Three years ago, the Columbiana County Port Authority proudly announced a major tenant for its new World Trade Park in Leetonia, Ohio, a community of about 2,000 people located midway between Cleveland and Pittsburgh.

With 60 new jobs and a 100,000 square foot facility that could be expanded to 400,000 square feet, Port Authority officials had reason to be excited.

But their joy was later replaced with disappointment and anger when the park's electricity supplier, Ohio Edison, told them that the Port Authority would have to pay for upgrades needed to power the new $17 million, state-of-the-art aluminum extrusion plant.

In the past, Ohio Edison would have installed the upgraded lines in the park and recouped its costs through supplying future power to the facility, said Tracy Drake, executive director of the Port Authority.

But that was before deregulation hit Ohio.

"This time, [Ohio Edison] said it wouldn't put in the upgrade unless we paid for it," Drake said.

The Port Authority paid 100 percent of the cost for the upgrade, but that wasn't all.

"We paid to put the service in and still had to pay higher charges," he added.

An Idea Not Proven

Deregulation, or the restructuring of the electric industry, was an idea designed to lower electricity rates by increasing competition. In states that passed enabling legislation, including Ohio, consumers are free to choose a supplier instead of being forced to pay the rates charged by a single provider.

That's an idea that hasn't proven itself, according to Drake.

"The affect of deregulation has been negative," he pointed out. "Prices aren't going down — they're going up. In fact, companies that had the lowest rates, historically, are raising their prices to the levels of the highest-priced companies."

David Brown, vice president of NUS Consulting in Park Ridge, N.J., said it's easy to explain why deregulation causes prices to rise.

"With deregulation, electricity becomes a commodity that is traded on the open market," Brown said. "That means the cost is based on supply and demand, making for a much more volatile market."

For example, a summer heat wave in the Midwest increases demand, which in turn lowers the supply of available electricity. With supplies down and demand high, electricity prices rise as fast as the thermometer. That didn't happen before deregulation, Brown said.

"In areas where deregulation has occurred, electricity trading is now subject to economic forces it wasn't subjected to before, and in many cases that has resulted in huge increases in cost," he said.

California’s Struggles

The most well-publicized increases occurred in California, which made national news for skyrocketing rates that increased 40 percent to 50 percent, as well as the inability of the state's power companies to supply enough power to meet demands.

But the Golden State isn't the only place where rates may soar.

Price caps are being lifted this August in New Jersey, and an 8 percent to 9 percent increase in rates is expected," Brown said. In Ohio, people are warning of massive increases when its price caps expire in 2005-06.

These higher rates for electricity are likely to impact economic development in these areas.

"Rising electricity prices are not good for business," Brown said. "If you are a large consumer of electricity, and if you have the flexibility, you're going to look at those areas that have cheaper electricity and those places are states that are regulated, not deregulated."

In most cases, only investor-owned utilities have been affected by deregulation so many rural communities, which are typically served by local co-operatives or municipalities, are not bound by deregulation.

"Through deregulation these local communities have more freedom to purchase power on the wholesale market," Brown said. "Co-ops and municipalities shy away from deregulation by trying to lock into long-term contracts with steady prices."

But even then, prices have steadily gone up.

According to the U.S. Department of Energy, 18 states and the District of Columbia are currently active in restructuring. Four other states have delayed restructuring, while California has suspended restructuring for direct retail access.

The primary areas where deregulation has been avoided are in the Midwest and Northwest, where electricity rates are typically much lower than the national average.

Those already low rates led legislators in Missouri and Kansas to tread lightly on the issue of deregulation in the late 1990s, said Dean Katerndahl of the Mid-America Regional Council (MARC), the regional planning agency for metropolitan Kansas City.

“Even when there was more interest, there was a really fragmented position on deregulation — even among the private utility companies," Katerndahl said. "There was no monopolistic cry that said, 'We have to have deregulation.' I think the feeling was always that we had much lower rates than much of the country and the feeling was that somehow, deregulation would spread the costs across the country."

MARC's Government Innovations Forum researched the issue for nearly three years, beginning in 1997. Now, the issue isn't even on the organization's radar.

"The two biggest proponents here locally were Enron and Aquila," Katerndahl said. "Enron is almost gone and Aquila is pulling way back. The problem in California and the Enron scandal reinforced for legislators in Kansas and Missouri the need to take a very cautious approach.

"With California, you saw what a mess it could be,” he added. “And there just haven't been any other stories on the other side that have shown this would work."

There have been a few successes, according to Brown, but bargains are hard to find and even those may not last.

"Texas and Michigan have been success stories, although the profit margins are starting to shrink," he said. "In many areas, deregulation is the longest four-letter word. And in California, [officials] want to re-regulate the entire system back to the way it was."

Ohio has already taken steps to correct the issue that arose in Columbiana County.

"Our situation raised an issue that hadn't been thought of when deregulation was imposed," Drake said.

Since then, the Public Utilities Commission of Ohio passed a law that says the utility company must pay 65 percent or 70 percent of that cost.

More rules and regulations aren't surprising to Katerndahl.

"Deregulation is so complex," he said. "There are so many things that you can’t foresee. The word deregulation is a real misnomer. It's actually much more complex and much more regulated than it was when they started."

Dan Perkins is a freelance writer based in St. Louis.