Price gougers have taken advantage of shortages to inflate wholesale energy prices. Low-income families are particularly vulnerable to price increases for essentials. Government can help.
Now we're paying for deregulation
By Jerrold Oppenheim, 2/18/2001
MY HEATING BILL and my mortgage will take two-thirds of my fixed income. I don't get a raise. How can I pay this bill?
Price gougers have taken advantage of shortages to inflate wholesale energy prices: Crude oil prices more than tripled in two years, to $34 a barrel; natural gas prices peaked at almost five times the year-ago price, equivalent to oil at $63 a barrel; New England wholesale electricity prices more than doubled and peaked for four hours last May at $6, the equivalent of $150 for a 75-cent can of Coke. Oil and gas fuel less than half of New England's electricity - the rest is powered by fuels with stable prices: coal, uranium, and hydropower. Something else is boosting prices.
Low-income families are particularly vulnerable to price increases for essentials. Their incomes have dropped 14 percent in two decades despite the economic boom that rewarded the richest fifth with 45 percent bonuses. Home prices for electricity default service and gas just doubled; heating oil doubled in two years. Home energy thus takes a third of a minimum-wage income. Fuel assistance applications increased 32 percent in two years.
Economists theorize that prices will eventually fall and will average less than before. Even if this speculation comes true, it spells economic havoc. Arguing for volatile prices is like claiming that the person with one arm in a freezer and the other in an oven is perfectly all right, on average.
Electricity and gas restructuring were supposed to lower prices. For the 7 percent of Massachusetts large businesses that found electricity alternatives, the theory seems to have worked. But there are no competitors for residential consumers. Volatile wholesale prices are scaring them away.
Deregulation has failed before: After telephone deregulation in 1984, residential local rates rose 50 percent in Massachusetts. Long distance, primarily used by businesses, dropped more than 50 percent. Since wholesale natural gas prices were deregulated in 1986, Massachusetts residential prices increased 28 percent while industrials dropped.
What can be done?
Efficiency. Under General Court mandates, Massachusetts electric utilities operate the nation's most effective efficiency programs. They should be expanded. Reducing demand for electricity also reduces demand for gas used to generate electricity and thereby reduces prices for both. Requiring all gas utilities to more fully join efficiency efforts would send a message to the out-of-state corporations that purchased every Massachusetts gas utility.
A similar strategy helped break the 1970s OPEC oil cartel. Efficient appliances and homes can break the current-day electricity, gas, and oil cartels - with no change in comfort. Compact fluorescent lights use 75 percent less electricity. Efficient refrigerators cut use by 30 percent. Computers in sleep mode reduce electricity consumption by 40 percent. Weatherstripping and insulation cut heating bills by 20 percent or more. Such bill reductions from efficiency are especially important to low-income families. Local wind and solar power and gas-sipping generating technologies such as fuel cells, can also pay for themselves by reducing electricity and gas demand.
Help with bills. Families living on the edge need immediate help, including expanded discounts and cash assistance. The Department of Telecommunications and Energy has already extended the winter shut-off moratorium, allowing time to pay winter gas bills. Most important is publicity. Division of Energy Resources data show that the low-income electricity discount reaches only 26 percent of eligible families. Better enforcement is needed of the statutory requirement that electric utilities conduct substantial outreach efforts to promote the discount.
Utility purchasing. Buying electricity only six months ahead, or gas at prices tied to volatile daily markets, contributes to our price increases. The Federal Energy Regulatory Commission was critical of California's failure to require that electricity purchase contracts be for two to five years. However, utilities can build generators more cheaply than they can buy electricity at robber baron prices. Interests as diverse as Southern California Edison and Rhode Island Attorney General Sheldon Whitehouse call for cost-based wholesale electricity prices. A few utility-built high-efficiency plants, pricing electricity based on cost, can provide a competitive benchmark for the wholesale market.
Inefficient wholesale energy markets are producing high prices and windfall profits. Massachusetts families need their government to protect them.
Jerrold Oppenheim is counsel and consultant to low-income, consumer, environmental, and labor organizations on matters involving energy and telecommunications.
This story ran on page D07 of the Boston Globe on 2/18/2001.
© Copyright 2001 Globe Newspaper Company.