Originally created 07/09/98

Power competition could raise prices say consumer groups

WASHINGTON -- Two consumer groups question whether residential customers will see much savings as a result of increased competition in the electricity industry. Prices for many people may increase, they say.

"For consumers, many of the initial claims of price cuts and improved service have been grossly misleading," Adrienne Mitchem of Consumers Union maintained at a news conference Wednesday.

The Consumers Federation of America cited "fundamental flaws" in claims from proponents of deregulation, including the Clinton administration, that people will save "billions of dollars" by ending electric utility monopolies.

In the past year states with high electricity prices have moved rapidly toward deregulation, where customers are able to choose their electricity suppliers. Local utilities traditionally have had monopolies on electricity sales.

Supporters of competition have maintained that all customers will benefit from lower prices if electricity suppliers are allowed to compete. Some have estimated savings as high as 40 percent, although most savings have been predicted in the 10 percent range.

The two consumer groups said their analysis of electricity competition suggests the savings to residential customers could be much less and that costs may even go up.

Mark Cooper, research director of the Consumer Federation of America, said efficiency gains from competition more than likely will be offset by increased costs of and attempts by utilities to recover past investment costs such as that of its nuclear power plants.

"One cannot assume that electricity markets will automatically work well. They are highly concentrated and are likely to be plagued by the abuse of market power," concluded a report developed by the two organizations.

Cooper said residential customers will have less bargaining power than large commercial users. That will lead to a wider gap between what homeowners and commercial customers pay for their power as utilities seek to shift costs to residential users, he said.

Advocates for electricity competition have maintained that while commercial customers likely will save more, residential customers will share the benefits with some savings.

Cooper said early signs of deregulation in California and in some New England states, including Massachusetts, show little savings for residential customers when they -- instead of utility stockholders -- must pay to recover past utility investments that may no longer be economical.

Competition in electricity sales on a statewide level or in limited pilot programs has been under way in a handful of states including California, Pennsylvania, Massachusetts, New Hampshire, Rhode Island and Illinois.

Federal efforts in Congress to enact nationwide electricity deregulation have bogged down with no legislation expected this year.


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