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With Power Price Surges, California's a Follower

Energy: Much of the nation is already being zapped by double-digit increases. Several states have higher rates. Deregulation, anti-pollution laws and distance from fuel sources are to blame.


CHICAGO — For all its energy notoriety and outrage over surging electricity rates, California has plenty of company. Much of the nation faces double-digit price hikes, and several states--especially in the East--continue to pay more for electricity than California.

Not even Gov. Gray Davis' reluctant proposal last week to kick rates up as much as 34.5% for the heaviest residential users would guarantee California the dubious honor of having the priciest electricity in the United States.

Overshadowed by the rhetoric, lawsuits and rolling blackouts is the fact that Californians have been paying less for electricity than residents in Rhode Island, New Hampshire, Vermont, New York, Alaska and, by a longshot, Hawaii. California, in fact, is barely in the top 10 when it comes to electrical prices.

One of the reasons that Californians have been paying less is because they conserve more, with the average resident draining 40% less from the grid than the average American.

Another reason, however, is that California's rates have been frozen by law, even as the lids have been coming off the prices in other states that are deregulating their utilities.

"I don't know about you guys," said state Sen. Sheila Kuehl (D-Santa Monica) at a hearing last week in Sacramento, "but my constituents don't think they suffered over the past several years because their rates didn't go up 45% and 50% the way they did in New York and Pennsylvania and other parts of this country."

These dramatic price spikes are driven by a strange, worst-case confluence of electrical-world forces.

A drought in the Northwest means that there's not enough water to turn the turbines in the great hydroelectric dams; massive price increases for natural gas come even as the country is moving toward more natural gas-powered electrical generators; and the deregulation of utilities--left largely up to individual states--has proved more complicated than almost anyone dreamed.

"We look at it as a perfect storm," Rep. Jay Inslee (D-Wash.) said of the improbably bad stew of circumstances.

In Boston, residential users face a possible 23% hike, industrial customers 69%. In Cheyenne, Wyo., some residential customers are insulating themselves against possible hikes of 57%, with some commercial customers looking at an 88% jump. In Idaho, they're talking hikes of between 34% and 63% for some customers. In Nevada, rate hikes scheduled at more than 1% a month, starting in September and continuing until September 2003, will raise residential rates about 75%.

All this after two decades of steadily declining electricity rates in the U.S.--with almost all of the price drops preceding the deregulation that was supposed to bring down prices.

Price of Power Fell Steadily for Years

In the early 1980s, one kilowatt hour of power cost residential customers about a dime. Over the next two decades, Americans began to employ more energy-efficient appliances, computers, even lightbulbs, and utilities produced their power more and more efficiently.

At the same time, utilities took advantage of low interest rates to help retire massive debt incurred during the high-cost, post-Chernobyl building of nuclear reactors, and they were thus able to pass on further savings to customers.

By last year, buying a kilowatt hour set the average American back just 7.5 cents.

The trend has suddenly stopped.

In a forecast released Friday, the Energy Information Administration predicts that a kilowatt hour will cost about 8 cents on average nationally by the end of this year and rise another half-cent in 2002.

"For the first time in a long time, the prices are going up," said administration forecaster Neil Gamson.

A one-cent increase in the price per kilowatt hour would boost the monthly bill of a typical California residential customer by about $10, to $117. For big industrial users, the extra monthly cost could be in the thousands.

Substantial regional differences have always existed, with the Northeast the longtime home of the highest prices in the continental U.S. Some Northeastern customers pay twice as much, or more, than consumers 3,000 miles due west.

One reason is that, although environmental laws in the Northeast are typically less stringent than those in California and the Northwest, growing concerns and tougher anti-pollution legislation have forced utilities to shift away from the higher-polluting coal-powered generators and toward cleaner-burning natural gas. The environmentally conscious move has left them, like several other areas, vulnerable to the recent price spikes of natural gas.

The Northeast is also farther from most major sources of fuel, including natural gas, oil and coal.

Several states in the Northeast, including Connecticut, Maine, New Hampshire, New York and Massachusetts, are actively deregulating. Like California, only with less drama, they are finding the birth of a free market painful and expensive.

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