The Power of Rising Energy Prices

Similar forces are at work in Europe, where plants are closing. Production is shifting to places where power is cheaper, such as the Middle East, Russia and China.

"Over the next 10 years, over the next 15 years, I think you're going to see primary domestic smelting capacity in the U.S. wither away," said John Mothersole, a Washington-based senior economist with the consulting firm Global Insight Inc. "That's just because of the cost of electricity. . . . We don't anticipate for industrial rates you'll be able to purchase electricity at a rate that will make it competitive in a global market."

Some plants have survived in other parts of the United States because they receive power from aluminum-company-owned electric plants or from government-owned facilities that provide cheaper power, analysts said.

The power bill at Eastalco is eye-popping. The company expects this year's electricity bill to total $89 million, a below-market rate stemming from a contract signed in the mid-1990s. Under that plan, Alcoa has been paying from the mid-$20s to the low $30s per megawatt-hour, the company said.

But once the contract with Allegheny Power expires at the end of the year, Alcoa says, it would have to pay about $70 per megawatt-hour, ringing up a bill of $195 million in 2006. The company says prices would need to be from $35 to $40 a megawatt-hour for the plant's doors to remain open.

Alcoa and many other heavy electricity users had long wanted government regulators to stop setting prices for electricity based on utility operating costs and allow market forces to determine price.

Since the mid-1990s, about 22 states and the District have decided to deregulate electricity, which is supposed to create competition and lower prices by allowing customers to buy power from providers that could be hundreds of miles away, rather than just their local power company.

"Deregulation was sold to the country as a way to eliminate any kind of fat that existed in the local utility and as a way to reduce costs," said Marc Pereira, vice president of energy for Pittsburgh-based Alcoa. "With all this competition, you're going to see lower prices. That sounded pretty good. . . . But the reality has been different."

The electric industry and some researchers say deregulation has kept prices lower than they otherwise would have been. The main reasons for sharp price increases recently, the industry says, are higher demand and fuel costs.

"Whether you have a regulated system or a market system, prices would be higher," said Ray Dotter, a spokesman for PJM Interconnection LLC of Valley Forge, Pa., which operates the wholesale electricity market in the region. "A competitive system for electricity has saved billions of dollars in cost below what it would have been in a regulated system."

Years ago, when companies chose locations to build aluminum plants, they did it to be close to the country's lowest-cost power providers. Eastalco long relied on cheap power provided by the Allegheny generating facilities that are close to cheap coal.

With deregulation, the situation changed. Regulators were out of the picture.