In the 1990s, the Pennsylvania General Assembly began deregulating basic utility services, including the electricity, telephone, and natural gas industries. Proponets of deregulation promised benefits to consumers and the Pennsylvania Economy, and made assurances that reliability and quality would not suffer.

This briefing paper presents preliminary data on whether deregulation has lived up to its promises. The paper focuses on the years 1994 to 1999, the period in which Pennsylvania conducted experiments in deregulation. The paper includes information for all major utilities, for each utility industry, and for individual utilities.

What Has Happened Under Deregulation?

• From 1994 to 1999, the number of Pennsylvania consumers who complained to the PUC about utility service in the electric, gas and utility industries mores than doubled. By 1999 the PUC received for than 10,000 complaints about utility service. Looking separately at quality and reliability in each industry:
  • Electric utility outages (not including major storms) lasted, on average, 30 minutes longer in 1999 than the did in 1994.
  • Following improvements from 1994 to 1998, gas utilities in 1999 -- the year Pennsylvania enacted gas deregulation legislation -- saw an increase in the number of consumer complaints and the number of distribution system "incidents" -- explosions or other significant gas leaks leading to accident of some type.
• Verizon Pennsylvania, Pennsylvania's dominant telephone utility, is seeing increasing customer dissatisfaction. Since 1994, consumer complaints to the PUC about Verizon have tripled. In 1999, more than one out of very eight Verizon customers was dissatisfied with Verizon's repair service.
• As a Result of a spike in electric utility profits in 1999, profits in all three utility industries combined were 50 percent higher, in nominal dollars, in 1999 than in 1994.
• During the six years examined, Pennsylvania's utilities reinvested just fiver percent of their profits in Pennsylvania's utility systems. The rest, amounting to more than $15 billion, was spent elsewhere, often in other states and countries.
• From 1994 to 199, Pennsylvania utilities decreased their Pennsylvania workforce by about 6,500 people, or nearly 15 percent.
• In almost every year in each of the three Pennsylvania utility industries examined, CEO pay increased. In all three industries, CEO pay increased by 76 percent in inflation-adjusted dollars from 1994 to 1999. Over the same period, the real wages of typical Pennsylvania workers increased by about 5 percent.

Based on these preliminary findings, the Keystone Research Center recommends that the Pennsylvania General Assembly commission a comprehensive and balanced assessment of the impacts of utility deregulation on Pennsylvania's economy and utility infrastructure.

Recent experience in California and other states underscores that deregulation gone wrong can have devastating consequences. Pennsylvania needs to identify potential dangers before they become a crisis and make sensible and pragmatic adjustments to the utility regulatory environment.

This document is an on-line summary of a Keystone Research Center report. The entire report is available for download as a PDF file at the KRC Web site www.keystoneresearch.org © 2001 Keystone Research Center