Can it happen to us? As traffic lights and elevators went dead across Northern California last week, millions of Americans were all asking themselves that question, getting nostalgic for that trusty old utility monopoly. Maybe, it suddenly seemed to many shocked onlookers, electricity deregulation wasn't such a great idea after all. Even the most committed capitalists had to be having second thoughts about the merits of the free market for power--while praying that their own state wouldn't soon be plagued by blackouts, near bankrupt utilities and bulging electricity bills.
The short answer is, yes, you are probably in line for deregulation. Nearly half the states, from New York, Pennsylvania and Virginia to Texas, Arizona and Oregon, are in various stages of deregulating their part of the nation's vast, $218 billion electricity system.
That doesn't mean they are going to duplicate California's calamity. But the promised benefits of deregulation have for the most part remained just that. New York City is facing an electricity shortage this summer. In the Northwest, Oregon and Washington, which typically import power from California in the winter, have recently been sending juice south and find themselves exposed to a cruel market driven up by their neighbor's woes. "Retail utilities may lack the financial resources to purchase needed supplies or build the generation we all agree is necessary," Oregon Governor John Kitzhaber wrote in a letter to outgoing Energy Secretary Bill Richardson last month.
To critics, the evidence is clear and the verdict is in: deregulation is a bad idea for something as vital as electricity. "This is not a commodity that is conducive to the market; you can't store it on the demand side," says Mark Cooper, research director at the Consumer Federation of America. "We are finally having a debate we should have had in the 1990s."
Back then it sounded so simple. Deregulation brought prices down on airline tickets and long-distance phone calls. Why not get the government out of electricity and watch prices fall? With demand booming--reserves have declined from 40% excess two decades ago to 15% today--the free market would encourage private suppliers to compete for customers, offering lower rates and more reliable service.
In practice, of course, it has been a whole lot messier. The nation's old, Balkanized transmission grid isn't built to handle so much long-distance traffic. And freshly liberated markets won't necessarily attract new suppliers because the cost of entry--a multibillion-dollar power plant--is high. So real competition is, by and large, harder to find. "If deregulation is a good idea, and it still may be, it needs to be implemented when you have the infrastructure in place," says James Bernstein, commerce commissioner of Minnesota, which still has a regulated electricity system and may have a power shortfall by 2006.
The unusually harsh winter has also served notice that a commodity influenced by weather has plenty of surprises in store for purchasers. Most newer power plants are fueled by natural gas, the price of which goes up as the temperature goes down. In a regulated environment, consumers are more insulated from these free-market insults.