The Pew Charitable Trusts

Undeterred by the California power crisis, four states will complete their own electricity deregulation efforts in 2002 as they seek to give customers a greater choice of providers and new industry players a better shot at making money.

January marks the deadline for opening up electric competition in New York, Texas and Virginia. Illinois, meanwhile, is slated to provide all electric customers with freedom of choice by May, and Maryland is expected to complete deregulation of all shareholder-owned utilities by July of 2002. Maryland won't complete deregulation of co-op-owned providers until 2003, however.

In each of these states, the move aimed at opening up the electricity markets to more power providers and hopefully giving consumers lower bills is expected to go smoothly in sharp contrast to what happened in California earlier this year.

The predictions are, said Robert Burns, a senior analyst with the National Regulatory Research Institute at Ohio State University, there will be "no meltdown situations like California," where power shortages and high prices forced the state to implement emergency measures that effectively reversed their experiment with deregulation.

One reason similar problems are not anticipated, Burns added, is that most of the states moving ahead are located "in some of the better market areas" for electric power. Demand is not likely to outstrip supply in the East Coast and Midwest markets, meaning that customers in many areas may be able to reap lower costs by shopping around for new providers, which was the original intent of the deregulation movement.

"The estimates are that people are going to build like crazy in these newly restructured states," Burns said, referring to companies that are ready to begin construction on new power plants.

In some states, most of the new plants will be designed to export power to other states. Virginia, for example, has become a magnet for new power plant applications because the state does not require new facilities to dedicate any power to local consumers. Since Virginia intends to cap consumer prices until at least 2007, most of the new plant builders in Virginia - there are 21 facilities proposed now, according to the Washington Post - will be trying to export power to other states where the market may be more lucrative.

The building of these exporting 'merchant plants,' as they are called, has been stopped for now in Kentucky, where concerns have been raised about the environmental impact the plants could have on the state.

Kentucky residents opposed to the building of new power facilities contend the state will be left with most of the headaches and expense of monitoring the new plants and will realize little if any benefit at all from their operation.

In Texas, the situation is quite different. Considered by many experts as a model for deregulation, Texas will implement the final phase of its efforts in January when it allows all customers of investor-owned power plants (about 85 percent of electricity users in the state) to pick their own provider. The remaining 15 percent of users belong to Texas' municipal-owned utilities or rural co-ops, which decided not to join the deregulation movement.

Unique among the states, Texas has its own electric grid system, meaning it doesn't have to import power to meet its needs. Most of the electricity generated in the state stays in the state, and for now it has enough power plants to handle demand. But the Lone Star State is so expansive there's still plenty of room for growth, which could lead, according to some deregulation experts, to power plant "overbuilding." That could be bad for some in the industry, but not for consumers who hope to cash-in on their new powers of choice.

As of now, 24 states have either completed deregulation or are moving ahead cautiously with their efforts. Arkansas and New Mexico, for example, have both passed legislation delaying implementation for up to five years. Nevada, in the meantime, has repealed the deregulation law it adopted in 1999, placing a permanent halt to efforts intended to open up its retail market.