Quotes of the Day

Wencke Hovet, the widowed mother of a 9-year-old child, was deeply moved when she read in the newspaper recently about two elderly people in Norway who died of hypothermia because they could no longer afford to heat their houses. But she felt the chill personally when she opened her own electric bill last month. Covering October, November and December, when Norway was experiencing unusually cold weather, the bill demanded $2,745. It wasn't a typo. "It's totally crazy," she said. "They just exploited the situation."

The "situation" Hovet refers to is the free market in electricity that has outraged consumers all over the four Nordic countries this winter. In past years, electricity prices have been kept low by abundant rainfall at the region's hydroelectric dams. But electricity costs have spiraled upwards because of scarce rain and bitter cold in places like Norway — which in 1991 became the world's first country to deregulate its electricity market. Despite consumer anger, proponents say the free market worked this winter because even in a time of short supply and high demand, there have been no enforced blackouts like those that roiled California during its power crisis in the summer of 2001. "The market mechanism has for the past 12 years worked according to expectation," Norwegian Petroleum and Energy Minister Einar Steensnaes told TIME. But opponents say the jump in prices has been outrageous, and shows a clear need for re-regulation. "What we've seen this winter is that the market doesn't function," says Hallgeir Langeland, a member of Norway's parliament from the opposition Socialist Left party. "The market works for companies but not for consumers who have to pay for electricity themselves."

Norway's experience, now expanded to Sweden, Finland and Denmark, provides a potentially scary omen for the rest of Europe. Deregulation of the E.U.'s energy market is set to continue next year; some 60-70% of natural gas and electricity supply will be governed by free market prices. In Germany, for example, electricity is already 100% deregulated. This has reduced prices for big customers by 60%, but not everyone is pleased. Ulf Böge, president of the Federal Cartel Office, says he's filing cases against 10 electricity providers for opportunistically charging excessive fees for use of the electric grid. "These fees are often too high and they mean prices to consumers are being raised," Böge said. Experts expect energy prices to move broadly lower in a deregulated world. But the experts rarely tout instances like Norway's winter, in which temporary market hiccups seriously affect ratepayers.

Although Finns have been ordered to cut back on their beloved saunas, the energy shortage has hit consumers in Norway the hardest, an ironic twist for a country that is the world's third largest exporter of oil and natural gas. Norway gets 99% of its electricity from hydroelectric dams, a pollution-free, renewable source of energy. In contrast, Sweden gets just 55% of its electricity from hydro. Hydroelectric power has been so abundant in Norway in recent years, and prices so cheap, that a majority of homeowners have switched to electric heating. As a result, Norway has nearly double the per capita consumption of electricity than the United States.

But even a relatively stable electricity source such as hydroelectric has its flaws. Last autumn saw the lowest rainfall since 1931, when Norway started keeping reservoir records. Winter arrived two months early with bitter cold weather in November. The result was a sharp uptick in demand at a time when supplies were much smaller than usual. Norway only avoided blackouts by importing electricity from Denmark and Germany, which have coal- and gas-fired power plants. The "spot price" for electricity zoomed up from a low of $4.62 per megawatt hour to more than $140 per megawatt hour. Electricity futures are traded on the exchange just like any other commodity, helping companies lock in stable prices. Enron, the disgraced U.S. energy company, was a major player on the Oslo exchange before it was declared bankrupt. But when supplies are short and demand is high, the consumer who buys his electricity through a wholesaler at the spot market price can end up getting burned.

"It's a huge problem," says Dag Refling of the Norwegian Homeowners' Association. "We're demanding the government do something to help consumers with their bills." Among the measures recommended: forgiving the 24% vat and 30% tax on electricity until the crisis is over.

Norway is normally a placid society where decisions are reached by calm consensus. But the power crisis has exposed an unexpected vein of anger. Newspapers report schoolchildren forced to wear hats and coats in their classrooms, while big manufacturers close production lines to sell their cheap electricity at a huge profit.

Moreover, the functioning of a free electricity market can be pretty bizarre. The last Norwegian government approved the building of three new gas-powered plants to bolster supply in dry years. But the current government objects to the plants because of their noxious emissions. The alternative seems just as bad: Norway exports its natural gas to Germany where production companies burn it to produce electricity, which they then export back to Norway. It's a strange bargain: Norway gets higher — sometimes sky-high — electricity prices while Germany gets the pollution.

Steensnaes was widely condemned after suggesting people who couldn't afford their electricity bill could apply at social welfare offices for help. "You must be a total idiot," said one e-mail addressed to the Energy Minister and released to the newspapers. "For me and countless other regular wage earners, you appear to be completely incapable of action and to have an inflated, snotty arrogance that goes far beyond the bounds of decency," said another. "I have to expect to be a scapegoat," Steensnaes says philosophically. "But people know they can't blame me for the policy." Under pressure from the government, some electric companies are allowing customers to pay their bills in installments.

A broader problem is that Nordic countries have added very little new electric generating capacity in the past decade, even though consumption is rising 2-3% a year. Even in good years Norway has to import some electricity. The pool is even shrinking — Sweden's Barsebäck-1 600-megawatt nuclear reactor was shut down in 1999 as part of the country's ongoing rollback of atomic power. Finland is so concerned about a dependence on Russia for electricity that it decided last year to build a new nuclear power station, the first in Western Europe for a decade.

Countries like Norway and Sweden are in a quandary: in normal years, electricity is cheap and plentiful, while in admittedly rare dry years there's a huge shortage that needs to be filled. While governments proclaim the free market to be working, some form of governmental action, either subsidies for new power plants or regulation of reservoirs to ensure they have necessary reserves, will probably be needed to avoid the kind of electric shock consumers are receiving this year.

• CHARLES P. WALLACE | Oslo
• Nordic consumers are furious over soaring power prices