow the first year in Congress of Freshmen Reps. Kay Granger (R-TX) and Jay Johnson (D-WI)
A question from Edwin S. Oxner of Manchaca, TX:
I just sent you an e-mail on this subject. But for your associates, I'll briefly repeat: Deregulating the telephone industry didn't lower consumer bills; deregulating cable TV didn't lower consumer subscriptions. With two failures out of three, how will this Act succeed?
Rep. Schaefer responds:
Competition has lowered prices paid by consumers in a wide range of heavily regulated industries. A recent joint study by The Brookings Institution and the Center for Market Processes at George Mason University reviewed the effect of competition on the natural gas, telecommunications, airline, trucking, and railroad industries. In each case, prices paid by consumers fell substantially as a result of competition. Prices in these industries fell by at least 25 percent -- and in some cases by more than 50 percent.
In one of the industries you mention -- telephones -- competition lowered long distance telephone rates by 40 to 47 percent between 1984 and 1994. While it is true that the cost of local telephone service did not fall during that period, that is because competition was, for the most part, not legally allowed in local telephone service until last year when Congress passed legislation to sweep away antiquated laws that prevent people from competing with local exchange carriers.
The break-up of the telecommunications monopoly also has spurred explosive growth in new technologies, many of which we as consumers now depend on---be it cell phones, call waiting, voice mail or direct broadcast systems (small, individualized satellite dish systems). Opening up the electric generation industry to competition will surely result in new, innovative inventions to the direct benefit of consumers. Already on the horizon are new technologies such as, real-time metering to allow off-peak---and therefore cheaper---rates for electricity; full package energy service deals; advanced electricity storage; and smaller, more efficient generators.
Competition created billions of dollars of consumer benefits in these five industries, and promises to save tens of billions of dollars if competition is established in electricity. Five out of five is not bad; six out of six is better.
Rep. Dingell responds:
The analogy between telecommunications and electric utilities is one that has been drawn by the supporters of utility deregulation. Your question makes a good point, and that is that telecommunications deregulation hasn't brought the kind of benefits predicted as of yet. But I also think it is too early to judge those efforts, and there is every reason to believe that the telecommunications bill will benefit the average consumer in the long run.
Nevertheless, the analogy between telecommunications and electric utilities simply doesn't hold up. Every household needs electric power, but not every household needs or wants cable television, cell phones, Internet access, satellite dishes, or every other service available. Reliable electric power is the lifeblood of American industry. The capital investment in electric generation is huge. New plants take time to build. The system must be able to respond to large fluctuations in demand: a cold winter or hot summer can tax the system to its limits. Moreover, the electric transmission system operates under the laws of physics, not business agreements. It is interconnected nationally, and the failure to maintain or upgrade the system in one area can have dire consequences many miles -- or, as we saw last summer in the West, many states -- away.
When we talk about consumer choice in telecommunications, we're really talking about different ways of delivering information: through a phone wire, or a coaxial cable, or broadcast, or via direct broadcast satellite, or with a cellular phone or other wireless transmission. If the price for one method of transmission is too high, or the quality of service too low, the consumer can take his or her business elsewhere. But there is only one way to receive electric power, and that is through a wire to your house or business.