Electric utilities continue to overcharge customers

Unlike the sleazy headlines in some tabloid newspapers, the Detroit News often has sensational headlines on page one that reflect important, substantive stories. This certainly was the case on January 4, 2000 with the lead story blazing the headline “Report: Edison overbills $248M.”
The “Report” refers to a study done by Moody’s Investors Service for a Detroit area business group, which includes the major auto companies and is called “Associate of Businesses Advocating Tariff Equity.” These companies don’t like being overcharged for electricity anymore than residential customers, and they complained to the Michigan Public Service Commission. Moody’s analysis took the Commission to task for allowing Detroit Edison to collect too much for the “stranded costs” of its Fermi II nuclear plant in anticipation of the coming of electricity competition. Broken down, Moody’s put the annual average overcharge at $43 a year for residential customers, $456 a year for commercial customers and $82,600 for industrial users.

The business group is demanding a rollback in electric rates for Edison’s two million customers who already are paying among the highest prices in the Midwest.

Michigan has not yet joined the nearly 2 dozen states that have passed so-called full electricity deregulation laws opening up the markets to supposed competition. I say “supposed” because in California, there has been very little competition to the erstwhile electric utility monopolies due to the huge “strandedcost” subsidies and other advantages exacted from the state legislature in return for giving up their monopolies.

Enron, a large energy company, was planning to compete with Pacific Gas & Electric and California Edison, but dropped out because of this unlevel playing field. Nearly two years into California’s electricity deregulation and only 1.7% of households have switched to what competition there exists.

The looming question arising out of the Moody’s report is: Are other electricity companies overcharging in other states under the non-watchful coziness of their state regulators? If so, then billions of dollars are being taken from customers under the accounting formulae applied to the “stranded costs” doctrine — i.e. making consumers pay again for the uneconomic investments in nuclear and other inefficient plants as a condition for open competition.

A clue to the likelihood that Detroit Edison may not be the only utility overcharging on this basis was contained in the Moody’s study, which noted that similar conditions in other states may be allowing the electric utilities “to charge ratepayers for costs they don’t need help covering,” according to the Detroit News.

When the 23 states passed their electricity de-regulation laws in the past three years, there was very little reporting on these topics and very little knowledge among the legislators whose votes were whisked through their chambers by electric industry lobbyists. The large industrial electricity users supported de-regulation because they could more easily bargain for big volumediscounts.

Now, it seems, one utility’s gouging behavior is too much for one group of businesses in Michigan. Will other business associations in other states also commission studies similar to Moody’s in order to find if and how electricity customers are being overcharged in their states?

Why not ask your state Chamber of Commerce?

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