Aug. 6--Most Texans feel pinched by their electric bills these days, but not many can relate to Alcoa's squeeze.

A few months ago, the giant aluminum company had to turn to the spot market for electricity at its smelter in Rockdale, about 60 miles northeast of Austin. With its usual electric supply drying up, the company paid four times more than its standard rate to keep the plant operating.

The unexpected expense cost Alcoa $22 million and was highlighted in its quarterly results. Alcoa responded by laying off 250 people at the plant and halving output.

"We have no choice but to idle production that is reliant on uncompetitive power," Alcoa's president of primary metals said at the time.

For Texas to be "uncompetitive" in something so crucial to operating a business is a shocker. State leaders constantly brag about Texas' being the top place to do business, and media outlets frequently confirm that standing.

So Alcoa's action poses a threat, at least to Texas' experiment with electric deregulation. It indicates that soaring prices are clipping businesses as well as residents, and it could give some employers second thoughts about expanding in the state.

For the past two to three years, homeowners and renters have been stung the worst by higher electric costs. Most companies seemed to be ahead of the curve, buying power in large blocks that afforded significant discounts.

Things have changed this spring and summer, in part because natural gas prices climbed. Then the increase was compounded by congestion in transmission lines and rumors of market manipulation, and wholesale prices spiked to unheard-of levels.

Alcoa was caught short at exactly the wrong time and decided it couldn't risk more hits in the state. Industry leaders say they're not aware of other companies that have cut capacity for the same reason. But they acknowledge that electric prices -- a longtime drawing card for Texas -- have become a competitive disadvantage.

What's surprising is that they don't blame deregulation, which ended most rules in the power market six years ago.

"While we've had some startup problems and need some things to be handled in a different way, we firmly believe that a deregulated market is the way to go," says Tony Bennett, chairman of the Texas Association of Manufacturers and vice president of government affairs at Temple-Inland.

He says that a number of association members have had a sharp spike in electric rates this summer, echoing the problems at Alcoa. But he declined to name the companies, and he said Texas' other attributes -- including low costs for labor, land and taxes -- continue to be a draw.

Several states in the South offer electricity at roughly half the price of Texas', he says, and his members monitor the rates closely.