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Power to the people.? Wh you've been zapped by deregulation or not, you can trim your electric bill this summer. F or months, rollinq blackouts have dimmed lights, idled air conditioners, and shut down offices and factories in California. No~v, public offi- cials in the 22 other states from Maine to Arizona that have begun to deregulate residential electric-titility rates are scrambling to reassure anxious constituents that a California-style utility meltdown won't jolt them. And with the cost of fuels used by po~ver-generating plants rising sharply and the nation's trans- mission infrastructure nearing overload, consumers in the 27 states that still operate with regulated markets may also experi- ence service disruptions and higher elec- tricity bills. Public-utility eommissions in Rhode Island and htassachusetts (imong the early states to deregulate) have already approved double-digi[ electricity rate increases. Utili- ties in Pennsylvania and Texas-states often lauded as models of well-designed deregu- lation plans-have also requested rate hil:es. In New York, where a deregulation plan is being phased in, electricity prices rose as much as 40 percent last summec This sum- mer, the typical Con Edison customer in New York City could pay $I20 a month- an increase oE more than 25 percent for the same level of service as last year. [n Washing- ton state, which still operates as a regulated market but has been sucked inro California's headaches due to a shortage of hydroelectric power, energy costs have increased benveen 25 and 30 percent. What's in srore where you live? This re- port will size up what residential consumers can eacped, spotlight changes in public policy needed to curtail the many shortcomings of electric-utility deregulation, and oEFer tips for how you can rein in your costs. DEREGULATION'S CROSSED WIRES With hindsight, it's easy to see that Califor- nia's electric-utility restructuring scheme had many fatal ftaws. Lawmakers froze the retail prices residential ratepayers ~vould be charged until competition cou(d develop. Other aspects of the Plan, however, made it unlikely that prices would remain stable for long. The law pressed the sta[e's utili- ties ro shed their power-generating plants but initial(y barred them from entering into long-term contracts with other sup- pliers. The utilities profited handsomely from this arrangement at frst. But as ener- gy usage and generating costs both in- creased, they were forced to turn to the notoriously volatile spot markets to buy, at toP dollar, the extra power the}''d need ro meet peak demand. The resulr. C:ilifomia's nvo bi~est utilities are now insolvent, as generating companies learned to e.~cploit ne~vfound opportunities to drive uP prices. I~teamvhite, ratepayers and t:L~ayers have been saddled wich as much as $20 hillion in costs to ele:in up the mess. But consumers in other states should no[ be lulled into a false confidrnce that they c,in avoici Californi:is woes. Electric-uti(ity restructuring plans in the other deregulated states share many features with the Blackout State. (For an overview, see "Coming Un- pfugged" on page 55.) Overly optimistic forecasts. Most of the new restructuring laws coming online were passed since the mid-1990s, when big industri~il users in high-cost states were clam- oring For electricity-rate relieE Lower electric biils looked attainable because supplies of natural gas used ro generate electricity were abundant and costs were at near-record lows. Lawmakers drafted deregufation plans assuming electricity prices would continue to fall. But soon after the ink was dry on the new larvs, a sharp rise in energy prices threw those rosy scenarios into doubt. Unrealistic promises. To sell skeptical voters on the idea that deregulation could benefit residential eonsumers, legislators and public-utility commissiuns ordered their soon-to-be deregulated utilities to freeze or reduce residential rates. In New Jersey, for example, the 1999 Electric Discount and Energy Competition Ad decreed that residential rates come down by 5 percent when the new law took eEfect in February 1999 artd by 10 percent within three years. West Virginia's law put a cap on rates that won't expire unti12011. It's unlikely that those legislated reduc- tions can be met now that the cost of gen- erating power is increasing. Instead, public oFficials are facing ongoing pressure from utility companies to retreat from their promised reductions, as they already have in California. NIeanwhile, competing elec- tricity providers are unwilling to offer power to consumers in states where prices are artificially loiv. In either case, it's all but certain that few residential customers wiit see the promised benefi[s of deregulation in their electricity bills anytime soon. Residents of states where electric utilities are still regulated and are less reliant on importing electricity from out-of-state generators, by contrast, can expect more modest rate increases over the near term. That's because electricity generated by most facilities based within those states' bound- aries remain subject ro the oversight of public-utility commissions empowered to act on ratepayers' behalf. Unreliable infrastructure. Successful deregulation dePends on the ability of power-generatinS companies ro move mega- watts of elcctricity through thous:inds of milcs of high-voltage lines to mret consumer demand. But the nation's tr:insmission grid is fragmeilted and choked with bottle- necks, potentially afFecting consumecs in all states-deregulated or not. A recent report prepared by Richard Mathias, chairman of the Illinois Commerce Commission, for example, assessed vulnera- bilities in that state's power-distribution grid and found transmission bottlenecks that could leave the city of Chicago exposed to power shortages during tlle summer monchs. Wi[h the state slated to open its res- identia( market to competition next year, Mathias warns that the Illinois grid could end up "a dysfunctional system:" HOW TO KEEP THE JUICE FLOWING Officials in some regulated states, including Georgia and South Carolina, have seen enough oE the energy future under deregu- lation to pull the plug, at least for now, on plans to open their own electricity markets to eompetition. But before deregulation 54 CONSVMER REPORTS 0 JUNE2001