As a consultant for the electric utility industry, I read with interest the Oct. 17 Business story about deregulation, which seemed to measure deregulation's success by the number of customers who switch suppliers. That is nearly irrelevant.
For example, most people will purchase their groceries in the same stores, week after week, even though they have access to other stores. But the presence of competitors forces all the stores to provide responsive service. When incumbent utilities provide a service to fickle customers, they must shape up their operations too. In states where electricity was deregulated, utilities eased out anywhere from 20 percent to 40 percent of their staff to cut costs. Those positions were never filled again; instead utilities hired employees to develop products, customer service and marketing.
With a monopoly, utilities also delivered a single product. Since energy is a commodity and the lowest price carries the day, they now must seek new sources of revenue such as cable service, Internet access and security services, thus providing indirect benefit to customers.
Finally, direct customer benefits would have been greater had regulators handled differently the so-called stranded cost issue. U.S. utilities, when regulated, made nearly $200 billion worth of uneconomic investments. Regulators decided to force ratepayers to pay off these costs, rather than impose the costs on stockholders. Therefore, savings to customers will be lower than they would have been.
Monopolies hurt customers in costs and service, and deregulation is a win for customers.