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Published: Thursday, 7/12/2012 - Updated: 2 years ago

Electricity rates crank up as natural gas price slides

ASSOCIATED PRESS
Contractors install an air conditioner in Maryland. The recent heat wave meant more air conditioning and electricity use. But long-term factors are behind a national increase in electricity prices. Contractors install an air conditioner in Maryland. The recent heat wave meant more air conditioning and electricity use. But long-term factors are behind a national increase in electricity prices.
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NEW YORK -- A plunge in the price of natural gas has made it cheaper for utilities to produce electricity. But the savings are not translating to lower rates for customers; electricity prices are going up.

They are forecast to rise slightly this summer. And any increase is noteworthy because natural gas, used to produce nearly a third of the country's power, is 43 percent cheaper than a year ago. A long-term downward trend in power prices could be starting to reverse, analysts say.

"It's caused us to scratch our heads," says Tyler Hodge, an analyst at the Energy Department.

The recent heat wave increased demand for power as families cranked up air conditioners, which may boost some utility bills for June. But the nationwide price rise is because of other factors, analysts say:

In many states, regulators set retail electricity rates every few years, so lower power costs have not yet made their way to customers.

Utilities often lock in costs for natural gas and other fuels years in advance. That protects customers when fuel prices spike, but prevents customers from reaping benefits during price drops.

The cost of delivering electricity, which accounts for 40 percent of a customer's bill on average, has been rising fast. Utilities are building transmission lines, installing new equipment, and fixing up power plants. Analysts say this follows years of underinvestment.

This may reverse a gradual decline in retail electricity prices. Adjusted for inflation, the average retail electricity price has drifted mostly lower since 1984, when it was 16.7 cents per kilowatt-hour.

"The ratepayer is going to have to foot the bill," says David Wright, vice chairman of the South Carolina Public Service Commission.

The average U.S. residential electricity price is expected to be 12.4 cents per kilowatt hour for the June-to-August period, up 2.4 percent from the same time last year. For the full year, electricity prices are expected to rise 2 percent.

In a typical summer month, that would mean an extra $3 on a residential bill, which includes generating the power and delivering it to a home, plus local taxes and fees.

Electricity pricing is complicated and differs from state to state. Where power providers can compete, such as Texas, Pennsylvania, New York, and Ohio, customers can shop for cheaper electricity, although delivery charges still are set by regulators.



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