To quickly understand just how we’re all getting screwed by energy companies, grab a copy of your latest electric bill. Somewhere among the itemized charges is a “Transition Fee” that typically totals one-quarter to one-third of your bill.
You pay this “Transition Fee” (meaning transisiton from a regulated to deregulated market) every month to cover energy company losses from poor management decisions and failed investments, such as nuclear power plants that nobody ever wanted.
It is a hidden tax. It is a subsidy. It is Socialism. Since it hits working families and the poor disproportionately, it is class warfare.
And it was enacted into law by the MA legislature a little over a decade ago.
To graps how much energy company profiteers rake in from this kind of legalized stealing, check out today’s Times installment:
The American Electric Power Company, which owns utilities in 11 states, sold nine of its Texas power plants to SEMPRA, the parent of a San Diego utility company, and the Carlyle Group in 2004 for $430 million. SEMPRA and Carlyle quickly resold two of the plants for $1.6 billion.
American Electric wanted customers to pay an average of $9 a month for 14 years to cover the difference between the cost of building the plants and the lower price for which it sold them, plus interest. But because the resold plants went for 15 times as much per unit of generating capacity, state regulators questioned whether the utility should have sold the plants for higher prices. Still, regulators have required customers to pay on average $5 per month for 14 years, or more than $800 each.
Imagine what would happen if, a State Legislator proposed raising corporate windfall taxes that much to fund alternative energy in MA. There would by wailing and gnashing of teeth from the usual suspects… But somehow, since private companies fatten their bank accounts with our money, it’s okay.
Continuing directly:
There are persistent allegations that many plants have become inordinately profitable for their new owners; in some cases, disputes have arisen over just how profitable the plants are. In Connecticut, three plants together earn at least $700 million in annual profits, money that is over and above the 10 percent profit they would earn if they were still in the regulated system, Attorney General Richard Blumenthal said. He wants the state to end the new system and return to a more regulated system or even have a state agency provide power.
We’re all being gouged to get the same energy we already were getting under the old system. If I’m gonna pay an extra, I’d prefer it go to alternative energy.
The key, of course, is that unlike sexy projects such as Cape Wind, reforming the laws regulating energy companies –as they’re proposing in CT– requires no cash outlays and no building in public spaces that anyone finds objectionable.
Coupled with an end to current MA power plant exemptions from emissions and cleaning requirements, this is an immediate-impact, no cost solution to these hidden corporate taxes on working families.
It’s time we demanded some accountability. I’d like to see MA under a Patrick administration lead the fight on this.
The first article in the Times series mentions “drives underway to expand public power in Massachusetts,” but I must plead ignorance on what is currently underway here; if anyone knows, I’d love to hear what’s cooking.
…is funded by this. It is the only aggregator on RESIDENTIAL electric services in the state . That is, they take Barnstable County – NOT a great place for an electric company to do business with there being so much space between houses and the need to maintain lines and all in the high winds – and bid out the entire county as a single entity. They get a lower rate than the usual suspects, and you can sign on if you wish. We had Mirant, we now have Dominion.
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Let me repeat that – the ONLY aggregator of residential electricity. Now 7 years old.
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All the other breaks in electric rates go to businesses.
and those of us on the Cape paying their rate are paying the highest prices in the State – I’ve switched to regular NSTAR and am paying less that I did with the compact.
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Yeah, dereg has been a mess and the benefits were WAY oversold, but it’s an oversimplification to say that consumers got burned and power companies raked it in – actually, in MA after dereg, most power plant companies in the years that followed filed for bankrupcy – why? Because they couldn’t pass on the true cost of power because of transition rules designed to shield consumers from price shocks.
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What has screwed everybody is that in the last 4 years the price of natural gas (our dominent power plant fuel) has tripled and the price of coal and oil have more than doubled, that has a lot more to do with higher prices than anything.
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This stuff is complicated.
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The best 2 things the next Gov could do would be to aggressively pursue energy conservation AND renewables like Cape Wind so we’re less dependent on all this fossil fuel having to be imported into our region.
Goodness gracious, who in Massachusetts filed for bankruptcy?
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I agree with you about renewables and, especially, energy efficiency.
of energy companies that bought MA power plants after dereg and later filed (various levels) of bankrupcy – it wasn’t just their losing money here, but generally the skyrocketing price of fuel harmed them all:
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Mirant (owner of Canal)
PG&E (did own Salem and Brayton Point, since sold them)
Calpine (owned some natural gas plants)
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Some have since gotten back out of bankrupcy.
As I recall from the ’98 dereg debate, advocates for Cape Light sided with Big Energy in support of the proposed deregulation bill, including its Socialist Corporate Welfare provisions.
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They argued –sincerely or not– that if they could legally negotiate on behalf of consumers, their collective buying power would reduce consumer costs and allow them to pursue green-friendly alternatives. I think they also argued that if other communities/regions replicated their approach, it would be worth the Coporate Welfare tradeoff(would-be energy profiteers at the time characterized them to me privately as “useful idiots”).
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The information on their website, however, suggests the Cape Light folks were wrong; their buying compact apparantly has not achieved any of these results.
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First, there is nothing that shows residents pay less for energy under their compact than they would have without deregulation, nor that residents couldn’t do better under a public or more properly regulated system.
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For example, if you check out their explanation of a typical residential electric bill, it shows the Transition Fee that I mentioned (17% of the total bill). So that right there is a 17% hidden tax to subsidize Corporate Welfare that gives nothing to the consumer. CLC doesn’t get this money; it is irrelevant to them having the legal right to negotiate power in aggregate for residential customers.
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Eliminating this hidden tax would immediately provide consumers a better rate than what CLC can provide since the Socialist dereg law requires them to charge the Transition Fee.
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Second, while true CLC administers energy efficiency programs –like advising consumers on how to reduce energy consumption, and even installing free Green improvements like weather stripping– these are paid by the ratepayers (the last line item on the sample bill).
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And of course, when they buy power in aggregate from the same polluting plants like the Fithy Five, it does nothing to make those plants cleaner.
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Third –as you noted– nobody else in MA has replicated their model for ratepayers. That’s because enrgy companies and their investers want to get rich and don’t care about energy costs to working families.
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As was known long before the dereg law was enacted, you can’t make anywhere near as much profit serving households as shopping malls, universities, factories and office complexes. Thus, energy companies in the new free-for-all market competed for the big business customers and ignored residential consumers.
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And I’ll bet you a hundred quahogs that the bloated energy company execs all oppose the Estate Tax on the basis of “fairness.”
The issue you address was the single most contentious issue during the debate over the MA Electric Restructuring Act of 1997 (dereg law), usually referred to as “stranded costs”. It ensured that the public would be left holding the bag for really dumb investments that the utilities had made over the years (like Seabrook costing triple the estimate), and as you correctly note, we’re all still paying the bill. Enviro and consumer advocacy orgs fought this hard at the time, but ultimately lost the battle.
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I’m not sure what, if anything, a MA Gov could do about this now.
Although I am a supporter of Cape Wind, all Mass. citizens really have to get their energy use under control to the extent possible. Getting more elec. from Cape Wind (if and when that happens) should not be a license to use more. If that happens it is really no net gain for the environment. I think we all should try to see what we can save (over the next year try for a 10% reduction in your usage e.g. KWH/year). You need to examine your appliances and useage patterns. Watch your meter on a weekly basis to see when it zips up and figure out why. It may better to replace some old appliances and tighten the house up first before than spending $15K on some PVs for the roof.
Although Im usually a very liberal Democrat for the most part I support the aims of privatization and deregulation, sadly the theoretical economists dream of free flowing markets and competition is almost never realized since corporations will always get greedy and try to thwart competition at every turn. Deregulating the AT&T monopoly created hundreds of smaller telephone companies, cut the national service and reliability of AT&T and lead directly to several mergers and aquisitions where essentially we know have across the nation around two to three phone companies anyway making the project a failure.
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The electricity example is different since instead of truly privatizing public utilities to allow for competition they swapped a public monopoly which had the interests of the public in mind and needed only to break even with unscrupulous private monopolies that in fact rose rates because they could, and as the NY Times article points out created sister companies so that they could control electrical production and distribution which is the exact opposite of what the original deregulation model proposed.
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Cambridge is trying desperately to recreate its old electric company and I say go for it!
I practically live next door to Peabody, which pays about half the rate of electricity as where I live (Swampscott). They have their own city public electicity company, Swampscott’s completely run through private companies.
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Electricity costs, like cell phones/broadband/cable/etc., is one area where Americans are screwed because of the Republican Party corporate greed without accountability or regulations.
Most of the transition charge, as you point out, is a tax per kwh to pay for nuclear plants that were either never finished or that cost more to build than they were worth. A bailout. A rip-off. A scam. (Your choice words here.)
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The utilities, however, have already been paid in full by the Legislature, a massive appropriation (again, your choice words here) financed by bonds–a honking great loan–backed ultimately by the full faith and credit of the Commonwealth and paid off, over time, by that transition charge.
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Do you see the problem? We are stuck with that debt, either as ratepayers or as taxpayers. Ironically, it works out better for the environment if we pay it as ratepayers.
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I don’t think we are entirely without options, but in term of the transition charge, the cow left the barn in the 1990s and there isn’t a whole lot of point in fiddling with the door at this point.
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It is a painful illustration of the way that ideologues and idiots can destroy or give away in an instant public wealth that took decades to create.
I think you got that exactly right.
Unfortunately I am well aware that the battle against the Bailout was lost 8 years ago; I worked on the losing “No on Question 2” ballot provision.
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Still, there are several things we can do about electric power and clean energy that I would prioritize over Cape Wind such as:
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1. Compliance with Clean Air Regulations — energy plants, such as the Filthy Five, have been repeatedly given retro-active exemptions from compliance with Clean Air standards. This practice must end, period.
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Even if Cape Wind comes through, it will not reduce the emissions from these dirty plants. Stopping the current pollution will do more to clean the air we now breathe than building wind farms.
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2. Re-Regulate Rates — deregulation has failed. We need to look at what states like CT already are doing to take public control of our energy and end the unjustified gouging by the energy profiteers.
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3. Tax Energy Companies to fund Alternatives, Health Care — MA should join with other states to tax energy companies in proprtion to childhood asthma levels and/or previous windfall profits. This money should be used to fund alternative energy development and pay for health care costs connected to air pollution.
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These companies understand nothing but brute financial force. As has been done with tobacco lawsuits and adopting greenhouse gas emission standards, states must band together and force them to comply (I know it sounds harsh and strident, but I’m still bitter about the ’98 battle and that Transition Fee? For f*cksake…)
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Politically speaking, it’s much more appealing (and easier) to latch onto an apparant magic bullet like a Wind Farm than mandating compliance with Clean Air standards or re-visiting the whole complex energy pricing issue. Still, I’m hopeful that a Patrick administration, inspired by active citizens, would take on this issue and do the hard work.
Some good and valid points here, but remember, very little is required of the Governor on Cape Wind you seem to suggest it will keep him from doing other things on your list – not so.
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Cape Wind is in the hands of the regulators, the Governor just has to step out of the way and let them do their jobs – that’s been the problem with the current administration, they have tried to inject themselves at every turn to gum up the works and make the permitting process impossible…
Fully regulated utilities cost less, are more efficient, and more reliable – that much is crystal-clear from a century’s experience, and studies. Even though it may take some effort and money at first, re-regulating utilities will be a big win, as well as an insurance policy against the failures of “free market” utilities (outages that hurt the entire economy). If your city doesn’t already have a municipal or regional public-owned utility, get it to start one.
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Greg Palast has done a lot of reporting on this over the years, BTW.