Shocking electricity prices follow deregulation

ByABC News
August 9, 2007, 11:15 PM

— -- When Deborah Jackson opened her electric bill in February, she had no idea it would be a life-changing event.

Since the couple's budget billing plan lets them pay the same amount each month, the charges were eventually set at $538.

To keep the lights on, Deborah has returned her engagement ring to the jeweler until the Jacksons can afford the ring's $125 monthly payment. Patrick, a warehouse employee, works an extra day each week. The Jacksons and their two kids no longer eat out or go to the movies.

"It's frustrating because you can't do the things you're used to doing," Deborah says. "You're like, 'I'm just working to pay a light bill.' "

The Jacksons are among millions of U.S. residents reeling from the aftershocks of electricity deregulation in 17 states and Washington, D.C. After rate freezes in Illinois expired in January, bills soared up to 55% for Ameren customers and 26% for those of Commonwealth Edison. The Jacksons were hit with a much bigger increase because their house is among 170,000 Ameren dwellings that got big discounts for using electric heat. Those discounts also ended in January.

Deregulation was supposed to do for the power industry what it did in the airline and telecommunications industries: bring consumers lower prices and more competition. Instead, utility bills are rising sharply for residents in many states that unshackled their power markets as rate caps, the final remnants of regulation, expire.

Now, several deregulated states, fearing a public backlash, are turning back the clock and reinstating some form of electricity regulation. The Illinois legislature last month approved a $1 billion rate-relief package that would on average halve the increase that socked Illinois customers like the Jacksons. The pact also scraps a controversial wholesale-power auction system and sets up a new agency to buy electricity and build generators.

Virginia reregulated its power industry in July. Other states have partly reregulated or are weighing doing so before rate freezes are lifted. In Ohio, rate caps are scheduled to end in December 2008, when utilities would buy their power in the wholesale market.

"Some feel you should let the market take over, but based on what I've seen happen in other states, it's just not something I'm willing to tolerate," Ohio Gov. Ted Strickland said.

While average prices rose 21% in regulated states from 2002 to 2006, they leapt 36% in deregulated states where rate caps expired, according to a study by Ken Rose, senior fellow at the Institute of Public Utilities at Michigan State University.

Electric rates for Baltimore-area customers surged 50% in June after a 15% jump last year as rate caps came off. There have been similar surges in Connecticut, Delaware and Rhode Island. Meanwhile, little, if any, retail competition has materialized for consumers.

Deregulation, which affects regions with more than half the U.S. population, "hasn't panned out the way we had hoped," Rose says.