Power to the People

By Thomas Frank

You wouldn't know it from the dry talk coming out of Springfield lately, but electric utility deregulation is a hot topic these days, a strong contender to become one of the fashionable subjects of enlightened commentary in the early part of 1998. Even before Jim Edgar put it back in the news recently--expressing some surprise reservations about the bill just passed in the state legislature before signing it as expected--the Golden Promise of Deregulation was well on its way to becoming prime-time pundit fodder all across the nation. In recent weeks I have found it in a full-color ad supplement tucked into the New York Times and in a long article in an in-flight magazine, of all places. From these harbingers I predict that in the months to come it will hold an irresistible charm for the nation's most exalted talking heads and opinion molders. It's a ready-made sermon, a parable for our times with all the mandatory features.

The fable goes like this: Carrying the banner of electric utility deregulation, the democratic forces of the market confront the last of the great monopolies...and triumph utterly! Deregulation will give each of us the power to choose (a line from which, predictably, many headlines have been made). As competition is introduced into the closely controlled electricity market, we will be able to shop around for the cheapest power we can find, a particularly attractive prospect in Chicago, where prices are absurdly high. There's an environmental benefit as well: by allowing us to choose a company that owns windmills instead of one that operates coal-burning plants--or, say, one that has a history of incompetence running all those nuclear plants it built in the 80s--deregulation is sure to bring popular pressure to bear on polluters. And, since somewhere in the dark recesses of the public mind lurks the knowledge that there was once a group called the Populists, who were angry about big corporations like Commonwealth Edison, the fable comes with a tasty historical angle too: it's "The People v. the Trusts II."

But for such a deeply populist measure, deregulation comes in a strangely authoritarian package. Virtually whenever its arrival is discussed in print, it is accompanied with the word "inevitable," and often with mysteriously precise dates for when the new order is scheduled to kick in. The experts simply all agree: Deregulation is coming to an electrical monopoly near you. This is the way of the future. And though the change may be the People's Will incarnate, that doesn't mean the People get to have any say in whether or not it happens.

Here in Illinois, the pseudopopulist pageant of utility deregulation has been going on for nearly a year, pitting corporation against corporation, PR department against PR department, in a desperate battle to persuade the public that one business behemoth is more a friend of the people than another, that each conglomerate wants deeply and earnestly to deal with us in the thoughtful, service-oriented manner we've come to expect in the customer-driven 90s. And who is to say that this is inappropriate? On that golden day when full competition finally does arrive, such questions will be the stuff of everyday life, as normal to us as the claims of competing laundry detergents: Who should we go with this year, honey--the friendly folks at Com Ed or the efficient, clear-eyed men of Enron?

Commonwealth Edison, the monopoly with the most to lose from the arrival of deregulation, shamelessly tried to convince the public not only of its friendliness but of its whooping enthusiasm for the process that could very well have put it out of business. Like Louis XVI donning a red liberty cap during the early years of the French Revolution, Com Ed handed out cardboard "Deregulation Fans" at the Taste of Chicago last summer and ran newspaper ads depicting smiling wall sockets and declaring the company's ardent support for industry deregulation. There was, of course, a recurring speciousness problem, as in May, when Com Ed trotted out references to states' rights, and in the newspaper ad that insisted they looked forward to competition so they could show the world what good guys they are deep down inside: "As for us"--the operators of the now-notorious Zion nuclear plant announced--"we feel that the competition with other providers will challenge us to truly earn your business and cause us to do our jobs even better." The legislation they were pushing, meanwhile, held competition off for years and then allowed it only with plenty of caveats and residual regulation, so they could keep soaking us long into the next century.

The corporations on the other side of the question gravitated naturally to a fiercer sort of populism, rolling out the heavy antimonopoly artillery and rallying their troops with a ferocious cry of Choice Now! The Central Illinois Light Company (CILCO), the Peoria-based leader of the vaunted "Consumer Choice Partnership," produced thrilling press releases ringing with the language of consumer empowerment. More interesting were the Texas-twanged jeremiads of the Enron Corporation, a natural gas provider that hankered to become one of the two or three biggest utility players in the nation after all the deregulation dust settled. Enron reportedly spent some $25 million on advertising to make its brand of corporate populism familiar nationwide; here in Chicago the company's radio commercials stressed "free choice...for all consumers." What Enron and CILCO were fishing for was a more instantaneous and traumatic process of deregulation, a system in which electricity users could someday buy power from anyone, anywhere--hopefully them.

Everyone involved in this debate professed to care deeply about you. Everyone ardently hoped that freedom of choice would cause your rates to go down, your empowerment to blossom, your consumer satisfaction to shoot through the roof. But there's a reason deregulation is happening now instead of ten years ago, and it has nothing to do with your satisfaction or with the freedom of anyone other than the owners of factories and shopping malls. While Commonwealth Edison spent the 80s building expensive nuclear plants, saddling its customers with the highest rates in the midwest, changes in technology and the natural gas market were making it possible for big corporate users of electricity to generate their own power much more cheaply. Meanwhile, nearby utilities that had not built nuclear plants (like CILCO) were offering power at much, much lower rates. The corporate users soon decided that it was time for the various utilities' legally sanctioned monopolies to end.

Corporate pressure, as it turns out, is what made deregulation so inevitable, and corporate users are the ones best served by the legislation just enacted in Springfield. Residential consumers like you are to be tossed a 15 percent rate decrease beginning next year, but you must stay with Com Ed until 2002, when you will get another 5 percent along with the opportunity to buy power from other companies--that is, after forking over a hefty "transition fee" to Com Ed for the privilege. Corporate users, meanwhile, will get to surf the electricity marketplace beginning October 1999.

Best-served of all, of course, are our friends at Com Ed, who have effectively dodged the deregulation bullet and ensured that the public will be forced to pay for their ill-advised nuclear plants. As one Chicago attorney put it in Crain's Chicago Business, the law is "a rate cut for residents in exchange for not allowing effective competition in the state."

Not that this is necessarily a regrettable development. Full deregulation in this industry would be a disaster for most consumers, and we are fortunate that the legislation includes stiff regulatory provisions against discrimination by energy providers, for continuity of service, and for customer access to certain kinds of information.

But remember, this is not just lawmaking, it is theater. And having had a year to hone its corporate populism, Com Ed seems to have learned that the way to get what it wants is not to come right out and ask for it, but to participate fully in the drama. Since the test of true populism in this age of personality is just how mad it makes the monopolists in question, Com Ed must feign to be grievously wounded by whatever the legislature comes up with, even if they had a hand in writing it. Hence the curious twist in news coverage of the bill's passage, with reporters attempting to guess the degree of Com Ed's happiness or discomfiture. "Although a Com Ed spokeswoman maintained that the terms weren't advantageous... others concluded that the utility was celebrating a victory," Crain's speculated in early November. Other articles noted that--aha!--the share price of Unicom, Com Ed's parent company, rose significantly on news of the bill's certain passage, dropped when Governor Edgar expressed his doubts in early December, and rose again when he finally signed. Weeks earlier Edgar had presaged his capitulation with one of the year's most direct comments on the legislative power of Commonwealth Edison: "Realistically, if you're going to get something through [the legislature]," he was quoted as saying, "you're probably going to not have Com Edison opposed to it."

Edgar's remark serves as a summary of the entire history of utility regulation in Illinois, a translation of what we mean when we talk so blithely about economic freedom and "the inevitable." Commonwealth Edison was originally the brainchild of industrial titan Samuel Insull, who methodically bought up or wiped out his electricity-generating competitors in Chicago back before the turn of the century. The company established the first great power-generating system in the world, and Insull was viewed alternately as one of the nation's economic heroes and one of its most despised capitalist villains. Regulation was something Insull welcomed. According to historian Thomas P. Hughes, Insull called for state regulation of his industry as early as 1897 (regulation wasn't adopted in Illinois until 1914) in order to stave off what was then a very considerable threat: frequent angry calls from Populists and Progressives for public ownership of the utilities. The situation was exacerbated by the fact that electric utilities are "natural monopolies," industries in which the economies of scale and the costs to enter are so enormous that competition is discouraged as a matter of course.

Regulation was a compromise that seemed on the surface to deliver what the Left was demanding--that the industry be operated out of concern for public service rather than private profit--but in fact it was devised primarily to silence critics and guarantee Com Ed's profits over the years. As Martin Cohen of the Citizens Utility Board puts it, "State regulation gave them protection from charges of abusive monopoly power while allowing them to use that monopoly power."

Now that the era of regulation is coming to an end--"inevitably," too, as if by the hand of God--one would expect the old calls for public control of utilities to resurface. But they haven't. Today populism isn't spelled with a capital P, and we the people seem to believe that it's a terrific advance for human freedom to have our lives ruled by, say, three unhindered corporations instead of one regulated one. We find no contradiction between profit and service. Talk of natural monopolies has figured in the debate not at all. Not that the facts have changed all that much: Enron's megalomaniacal ambition to become a gas and power provider on a national scale puts Insull in the shade. And the price of natural gas, like the price of oil, is by no means guaranteed to remain low forever. Vast pitfalls await those consumers who wander blithely into the era of deregulation--those who continue to take electricity for granted as well as those who think they can cleverly play the market. But only one thing seems important to us now: power can be got more cheaply from someone else. The consequences be damned.

"We've gone way beyond monopolies into something entirely new," says Jeff St. Clair, a journalist who has covered deregulation battles elsewhere. "Right now you have thousands of utilities that have some sort of responsibility to their consumers and some sort of local oversight. Yes, this has been maliciously abused in the past, but there were mechanisms for controlling these things." Ten years from now, St. Clair believes, "you'll have gone to a situation with four or five big power companies, which you will have no control over. How does your utility board do battle with a multinational corporation? You're really forsaking something, and for what? For the lure of a marginally smaller rate? Or for the fantasy of, We'll be able to choose between Enron or Duke Power or Entergy?"

Those leery of such abstract warnings might look to Britain, where the nationally owned electric and gas utilities were sold off in the early 90s. Privatization of such a basic industry was one of the crowning legislative victories of Thatcherism, but it eventually proved an enormous and costly blunder. Within a few years the utilities there had been bought by multinational conglomerates and the quality of service had dropped off. According to one Reuters report, public outrage at the "extraordinary profits" amassed by the utility lords was an important element of the Labour victory earlier this year. Tony Blair's government is evidently planning to redress matters with some stiff windfall-profits taxes, but, as with the idea of natural monopolies, the British experience has not figured in the American debate at all.

Nor has there been much questioning of the deregulators' basic premise: that the best way to achieve lower prices and better service is to wash our hands of these matters and leave them up to the market--or, more accurately, to the handful of companies that will soon control this basic industry. The present-day populists who have such faith in the market would do well to consider the recent allegations of price-fixing against another Illinois concern, the lovable Archer Daniels Midland. A Wall Street Journal opinion piece on the subject, penned back in February by Holman Jenkins, offers a glimpse into the thinking of the purest of the free-market thinkers: Jenkins refers to ADM's crime in quotation marks; he compares the "misguided law" against price-fixing to (of course) Soviet statutes; he scoffs at the state's efforts to restrict business leaders' God-given right to make deals with each other; he insists that price-fixing happens and will continue to happen regardless of whether we approve of it or not. The article ought to be mandatory reading for those preparing to throw themselves on the mercy of the market.

But we don't worry ourselves about such things anymore. You can't ask for a more down-to-earth, nuts-and-bolts issue than utility deregulation, and yet events here, as in so many other aspects of American life, are now decided not by hard considerations of public service, but by the faith of the pundits, a pure-hearted, hymn-chanting belief in the benevolence of the market. "A lot of ideologues have come out of the woodwork on this issue," says Martin Cohen. "It's astonishing how much faith there is in the so-called free market for a commodity or a service which does not easily lend itself to that kind of treatment."

Yes, the monopolies failed to serve the public because greed got in the way, but if that greed can somehow be purified--refined and filtered and isolated and stripped of all ornament--then one fine day we will find ourselves in utility utopia. Freedom to choose! Power to the people! Reconcile yourself to the "inevitable" and trust in the invisible hand of providence.