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As well as providing for these
consumer protections, the law also entices economic growth within the state by
lowering the cost of doing business through lower electric rates. This lower
cost of doing business due to lower electric rates will encourage new employers,
both large and small, to move into Massachusetts, as well as encouraging
existing businesses to stay. In fact, in the short period of time the law has
been in effect, it has spurred the forecasts of new job growth, and in the years
ahead, is expected to create thousands of new jobs throughout Massachusetts.
However, even though the law seems to have many more benefits than it does
negatives, it has come under recent criticism. Many opponents of the law feel it
is not doing its designed purpose, and consumer backlash was so great that Issue
4 asking whether or not the law should be repealed. An organization called The
Campaign for Fair Electric Rates, backed by failed congressional candidate John
O'Connor and consumer advocate Ralph Nader, led the effort to repeal the law,
calling it the biggest consumer rip-off in Massachusetts history. The big issue
involved in the attempted repeal was lawmaker reneging on their promise to
protect consumers by allowing utilities to recover 100% of their bad
investments.
Because deregulation will cause some utilities to lose money on
investments in power plants or on contracts they made when they expected to keep
selling power at a regulated price, the question becomes do they deserve
compensation for these stranded costs, which may approach $200 billion
nationally? For instance, utilities spent more than $5 billion building the
Seabrook nuclear plant in New Hampshire, which produces 1,150 megawatts. In
contrast, private developers have proposed more than 50 new plants, which
combined would produce 30,000 megawatts, and the cost of these projects is
estimated at slightly more than $15 billion. The utilities argue that public
regulators approved those expenses and that the state can not back out on them
now, stating that many plants have already begun to implement the new law,
including selling most of their power plants. Repealing the law now, they argue,
would create utter chaos. Therefore, a provision was written into the law
allowing for utilities to recover all of their stranded costs over a 10-year
transition period.
While proponents of the law were
hoping for a 30% rate reduction, of which two-thirds would have come from
consumers not having to pay for most of the utilities stranded investments, they
will now have to settle for a guaranteed 15% rate cut, hopefully with more to
come through competition. The question now on everyone's mind is: has the law
served its purpose and reduced electric rates? In a study done by Standard and
Poor's DRI entitled Economic and Environmental Analysis of the New Massachusetts
Electricity Law, and released on September 2, 1998, it found that the new has
triggered substantial economic and environmental benefits. According to the
study, electric rates will decline by almost 28% by the year 2010 as a direct
result of retail competition and industry restructuring. The DRI, a conservative
report when compared to others, predicts that consumers will save $470 million
in 1998 alone, and increases that estimate to at least $550 million per year in
future years as a result of the new law.
Also, the study predicts the
Commonwealth to achieve higher economic output and employment growth triggered
by the estimated $10 billion consumers and businesses will save on electricity
costs. By 2010, there will be over 60,000 more jobs, a $19.6 billion gain in
consumers' cumulative real discretionary income, and lower price inflation. All
of this forecasting appears to put the law in a favorable light, but many want
to know how it's working now. According to the Massachusetts Electric Company,
its 970,000 customers have saved a total of $67 million on their electricity
bills in the first six months of the new electricity law. On September 1,
savings for the company's customers increased to more than 15%, or a total
savings of $25 million per month, one full year ahead of the required rate cut.
This was due to the company's affiliates selling their power plants. Therefore,
by examining the early results of the new law, along with projections such as
the ones provided by Standard and Poor, one can determine that the deregulation
of the electric industry has been long overdue.
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