Power Companies Use Sham "Grassroot" Groups In Push For Deregulation

Like telephone services and cable TV, electric utilities are going through a shake-up. A recent rash of mergers and federal proposals to deregulate the $200-billion-a-year electric-power industry have the utilities in a frenzy. Over the last few months, industry advocates have stirred up what looks like a consumer revolt. Phony grassroots organizations -- activists call them "astroturf" groups -- are popping up all over the nation.

"They're consumer front groups," says Larry Frimmerman of the Ohio Consumer Council. Some of them, like the Alliance for Affordable Power, a utility-sponsored group in Ohio, have names that are confusingly similar to older, more traditional consumer groups. "There are no citizens involved," says Frimmerman. "The name makes it sound like they're really for the public. Nope."

Other groups include the Coalition for Affordable Power in Louisiana (whose ads declare: "Standing up for You! We're on your side!"), funded by Entergy Corporation, one of the largest investor-owned-utility holding companies in the nation, and the Alliance for Fair Competition, another Entergy-backed group in Mississippi. "It's getting hard to keep track of who's really representing consumers," says an attorney who works with consumer groups.

An organization called the Electric Utility Shareholders Alliance has taken out full-page ads in The Washington Post to argue, peculiarly, that people who own shares of stock in utility companies are the little guys who need protection when the government restructures the electric-power system.

The ads, which show pictures of senior citizens, say the average shareholder is an elderly woman on a tight budget.

"It's a lot of bull," says Charlie Higley of the consumer group Public Citizen. "Most of the shares are owned by Wall Street bankers. Those elderly women surely don't control the destinies of these companies."

Those faux populist ads got the chairman of the Electric Utility Shareholders Alliance (EUSA), Bill Steinmeier, into trouble recently. Steinmeier gagged at a press conference when reporters confronted him about the membership of his group. "Steinmeier said small businesses, the elderly, farmers, and veterans have lent EUSA their support," Kristine Ziegler reported in The Energy Daily, an industry watchdog publication. "However, under questioning from reporters, he was unable to furnish a list of supporters or member organizations, which he said total more than 200. Steinmeier also acknowledged that his organization has solicited funding from investor-owned utilities, but he denied the group was a front for utilities."

Americans for Affordable Electricity, a coalition of big utilities, auto makers, and other industries that use a lot of power, is coordinating the pro-deregulation lobbying campaign.

A deregulation road show, starring Representative Dan Schaefer, Republican of Colorado, has been touring the country this spring. Schaefer, who received $125,824 from energy interests over the last two years, according to the Center for Responsive Politics, is packing hearing rooms from Illinois to Texas to Virginia, gathering testimony on a bill that would restructure the electric industry and mandate competition.

For such an arcane, technical issue, the debate over electricity deregulation is generating an awful lot of hoopla.

An airplane flew over the county courthouse in Richmond, Virginia, during a Schaefer hearing on April 18, pulling a sign that read consumer choice 4 electricity. The hearing room was packed. Protesters on both sides of the issue handed out flyers at the door. The standing-room audience spilled out of the auditorium into the hallway. A giant, cigar-smoking dog with a walking stick and a bowler hat milled around with the crowd.

Beware of Dog, a protest flier warned. The flier, produced by a group called Citizens for State Power, quoted Allen Cunningham, a DuPont executive: "In a world of deregulated electric-utility rates, '. . . the big dog eats first.'" The "big dogs" are the corporations driving the deregulation movement, the flier explained.

"This is a big-dog panel," said an audience member sitting behind me during the hearing.

Wilt Wagner of Reynolds Metals, makers of Reynolds Wrap ("which I hope you all use copiously"), said his company is also "extremely interested in the deregulation of the electric-power system."

Energy is a big expense for companies like Anheuser-Busch and Reynolds, the company spokesmen explained. Cheaper electricity would mean more competitiveness, lower prices, and more jobs, said both men.

Schaefer, from the chairman's seat at the center of the panel, leaned toward the speakers attentively.

"Since the only assignment you gave me was to give a date" for deregulation, Wagner said, "how about 12:01 a.m. on December 15, 2000?" Schaefer nodded and laughed. December 15, 2000, is the deadline for deregulation in one of the drafts of Schaefer's bill.

"If you want to do it sooner, we'll be behind you," Wagner said.

Reynolds saved a bundle on the partial deregulation of electric power in Idaho, Wagner explained. The Idaho plant was able to negotiate a 40 percent drop in its energy bill. If the federal government forces the rest of the electric-power industry to deregulate, "We'll be able to compete in the global marketplace, and this will bring jobs," he said.

What's good for Reynolds is good for the whole community, right? Not quite.

Representative Michael Crapo, Republican of Idaho, pointed out at the hearing that Reynolds benefited from deregulation in Idaho at the expense of residential consumers.

"I understand that Reynolds got a good deal" in Idaho, Crapo said. "I remember it well, because it was in my district." When the local utility was deciding how to set its rates, "it went to the big industrial consumers first," said Crapo. "You got a break. But then they raised rates for irrigation, and they raised residential utility rates by 12 percent."

The big dogs were happy. But residential consumers paid more.

Wagner conceded that this was true. "But I think you've got an apples-and-oranges comparison," he said. "Residential consumers didn't have a choice." In Wagner's view, more deregulation would solve the problem, since everybody could shop for electricity on the open market.

"Who would argue against lowering your electric costs?" asked Stan Feuerberg, president and CEO of the Northern Virginia Electric Cooperative. "But how are they going to guarantee everybody's rates will go down when they've done such a lousy job with telephones and cable TV? My cable rates have gone up three times in the last year."

"Consumer skepticism about claims for the benefits of competition are well founded." Jean Anne Fox, vice president of the Virginia Consumer Council, testified. "In phone service, it's called 'slamming' when consumers get switched to higher-cost service without their knowledge," she said. "In electricity, this form of fraud should be called 'shocking.'"

As if to enhance consumer skepticism, during the hearing Representative Schaefer produced a big chart, and asked members of the audience what they thought about the following simple formula: e=mc2 - 10%.

The formula came from an advertisement in a New Hampshire newspaper, Schaefer said, placed by Evantage, a division of the Virginia Power company. The company was offering New Hampshire residents a 10 percent break on their electric bills. "But Evantage has not offered people in Virginia a 10 percent rate cut!" Schaefer said.

A few people in the audience groaned. To people who know the industry well, Schaefer's effort to stir up outrage was transparently misleading. Electricity rates are not uniform from state to state because the costs involved in providing electricity vary greatly with the landscape and power-producing facilities. And, as several people seated around me pointed out, electricity is a lot more expensive in New Hampshire. New Hampshire residents could get a 10 percent discount and still be paying more than Virginians.

"What is the base rate in New Hampshire?" Fox asked. There was laughter and applause. Schaefer admitted that in New Hampshire people paid fourteen cents per kilowatt-hour for electricity, compared with only eight cents per kilowatt-hour in Virginia. Then he tried to change the subject. "But they've cut rates in Idaho and California . . ."

"Right now the utilities own all the transmission wires," Public Citizen's Charlie Higley explains, "and they want to continue owning it all. If they do, we won't have competition; we'll just be stuck with unregulated monopolies like in the teens and twenties."

Within the electric-power industry, there is a split between utilities that want open competition right away, and those that know they couldn't compete on the open market.

The group that can't compete is made up of big utilities with large "stranded costs" from burdensome investments, especially in nuclear plants. These companies want to keep prices high, so they can pass their "stranded costs" on to their consumers-an idea that consumer advocates vehemently oppose.

"We believe the utilities and their shareholders should pay for the bad investments they made, primarily in nuclear power," says Higley. "They should not be bailed out by the rate-payer and they should not be paid out by the government. This is corporate welfare at its worst."

Higley says that bailing out the utilities and dealing with their nuclear waste could cost $150 billion, an amount that dwarfs the savings-and-loan bailout.

Yet Public Citizen does not support federal deregulation, either.

"We believe the states are in a better position to choose whether competition is better for citizens or not," says Higley. "That's because some states have low-cost power and the current system has worked for those people. In other states the regulatory system failed, they allowed the building of huge nuclear power plants, and they are now proving uneconomical and unable to compete."

You'd never guess it from industry propaganda, but municipal public utilities provide cheaper power than investor-owned private utilities in most states. On average, public power is 30 percent cheaper than private power, according to Department of Energy figures.

This is true in part because public utilities are nonprofit, and therefore tax-exempt, and the federal government provides cheap power to municipal utilities as a matter of policy.

Representative Dennis Kucinich, Democrat of Ohio, is a longtime champion of public power. Kucinich became famous for defending the municipal power company from a hostile take-over when he was the boy mayor of Cleveland. Now he is worried that consumer interests are getting lost in the federal deregulation debate.

"I'm opposed to deregulation as constituted because it's a sham," he says. "It ignores the explosion of mergers and acquisitions in the electric-power industry. It ignores the economic impact of inefficiencies, especially nuclear plants. . . . It's all about cost-shifting to consumers."

Kucinich and Higley both believe the electric-power industry needs reform. Higley suggests a progressive program for restructuring should include: 1) busting up the existing monopolies, and making transmission wires available to all; 2) forcing the utilities to pay for stranded costs; and 3) developing alternative energy sources, and making sure consumers are informed of how their power is produced-whether it's solar, nuclear, or natural gas. (Representative Schaefer, who comes from a district where several labs are experimenting with alternative energy sources, has included a provision in his bill to inform consumers how much of their power is renewable.)

Meanwhile, consumers should beware of deregulation hype. "The major utilities have been buying up their competition. There have been twenty-two mergers and acquisitions in the last two years," Representative Kucinich points out. "The industry is organizing to avoid paying its bills. The big question is, Who's going to pay?"