Falling oil prices not affecting electricity rates

Thursday, July 12th, 2012 By

Power lines

Some may have noticed that electricity prices aren't declining with gas prices, and there is a reason for that. Image from Wikimedia Commons.

Oil and gas prices have been falling, as have natural gas prices, but a number of people have noticed that electricity prices haven’t gone down with them. They also aren’t likely to, as the factors in setting electricity rates are a bit more complicated.

Low gas prices not fueling a dip in electricity prices

Some may have noticed that oil prices have dipped lately. Gas prices likewise went down a tad, always a welcome relief. Natural gas prices have been trending downward for a while. In fact, according to the Huffington Post, natural gas is 43 percent cheaper than it was last year.

However, a number of people might have also noticed that electricity rates, especially in their monthly power bills, have been going up. The averageĀ  power cost for the period of June through August is projected to be 12.4 cents per kilowatt-hour. The same period last year was 2.3 percent cheaper and power prices are expected to go up 2 percent over the rest of the year. The bump is expected to add another $3 to monthly power bills for most people.

Power not as easy to price

The price of most commodities is set by the relative scarcity. If a wheat harvest is bad for most farmers, less flour can be made and thus a loaf of bread costs a little more. Electricity is a little different.

Power companies, according to the Huffington Post, often lock prices in years in advance. Part of how that is done, according to the Chicago Tribune, is that some states buy electricity from power generation companies at auction for a years’ worth of power a few years in advance, locking the price down and ensuring that the areas bidding for the power, usually cities or entire regions, have enough juice to power their grids.

Another factor in electricity rates is getting the power to customers. That comprises roughly 40 percent of the bill, according to the Huffington Post. Maintaining the power grid, as in power lines and transformer stations, and so forth, is expensive and those costs have been going up in recent years. In some areas, it has gone up so much that drops in natural gas, oil or coal costs is erased.

Going to get worse

The method of power generation does matter, though. Some areas, such as Pennsylvania, according to the Scranton Times Tribune and Boston, according to the Boston Globe, did experience drops in electricity rates in recent months. Those areas utilize natural gas plants, which is how roughly one-third of the nation gets it’s electricity. However, slightly increased rates right now are relatively low compared to a rate increase for 2015, according to the Chicago Tribune.

A recent power auction by PJM Interconnection, a utility management company, which according to Fox News handles the power grid for 13 states, and power went for dramatically more than normal. Power in 2012 was sold at an average $16 per megawatt. One megawatt, according to the Chicago Tribune, can power at least 800 homes. The average price per megawatt for 2015 and 2016 will be $136. That’s the average; Northern Ohio’s rate will be $357 per megawatt. However, this has to do with the fact that many of these states rely on coal and a number of coal plants haven’t installed federally mandated emissions controls, the expense of which will be passed onto consumers.

Sources

Huffington Post

Chicago Tribune

Fox News

Scranton Times Tribune: http://thetimes-tribune.com/news/business/drop-in-ppl-electricity-rates-likely-to-set-trend-1.1275040

Boston Globe: http://articles.boston.com/2012-05-08/business/31628331_1_nstar-electricity-prices-natural-gas-prices

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