Electricity Rates Heat Up

By SmallBusinessComputing Staff | Posted November 01, 2000
by Robert J. Wagman

IF THIS past summer is any indication, small businesses in many parts of the country, especially the West and Northeast, should brace themselves for skyrocketing energy prices and occasional brownouts during periods of peak demand. Electricity deregulation is finally arriving, and its effects will be felt for the next several years.

In 1992, Congress ordered federal energy regulators to allow states to begin deregulating the power industry. The theory was that ending the monopolies would foster competition, and that would lead to lower prices. But price competition may not be here for awhile. Currently 25 states and the District of Columbia are at one stage or another of deregulating electricity generation and transmission.

The first state to fully deregulate was California in 1996. In many parts of California deregulation has not been a pleasant experience, especially for small business customers.

San Diego was the first city where electricity customers began paying full market prices for power. Consumers have 13 choices of suppliers, but all charge about the same. Because of limited supply and surging demand, the average customer's monthly bill more than doubled to 13.46 cents per kilowatt this past August, up from a regulated 3.6 cents per kilowatt the previous year, according to a spokesman for San Diego Gas and Electric.

Other areas of California are scheduled to start paying market rates for power in 2001. But given the problems in San Diego this summer, those plans are under review.

The problem in the West has been a very hot and dry summer. This has led not only to rapidly accelerating prices, but repeated brownouts lasting from several minutes to several hours. Brownouts are often timed not to inconvenience large users, so small businesses are often the hardest hit.

Across the U.S., electricity supply has not kept pace with demand because few new power plants have been built in the last decade. Utilities have depended upon being able to buy power from other parts of the country when demand in their area is high. But this past summer demand was high throughout the country, and emergency power has been in short supply.

William Reed, vice president for Sempra, the owner of SDG& E, blames the current situation on "generators who can manipulate the rules of the market to their own advantage." But consumer groups say the utilities have only themselves to blame.

"In the last 10 years, utilities stopped building power plants in anticipation of deregulation," says Charles Higley, director of energy research for Public Citizen, a Washington, D.C., consumer watchdog."Since utilities stopped building and consumers began using more electricity, suddenly our reserves are gone. And, for the first time, consumers are exposed to the laws of supply and demand."

In late summer the California Public Utilities Commission moved to try to hold down costs by re-imposing price controls. State Senator Steve Peace -- who authored the 1996 state deregulation law -- said the state must "impose a rate freeze in San Diego if the market does not produce a better deal."

When Congress reconvenes in January, both Republicans and Democrats have promised hearings to see what controls have to be kept in the system until new generating capacity can come on line.

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