Power to the people?(Your Money)(household energy conservation)(Column)

For months, rolling blackouts have dimmed lights, idled air conditioners, and shut down offices and factories in California. Now, public officials in the 22 other states from Maine to Arizona that have begun to deregulate residential electric-utility 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 power-generating plants rising sharply and the nation's transmission infrastructure nearing overload, consumers in the 27 states that still operate with regulated markets may also experience service disruptions and higher electricity bills.

Public-utility commissions in Rhode Island and Massachusetts (among the early states to deregulate) have already approved double-digit electricity rate increases. Utilities in Pennsylvania and Texas--states often lauded as models of well-designed deregulation plans--have also requested rate hikes. In New York, where a deregulation plan is being phased in, electricity prices rose as much as 40 percent last summer. This summer, the typical Con Edison customer in New York City could pay $120 a month--an increase of more than 25 percent for the same level of service as last year. In Washington state, which still operates as a regulated market but has been sucked into California's headaches due to a shortage of hydroelectric power, energy costs have increased between 25 and 30 percent.

What's in store where you live? This report will size up what residential consumers can expect, spotlight changes in public policy needed to curtail the many shortcomings of electric-utility deregulation, and offer tips for how you can rein in your costs.

DEREGULATION'S CROSSED WIRES

With hindsight, it's easy to see that California's electric-utility restructuring scheme had many fatal flaws. Lawmakers froze the retail prices residential ratepayers would be charged until competition could develop. Other aspects of the plan, however, made it unlikely that prices would remain stable for long. The law pressed the state's utilities to shed their power-generating plants but initially barred them from entering into long-term contracts with other suppliers. The utilities profited handsomely from this arrangement at first. But as energy usage and generating costs both increased, they were forced to turn to the notoriously volatile spot markets to buy, at top dollar, the extra power they'd need to meet peak demand.

The result: California's two biggest utilities are now insolvent, as generating companies learned to exploit newfound opportunities to drive up prices. Meanwhile, ratepayers and taxpayers have been saddled with as much as $20 billion in costs to clean up the mess.

But consumers in other states should not be lulled into a false confidence that they can avoid California's woes. Electric-utility restructuring plans in the other deregulated states share many features with the Blackout State. (For an overview, see "Coming Unplugged" on page 55.)