After Deregulation, Consumers Suffer and Utilities Starve PA. Energy and Telecommunications Infrastructure

To Avoid Problems Seen In Other States, Keystone Research Center Calls On PA. Legislature to Heed Warning Signs, Conduct Comprehensive Assessment of Deregulation

Harrisburg, May 30 - Deregulation in the Pennsylvania electricity, gas, and telephone industries has been accompanied by problems for consumers and low investment in the Commonwealth's infrastructure, a briefing paper released by the Keystone Research Center revealed today.

The Center called on the legislature to commission a comprehensive assessment of the impact of utility deregulation and of the need for changes in regulation.

"The lack of investment and reliability problems that we document could signal more severe problems down the road," said Scott Rubin, author of Pennsylvania Utilities: How are Consumers, Workers, and Corporations Faring in the Deregulated Electricity, Gas, and Telephone Industries? "We should examine the need for new policies now. We don't want to wait until Pennsylvania faces the kind of cricis that exists today in Montana and California."

To encourage more open and fact-based discussion of the consequences of deregulation, the Keystone report extracts from little-used Public Utility Commission reports and from other sources data on investment in Pennsylvania utilities and on corporate, worker, and consumer well-being.

The briefing paper reports this data for the years 1994 to 1999 for utilities as a whole and separately for each industry. An Appendix contains information on individual utilities across the state, allowing members of the media to provide a local angle. The report's main findings include:

• From 1994 to 1999, Pennsylvania's utilities made a combined profit of $16 billion but reinvested just $0.8 billion of these profits in Pennsylvania's utility infrastructure.
• Verizon, Pennsylvania's largest telephone company, earned $1.8 billion in profits from 1994 to 1999 but had net investment in Pennsylvania's utility infrastructure of minus $400 million.
• From 1994 to 1999, the number of Pennsylvania consumers who complained to the PUC about utility service more than doubled. In 1999 alone, the PUC received more than 10,000 complaints.
• Electric utility outages lasted, on average, 30 minutes longer in 1999 than they did in 1994.
• From 1994 to 1999, Pennsylvania utilities decreased their Pennsylvania workforce by about 6,500 people, or nearly 15 percent- a possible reason, along with low investment, for problems experienced by consumers.
• Utility CEOs have gained the most following utility deregulation in Pennsylvania. CEO pay increased by 76 percent in inflation-adjusted dollars from 1994 to 1999- 15 times as much as the 5 percent wage rise of middle-income Pennsylvania workers in the same period.

The Keystone report makes four recommendations:

1. The Pennsylvania legislature should commission a comprehensive and balanced assessment of the impacts of utility deregulation on Pennsylvania's economy and utility infrastructure. This assessment should include recommendations regarding how regulation in each industry should be modified to better achieve the public good.

2. The PUC should evaluate ways to make critical data about utility performance widely available to the public. This would increase the prospects for regulation that responds to the public interest rather than to the political power and access of utilities.

3. The PUC should require major utilities to prepare annual infrastructure reports on the present and future safety and reliability of the Commonwealth's utility infrastructure.

4. The PUC should conduct periodic audits of each major utility's safety and reliability practices.

"Experience in other states underscores that deregulation gone wrong can have devastating consequences," concluded Stephen Herzenberg, Keystone Research Center Executive Director. "We should heed the early warning signs in our report and take a hard look at what is necessary to avoid more serious problems in the future."

Scott Rubin is an independent attorney and consultant, who has worked exclusively on issues affecting the public utility industry for more than 17 years. Mr. Rubin has served as a consultant, expert witness, or attorney in more than a dozen states, and before FERC and the FCC, in matters involving electric, gas, water, wastewater, and telecommunications utilities. Mr. Rubin has published technical papers and contributed to books on issues affecting the utility industry. He also serves on the faculty of the Annual Regulatory Studies Program at Michigan State University. Mr. Rubin was an active participant in negotiations that led to the restructuring of the Pennsylvania electricity, natural gas, and telecommunications industries. Mr. Rubin holds a B.A. in political science from the Pennsylvania State University and a J.D. from the National Law Center at George Washington University.

The Keystone Research Center, a non-partisan think tank, conducts research on the Pennsylvania and civic institutions. This research documents current conditions and seeks to develop innovative policy proposals to expand economic opportunity and ensure that all state residents share in economic growth.

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