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Electricity Rates Fall With Natural Gas, Oil Prices

November 5, 2008

By Paul Davidson

Here’s a bright spot in an ailing economy: Electricity prices are falling in many areas.

The sharp drop in natural gas prices and, to a lesser extent, oil prices is slashing electric rates across big swaths of the USA. Utilities in the Northeast, Texas, Florida, the Mid-Atlantic and California rely heavily on natural-gas-fired power plants to generate electricity.

“In those regions, rates will come down with the price of gas,” says Bernstein Research analyst Hugh Wynne.

Natural gas prices have plummeted as the anemic economy has dampened consumption. Also, natural gas resources jumped this year as producers found ways to unearth fresh supplies embedded in shale rock.

Of course, the rate cuts are coming after big fuel-related increases last summer. Fuel costs can make up as much as 50% of a utility bill. Among the decreases:

*The average electric bill for Con Edison customers in New York City plunged from $110 in August to $70.57 in October, or 36%, mostly because of sliding natural gas costs, spokesman Alfonso Quiroz says. That, however, followed rate increases of 14% in July and 59% in August.

Con Ed, which buys all of its electricity on the wholesale market, gets about 43% of it from natural-gas-based generators and 6% from oil-fired plants.

*In New Hampshire, electric rates for National Grid customers dipped 12% this month, from 11.65 cents per kilowatt hour to 10.23 cents. But until May, the rate was 9.2 cents per kilowatt hour.

*In Texas, electricity retailer First Choice Power says bills for customers whose rates vary month-to-month were 40% lower in November than last summer. “It’s the lowest price we’ve offered this year,” spokeswoman Catherine Carlton says.

*California’s Pacific Gas & Electric, which had expected to raise rates 2% in January to cover higher fuel costs, now says bills will stay the same or dip slightly.

*Tennessee Valley Authority President Tom Kilgore told his board last week that the company plans to reduce electric rates by an unspecified amount in January because of falling natural gas and oil prices. The power wholesaler, which boosted rates 20% last month, sells electricity to utilities that serve 9 million customers in the Southeast.

*Tampa Electric expected to raise the average residential customer’s bill from $114.38 to $139.25 in January. Instead, the bill will rise to $128.44.

“We’re very pleased to see a downward trend in fuel pricing, which means a lower cost impact for our customers,” company President Chuck Black says.

Prices for future natural gas contracts peaked at about $13 per million Btu in early July. They settled Tuesday at $7.22. Meanwhile, prices for oil used by power generators have fallen by more than half. Coal prices, which more than doubled since last year, have stabilized.

Not all utilities have been able to pass along fuel cost decreases to customers. Dominion Virginia Power, for instance, gets most of its electricity from coal and raised rates 18% in July. But it can adjust rates only once a year.

The good news: Natural gas could remain fairly stable into next year.

The Energy Information Administration expects prices to fall about 15% next year. (c) Copyright 2008 USA TODAY, a division of Gannett Co. Inc. <>




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