With Power Price Surges, California’s a Follower

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.

Under Massachusetts’ deregulation statute, the standard retail rate for a kilowatt hour was fixed at an average of just over 9 cents through 2005. However, the rise in natural gas prices has left utilities pleading with regulators to allow them to raise prices, lest they face California’s problem of selling their power at a loss--precisely the circumstance that led the Pacific Gas & Electric Co. of San Francisco to declare bankruptcy Friday.

Kilowatt Hour’s Average Cost Rising

Earlier this month, the Massachusetts Electric Co. got the go-ahead to charge 270,000 residential customers an additional 23%. Statewide, analysts say, the average price of a kilowatt hour is probably edging up from its already high October figure, the last available, of 11.2 cents.

In New York, the average cost of a kilowatt hour statewide was 14.1 cents in October. However, even under a deregulation plan that won’t fully free the utilities from price controls until 2002, some New York City residents have seen their rates rise by nearly 20%, to 13.9 cents a kilowatt hour, in recent months.

Still, Cornell University economist Tim Mount said he would be surprised and “very disappointed if we mess things up in the East as badly as they messed it up in California. I think the regulators thought that it would be easy to run a market, and they didn’t allow for very much malfeasance” on the part of newly untethered utilities or private power generators.

The South, with its coal reserves, has long hovered in the relatively cheap range of 6 to 8 cents per kilowatt hour and, along with the Midwest, is likely to be among the most stable areas in the near future.

Several states in the South and Midwest are also among the last to consider deregulation--for the very reason that their power is already cheap--and so may benefit the most from studying the daily jolt of news out of California.

The Midwest has, as with so many things, been a picture of moderation when it comes to electrical rates. A kilowatt hour goes for 7 to 8 cents or, in the case of Illinois, a bit over 9 cents. (Chicago, the country’s third-largest city and the location of several infamous--although localized--blackouts in 1999, tends to raise the state’s average considerably.)

Having continued to build power plants when states in the West and East had all but halted construction, and with Illinois home to 11 price-stabilizing nuclear reactors, the Midwest is expected to hold the line, at least in the near future.

The Northwest, long the land of cheap, clean hydroelectric power, is already beginning to see its 5- and 6-cent electric rates climb.

Many of the utilities in the Northwest receive huge portions of their juice from the Bonneville Power Administration, which oversees 29 dams in the Columbia and Snake River basins and provides 45% of the region’s electricity.

However, the severity of the region’s drought--and the accompanying electricity shortage--was illustrated last week when the BPA announced that it would stop spilling precious water over its dams to help the spring salmon run.

Announcing the news to residents who for decades have fought to restore salmon runs decimated by the dams was perhaps made a bit easier for acting BPA administrator Steve Wright because he had previously made another announcement. The BPA, Wright said, would likely be raising its own wholesale rates from 95% to 200% come October.

Some of the rate hikes around the country are surcharges, meant to fill utility coffers left empty by the leap in natural gas prices, for example. Many others, however, are viewed as permanent. In the West, especially, there is simply no reason to believe that costs will drop any time soon.

The bankruptcy move Friday by PG&E; only solidified that widely held opinion. Among its other worries, Bonneville has been holding a $100-million IOU from California utilities--half of it owed by PG&E--and; hoping that money would help to mitigate its rate hikes to other customers.

When PG&E; became the biggest utility in U.S. history to seek bankruptcy protection, BPA became just another creditor likely to lose money.

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Times staff writer Julie Tamaki in Sacramento contributed to this story.

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The Price of Electricity

Here is a look at the average retail price per kilowatt hour in each state as of October. California’s rates ranked ninth highest.

Source: Energy Information Administration