BENTON, Ill.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.
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 24 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.
"We are
good at taking money out of people's pockets, but seldom can somebody rise on
the floor and say we are going to save people billions over a specific course
of time," Illinois state Sen. William Mahar, a lead proponent of electric
deregulation, said when his chamber passed a deregulation bill in 1997.
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.
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 like 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."
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.
"It's so
easy to focus only on the here and now ... and draw the wrong conclusions,
which is 'Oh, gee, we're going to be better off regulating,' because we're
not," Shelk said.
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."
Yet the last
decade saw extended rate freezes in many states, and more recent data shows a
returning gap between regulated and deregulated states once those freezes end.
Illinois'
deregulation plan froze rates for 10 years. The freeze ended in January and
rates immediately soared 30 percent to 50 percent for millions of people. Some
have seen their bills double and even triple.
In Carterville
in southern Illinois, Dorothy Petersen is looking for a second job to
supplement her $1,000-a-month income after seeing her electric bill more than
double, to $450. A single mother with four kids - all with health or
development problems - Petersen is heating only the kids' rooms and turning off
lights.
"If it was
just me, it wouldn't matter. There's things I could do," Petersen said.
"But I have these kids."
Maryland faced
a 72 percent rate increase last summer, until lawmakers stepped in and cut the
initial jump to 15 percent to 25 percent. Now consumers must pay the remainder
this summer, and advocates fear problems for the most vulnerable citizens -
seniors, low-income households, working families.
Texas residents
like recent retiree Bill Sebenoler of Arlington have more utility choices under
deregulation, but that hasn't kept prices down. Sebenoler said his bill reached
nearly $500 in September 2006, up 82 percent from a year earlier.
"It's
irritating as hell, and that money would go somewhere else," Sebenoler
said. "Something ain't working right."
Consumers in
Delaware, Rhode Island and Connecticut have seen rate spikes in recent years,
putting their rates among the nation's highest. That led to more than 25,000
electricity shutoffs in Rhode Island last year, a new state record, said Henry
Shelton of the George Wiley Center advocacy group.
In Montana, Ed
Eaton says he and other consumers have seen a 40 percent increase since rate
caps were lifted in 2001. Eaton said he's cut expenses by eating more canned
tuna for meals.
"I
probably could have turned this into a weight loss program and benefited,"
said Eaton, a former state employee.
Deregulation
was sold to state decision-makers as a boon for everyone. The thinking was that
by separating electricity generators from distributors and letting the market
determine prices, competition would thrive and customers would benefit from
better choices and lower rates.
Experts and
advocates acknowledge that some consumers have seen those benefits.
In some states,
large industrial and business users have seen increased competition, giving
them the ability to switch to other utilities. Residential users in states such
as Texas also have a few more options.
But besides a
small group of commercial users, consumers in deregulated states have seen a
disappointing result.
Instead of
competition producing lower rates, the choices are between high or higher
prices. In some states such as Illinois, residents have no choice but to get
their power from one or two mega-utilities, who are passing on soaring costs
for the power they're buying.
ComEd, for
example, has about 3.3 million residential customers in and around Chicago,
while Ameren covers 1.2 million customers in central and southern Illinois.
Combined, they control about 98 percent of Illinois' investor-owned market,
according to the Illinois Commerce Commission.
"In terms
of price, you can't see the customers benefiting," said Rose, the Michigan
utility expert.
Utilities say
they're not to blame for consumers' higher costs.
Since they no
longer produce their own power, the utilities in Illinois, for example, say
they've simply passed on their higher purchasing costs to consumers, resulting
in the higher rates. While some of the generation companies have ownership ties
to the retail utilities like ComEd and Ameren, Illinois regulators note they
have strict rules to ensure affiliates do not trade information or conspire on
pricing.
The utilities
also note that they warned consumers last year about the pending increases and
offered assistance through some financial aid and a phase-in plan.
"I think
we've done all the things we know how to do as a utility to soften the
transition into the new rates," ComEd CEO Frank Clark said in February.
The poster
child of deregulation failure is California, which saw a combination of
skyrocketing rates and service problems before scrapping the experiment. Some
other states such as Virginia tried deregulation but rejected it after it
didn't provide lower rates.
States that did
embrace deregulation now are trying to figure out what to do next.
In Illinois,
lawmakers are debating rolling back rates to 2006 levels and freezing them for
up to three years. They're also negotiating with the utilities for millions of
dollars in rate rebates for consumers hit hardest by the increases.
Re-regulating
the market is a popular idea. State-owned utilities are another possibility.
Utilities and
their advocates are urging caution for states considering dumping deregulation.
They say competition couldn't thrive under rate caps but should now that many
of those caps have been lifted and the market is determining rates.
The utilities
also warn that any further rate rollbacks and caps could create financial
disaster, sending them quickly into bankruptcy if they're forced to buy power
at higher costs than they can recoup from customers.
Even so,
consumers like Dorchincez are looking for relief now.
In addition to
the problems at her grocery store, Dorchincez got hit at home, where her bill
jumped from $230 to $700. She's looking to cut back wherever she can - turning
down the store's thermostat, shutting off other freezers and soda machines,
turning off lights in the parking lot.
Consumer
advocates say states should be able to see the folly that deregulation created
and should act soon to prevent more consumer suffering.
"It's
never going to work. There's never going to be robust competition
created," said David Hughes of Citizen Power, an advocacy group covering
Pennsylvania and Ohio. "It just doesn't lend itself to the volatility of
the marketplace."