Bills for electricity skyrocket

BENTON, Ill. (AP) -- This wasn't supposed to happen with deregulation. Electric bills were supposed to go down. Instead, Ellie Dorchincez can almost see the dollars evaporating every time she turns on the lights or opens the freezer at her small Farm Fresh grocery store.
Her electric bill, which used to be about 800 a month, has jumped to 1,800. She's shut down a large freezer of frozen treats and now closes the store an hour early to cut costs but fears she still may have to raise prices and lay off some workers.
"I'm just trying to figure any way that I can right now to keep my business afloat," Dorchincez said. "My life is at stake here."
The cause of her distress is a common problem: the failure of deregulation to deliver its promise of lower electricity prices. In many states, it's had the opposite effect with sharply higher rates -- 72 percent in Maryland, up to 50 percent in Illinois.
Not one of the 16 states -- plus the District of Columbia -- that have pushed forward with deregulation since the late 1990s can call it a success. In fact, consumers in those states fared worse than residents in states that stuck with a policy of regulating their power industries.
What analysis shows
An Associated Press analysis of federal data shows consumers in the 17 deregulated areas paid an average of 30 percent more for power in 2006 than their counterparts in regulated states. That's up from a 22 percent gap in 1990.
The idea was to move from a monopoly situation to robust competition for electric customers, with backers promising potentially lower rates in state after state.
But competition, especially for residential and small business customers, rarely emerged.
Utilities say markets are still adjusting to many years of artificially low rates that drove potential competitors away. They point to states like Illinois, where rate caps just recently were lifted and where there already is talk of reinstating them.
Consumer groups, however, say deregulation has had a chance to prove itself. In Texas, for example, competition did develop after rate caps ended -- but the energy prices remained higher.
The AP analysis was based on the average electric rate that residential consumers paid each year from 1990 to 2006, according to numbers provided by the U.S. Department of Energy. Numerical and percentage changes in utility rates of both deregulated and regulated states were compared.
The analysis found more than a widening price discrepancy. Consumers in deregulated states also have suffered from bigger price swings, as rate caps in place when deregulation began in the late 1990s were lifted in the last couple of years.
Now those states' lawmakers are scrambling to figure out how to provide short-term relief for consumers while coming up with a long-term approach to get lower and more stabilized prices. Ideas range from continued rate freezes -- vehemently fought by utilities -- to re-regulation of the industry.
"We said back then it was a raw deal for consumers. We now know it was a raw deal for consumers," said Johanna Neumann of Maryland Public Interest Research Group.
What's not shown
But an industry official argues that such comparisons don't adequately show the peaks and valleys in rates during that time, and among individual states. And utility executives say that over the last decade, rates in deregulated and regulated states have generally increased at similar levels, thanks largely to sharp spikes in fuel costs -- not deregulation.
John Shelk, president of the Electrical Power Supply Association trade group based in Washington, D.C., says all states have seen large rate increases in the last decade, largely because of the increased price of natural-gas and building power plants.
The average U.S. price for natural gas used by the electric power sector tripled from 2.76 per million Btus in 1997 to 8.21 per thousand cubic feet in 2005, a peak year for natural gas prices, according to federal energy statistics. Prices dropped slightly in 2006 but are projected to rise again over the next two years.
Utility officials say natural gas prices, environmental regulations, property taxes, the cost of building nuclear plants and other expenses in states that deregulated had already driven prices higher than in other states.
But years after many states deregulated, the rate gap between those states and regulated states had widened even more, experts and consumers advocates say, because consumers in deregulated states were left paying market prices -- even though in many cases no competitive market existed.
"Now they're trying to come to grips with the reality that the market isn't working as well as they thought it would," Ken Rose, a senior fellow with the Institute of Public Utilities at Michigan State University, says of decision-makers in deregulated states.
Shelk says consumers in states such as Illinois are seeing "sticker shock" because their rates were artificially low for years, and that forced a large increase to get back to market prices when rate caps were lifted.
"It's kind of like pulling the Band-Aid off," Shelk said. "I think you can fault the design that said you can roll these rates back and freeze them."
Will gap shrink?
He predicts that the rate gap between deregulated and regulated states will shrink in the next few years when regulated states in the Southeast that rely heavily on coal-fueled power see prices soar under heavier environmental restrictions.
Shelk also contends that deregulation has been successful in states like Texas because, despite price jumps there, the competition has kept rates lower than they would have been under monopoly conditions, and still has produced a more predictable market for utilities and customers.
Exelon executive vice president Betsy Moler said rates in all states, regardless of their regulatory structure, have soared about 34 percent since 1996, mirroring fuel cost increases. That should overshadow critics' blame of deregulation, she argues.
"It's really not about deregulation," Moler said. "It's all about the cost of fuel."