Electricity costs more today in Southwest Virginia than it did three months ago, but a 25 percent rate increase in October may be only the first of many rate jumps by Appalachian Power Co. if Virginia follows national trends.

States once kept electricity rates in check. But in the wide-open economy of the 1990s, lawmakers changed the rules to see if free-market competition could lower prices.

It hasn't.

Instead, the free market is heading toward the high electricity prices of the Northeast.

Baltimore residents experienced a 72 percent rate increase in July, as Maryland went from being economical to one of the most costly states for electricity.

Virginia rates may be headed in the same direction as Maryland's, although at a slower pace. Virginia law still imposes some price regulation through 2010.

Deregulation in Virginia means electricity rates are no longer going to be based on a utility company's cost of generating power. Instead, rates will be based on how much the company can earn in states where rates are highest.

"It's not cost-based any more; it's market-based," said Ken Schrad, spokesman for Virginia's State Corporation Commission, which holds a rate hearing this week.

Former Del. Chip Woodrum of Roanoke is pessimistic.

"The economic impact of electric utility deregulation is going to far outweigh any tax increase we've ever had in Virginia," said Woodrum, who waged a lonely battle against deregulation eight years ago in the General Assembly.

Industries have built plants in Virginia "because of 'cheap' and regulated electric power," Woodrum said.

Electric rates were low because Appalachian's generating plants in West Virginia were so near to coal mines, which provide the cheapest fuel for generating power, said Appalachian spokesman John Shepelwich.

Deregulated power rates did not give Virginia customers a shopping opportunity.

Utility company executives argued in the late '90s that deregulation would let consumers shop for electricity the same way they shopped for phones and switched banking companies.

But that line was never energized; electricity was so cheap in Southwest Virginia that no utility company could compete with Appalachian.

The hurdle posed by Virginia's low rates rarely surfaced in the debates of the '90s. When it did, Virginia's cheap power rates were lost among hundreds of talking points raised by utility company lobbyists and consumer advocates.

Deregulation issues became as complex as a power-grid schematic.

"When they started restructuring, folks were swearing to legislators that rates were going to go down," said Irene Leech, president of the Virginia Citizens Consumer Council and an associate professor of consumer affairs at Virginia Tech.

Most legislators bought into the power companies' arguments that a deregulated market would attract competitors the same way an open market had created phone companies -- some 100 of which went bankrupt nationwide a couple of years later.

Big changes in Virginia's electric rates now seem almost certain.

Appalachian goes before the SCC on Wednesday to argue that it should keep all of its October rate boost, which added $14 to the typical home customer's monthly bill.

Counting two more rate increases that Appalachian plans to start collecting by the end of January, the typical monthly bill in Southwest Virginia for a home using 1,000 kilowatt hours of electricity will be close to $80 before taxes, compared with $61 three months ago.

By comparison, homeowners in San Diego are paying about $214, and those in New Jersey and Delaware are paying about $120, according to a survey by the Jacksonville, Fla., Electric Authority.

Chances of Virginia prices going down were reduced by the Electric Utility Restructuring Act passed by the General Assembly in 1999.

"Legislation has taken away from the SCC the authority to really look at things," Leech said. "What that means to us as consumers is that instead of having people who understand the nuances and extreme complications of situations, the General Assembly is making decisions without seeing any data."

Even if the SCC were to follow its typical pattern of ordering Appalachian to refund part of the October increase to consumers, the market trend is upward for electricity prices.

Appalachian's parent company, American Electric Power, "has room to move toward the middle" of the average rates charged in the East, Leech said. "Communities and consumers are going to be stuck with the bill." A few of Appalachian's 500,000 customers have protested.

Some residential customers, often saying they were on Social Security, argued that higher electric bills were a particular hardship when gasoline is $2 a gallon or more.

One point the SCC staff will make on behalf of consumers this week involves Appalachian's desire to collect the cost of its plant upgrades from customers before it actually makes the improvements.

The SCC staff says state law requires that AEP install the new pollution controls it plans for coal-fired plants before it can recover the costs.

Appalachian argues that federal law allows AEP to collect in advance for those expenses.

Other arguments to be heard this week have come from Appalachian's business customers, some of whom have hired consultants to dissect the structure of rates the company has put into effect.

Steel Dynamics, which now operates the electric furnaces that melt scrap material at the former Roanoke Electric Steel plant, hired Marietta, Ga., rate specialist Robert Smith to review Appalachian's tariff plans.

Smith says in testimony filed with the SCC that Appalachian wants to take much of the profits from its sales to other power companies out of the Virginia rate base and share only 40 percent of those sales with Virginia ratepayers. Smith argued Virginia customers should get 100 percent of the proceeds.

The numbers involved are significant: The $198.5 million rate increase Appalachian is seeking could be reduced by $68 million, Smith said.

Further, Smith said, Appalachian's parent, AEP, is selling even more power to other utilities than was projected in SCC filings several years ago.

Appalachian's Virginia share of those sales could rise to $116 million, or 70 percent more than expected, for 2006, Smith said.

Sales to other utilities "seem to have increased significantly with AEP's joining PJM Interconnect," Smith said.

PJM Interconnect is a company formed under recent federal regulations to improve power transmission to the Northeast, and Appalachian's expense notes say AEP has hired personnel to make sales in that market.

Wal-Mart Stores also hired its own consultant, James Selecky of St. Louis.

Selecky concluded some of Appalachian's customers, particularly residential consumers, aren't paying their fair share.

The way Selecky analyzed the rates, residential customers and churches aren't quite paying a full share of the cost Appalachian incurs in running lines to individual buildings and providing meters for them.

Appalachian makes up the difference with a higher profit margin on groups of customers in three "general service" categories and large power users, Selecky said.

"Residential and sanctuary worship service classes are currently paying rates that are less than the cost of serving the customers in those classes," Selecky said.

"All other rate classes are paying rates in excess of their cost of service," Selecky said.