As the Price of Coal Goes, so Goes the Price of Electricity

By Hazlehurst, John

The average retail price of electricity rose 2.3 percent during 2007, according to the U.S. Energy Department, and industry analysts predict that higher coal prices will lead to larger increases this year.

The increases will particularly affect consumers in the eastern United States, where most power plants burn high-BTU coal from mines in the Midwest.

Fueled by export demand, the price of the benchmark grade Central Appalachian Coal has increased during the last year from $40 to as much as $140 per ton, causing utilities without coal contracts to raise electric rates by between 13 percent and 19 percent.

At the beginning of this week, futures prices hovered near $100 per ton.

While some analysts predict that supply bottlenecks will soon be resolved, leading to sharp price drops, others are predicting that demand will continue to outrun supply.

Peabody Energy’s CEO Gregory Boyce is among the price bulls. During the last year, the company, which holds 9.3 billion tons of coal reserves, has seen its stock rise by 46 percent.

Reporting record earnings, Boyce predicted continued strong results. “We are just beginning to benefit from the repricing of legacy coal supply contracts at higher levels, which could drive significant earnings increases for years to come,” he said.

Among those “legacy contracts” are both of Colorado Springs Utilities’ expiring contracts.

Credit: John Hazlehurst

(Copyright 2008 Dolan Media Newswires)

(c) 2008 Colorado Springs Business Journal, The. Provided by ProQuest Information and Learning. All rights Reserved.