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Regulation or Technology? Low-Income Electric Customers and the Transition to Competition

Fortnightly Magazine - November 15 1995

and distribution services would continue to be regulated.

2 One of the first reaction of incumbent utilities in regulated monopolies to the intrusion of new competitors is to run to regulators and policymakers to make the case that the cross-subsidies they have long decried are now among the good reasons to resist competition and maintain the monopoly. That strategy alway fails and often backfires. Utilities have tended to do a good job of convincing regulators that the subsidy system is artfully drawn and is a sacred trust of the public service commission. The result is that utilities can be caught in a trap of their own making. They are treated as monopolists responsible for the entirety of the traditional system of cross-subsidies; but they draw the subsidy, as well as a great part of their profit, from a contracting share of the market.

3 In 1983, one year before that divestiture of the Bell System, cellular telephones and fax machines were not in widespread use. Since that time, there has been an explosive and unexpected growth in demand for these new technologies and services. The number of cellular telephone subscribers, for example, has grown from 90,000 in 1984 to almost 25 million in 1994. Similarly, the number of fax maxhines has increased 10-fold in a period of 10 years. Telecommunications firms have now moved to offer services that are variations on the fax and the answering machine, such as voice mail, caller ID, call waiting, and call forwarding.

4 The challenge facing regulators in not only redesigning assistance programs, but in explaining them to the larger consuming public. This is no easy task. In 1990, the Illinois Commerce Commission ordered Illinois Bell Telephone to increase the monthly surcharge to finance Lifeline Service from $.09 to $.15. Under this program, the federal government matched these local contributions with federal funds. The Commission also ordered Illinois Bell to specify the item on customer bills as a first step toward promoting the notion of a specified targeted subsidy for low-income customers. The resulting public firestorm caused by media sensationalization and legislative reaction forced the Commission not only to rescind the increase, but to cancel the state's participation in the federal program entirely and thereby lose access to the matching federal funds for low-income assistance.


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