Power's Surge

Like most consumers, Mike Hawkins took electricity for granted. He paid predictable, state-regulated rates, and in return the local utility kept the juice flowing. But when Hawkins got his bill in June from San Diego Gas & Electric (SDG&E), he was in a state of shock--$135, nearly twice the previous amount.

The culprit was deregulation, which, students of the telephone and airline industries will tell you, doesn't always go according to plan. When states started breaking up one of the last subsidized monopolies a few years back, they hoped to usher in a wave of competition that would lower prices, improve service and increase the system's reliability. Newly liberated customers would be able to choose from a host of suppliers, some of whom generated the power while others just delivered it.

But so far, the radical shake-up of the $220 billion electricity industry has been short-circuiting. "This is a dysfunctional market masquerading as a competitive market," charges Michael Shames, executive director of the San Diego-based Utility Consumers' Action Network. Prices for electricity have been spiking up in some regions; capacity is lagging demand, threatening customers across the nation with brownouts and blackouts this summer. "The cookie jar is open, and everyone wants to get what they can," Hawkins says. "They've got it, we need it, and we're going to pay through the nose to get it."

That became clear last week on the other coast, when officials from New York City's utility Con Ed disclosed that bills in the Big Apple will probably be 30% higher than last year's, thanks to rising fuel costs and an increasingly tight energy supply in the region. Coming a week after a brief blackout knocked out 140 customers on Manhattan's tony Upper East Side--and a year after a major one crippled an entire Washington Heights neighborhood for 19 hours--the admission further sullied Con Ed's bad reputation. John Dyson, chairman of Mayor Rudy Giuliani's council of economic advisers, expressed the official outrage: "It's hard to believe a rate increase is justified [in light of] the energy outages."

In other deregulated parts of the nation, where retail electricity rates are frozen for a few more years, price isn't the problem yet. Instead, providers are having a tough time just supplying enough juice, as air-conditioners and other appliances consume electricity at an alarming pace. Silicon Valley, home to the energy-hungry new economy, has already experienced rolling blackouts. The situation across California has got so precarious that state officials are offering cash payments to big corporate users that conserve energy during a crunch; database power Oracle has spent millions to build its own generators. New England and the Southwest are also potential trouble spots.