Keystone Research renews call for comprehensive study of utility restructuring

HARRISBURG, Pa., Aug. 28, 2002 — Last year, the Keystone Research Center released a report on the restructuring of Pennsylvania’s utility industries.

That report examined data collected by the Public Utility Commission (PUC) and noted some disturbing trends in safety, reliability, and customer complaints. At that time, Keystone called on the General Assembly and the PUC to conduct a comprehensive study of the impacts of utility restructuring on the Commonwealth.

In June of this year, the Legislative Budget and Finance Committee issued a report on the electric utility industry in Pennsylvania (Assessing the Reliability of Pennsylvania’s Electric Transmission and Distribution Systems, Report Highlights on line at http://lbfc.legis.state.pa.us/).

That report confirmed many of Keystone’s findings about the degradation of customer service and what appear to be serious problems with the reliability of Pennsylvania’s electric grid, Keystone said.

Just before the legislative report was released, the PUC promised that it would be issuing its own study of these issues. The PUC’s staff completed its report in July of this year but, so far, the report has not been made public.

However, the citizens group Citizens for Pennsylvania’s Future has issued a report claiming that Pennsylvania’s consumers have saved substantially as a result of the restructuring of the electric industry (Electricity Competition: The Story Behind the Headlines – A 50-State Report, on line at www.pennfuture.org).

Keystone said PennFuture was to be commended for presenting information about electricity prices – seeking, like KRC, to ensure that debate about restructuring is rooted in facts, not ideology.

But it said PennFuture overstates what can be concluded about retail restructuring and electricity prices. (Keystone was not addressing the PennFuture claim that wholesale restructuring may have reduced prices.)

While PennFuture maintains that prices have declined most in states that have implemented retail as well as wholesale restructuring, its statistical evidence does not demonstrate this link, Keystone claimed.

It said no strong and systematic relationship exists between price declines and having restructured. Even in the residential segment, in which the strongest (but still weak) correlation exists between having lower prices and having implemented retail restructuring, this correlation is not statistically significant.

Keystone said that PennFuture’s study does not consider:

— The quality of customer service at utilities. Complaints to the PUC about electric utilities increased nearly 50 percent between 1996 and 2000 (from 2,145 in 1996 to 3,047 in 2000).

— The reliable delivery of electric service. The Keystone and legislative reports highlight what appear to be serious problems with electric utilities’ decreased spending on preventive maintenance, inspection of critical equipment, and time to repair outages. The PUC staff collected inspection and maintenance data from utilities in early 2002 and prepared a report in July, but these data have not been made public.

— Utilities’ investments in Pennsylvania’s infrastructure. Rather than reinvesting their profits in Pennsylvania, electric utilities have been investing in power plants in other states and even other countries, speculating in energy trading, and getting into completely unrelated businesses, like telecommunications and water distribution.

— The value of utility stockholders’ investments. Tens of thousands of Pennsylvanians own stock in their local utilities, but some of those investments have fared poorly since deregulation. For example, the stock price of DQE (Duquesne Light’s holding company) was $30.88 on January 2, 1996. Recently it stands at just $14.99, a loss in value of 50 percent. Similarly, Allegheny Energy’s stock price stood at $28.88 at the start of 1996; recently it is just $22.87, a loss of more than 20 percent.

— The impact on local communities. Utilities’ local property tax payments have fallen dramatically as a result of deregulation. In addition, many power plant owners have challenged their local property tax assessments, forcing local governments to pay expenses for lawyers and appraisers to collect the lower tax revenues from utilities.

— The impact on Pennsylvania’s work force. As restructuring moved forward from 1994 to 1999, the Keystone report documented that Pennsylvania utilities decreased their workforce by 6,500. Since then, such cuts have continued. This past month, for example, Allegheny Energy announced that it was slashing its work force by 10 percent, or more than 600 jobs.

All of the reports done so far – by Keystone, the legislature, and PennFuture – look at just certain impacts of restructuring. Some of those impacts may be positive for Pennsylvania, including the environmental benefits discussed by PennFuture. Other impacts, however, are negative, including the declines in the quality and reliability of service received by customers.

Keystone Research Center renewed its call for a comprehensive, independent study of the costs and benefits of utility restructuring on Pennsylvania. An independent study should include a rigorous examination of the prices paid by consumers, as well as the reliability and quality of service those consumers receive from their utilities.

In addition, it said the report must include other impacts on the Commonwealth, including its environment, local property taxes, employment levels, utility support of community services, and utility investment in Pennsylvania’s infrastructure.

* KRC May 2001 report, Pennsylvania Utilities: How Are Consumers, Workers, and Corporations Faring in the Deregulated Electricity, Gas, and Telephone Industries? — on line at www.keystoneresearch.org

Source: Keystone Research Center


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