EIA is clueless.
Electricity costs expected to rise
By Barbara Hagenbaugh, USA TODAY
WASHINGTON — Gasoline prices aren't the only energy cost rising.
Retail electricity prices for the air conditioning season in June, July and August are expected to average 9.5 cents per kilowatt-hour, up 3.5% from 2003, according to data released Tuesday by the Energy Department.
The prices are expected to peak this month and slowly decline in July and August.
Although there is expected to be enough electricity, regional shortages aren't out of the question. The head of the Federal Energy Regulatory Commission has warned Californians they might have blackouts this summer, reminiscent of 2001.
The good news is the increase in electricity prices will be smaller than last summer's 4.9% gain. The bad news is the rise in prices comes as consumers pay more for all forms of energy, including a 37% jump in the cost to fill up their gas tanks from a year ago.
On the plus side, the Energy Department said the recent drop in gasoline prices might be the start of a trend. "Assuming that crude oil or gasoline market disruptions are avoided, the declines are expected to continue," the Energy Department said in a report Tuesday.
While not enough to stop the economy in its tracks, higher electricity prices will probably be a drag on growth.
When consumers are forced to spend more on energy, they have less money to spend in other areas of the economy.
"The increased value of oil imports has been a net drain on purchasing power, spending and production," Federal Reserve Chairman Alan Greenspan said in a speech Tuesday. (Related story: Greenspan indicates rate hikes will be gradual)
He added that increased costs could also be inflationary.
"Moreover, higher oil prices, if they persist," he said, "are likely to boost core consumer prices, as well as the total price level, in this country."
Electricity prices are expected to be higher for two main reasons:
•Demand. The Energy Department expects electricity demand to be up 1.8% in 2004 from last year because of an improving economy and weather conditions.
•Input costs. Prices for essential ingredients to create electricity have been rising, making it more expensive to produce electricity. Higher prices for oil and natural gas, used to generate electricity, are also likely to keep coal costs higher because natural gas and coal can sometimes be swapped as energy sources.
Prices aren't the only worry. Pat Wood, chairman of the Federal Energy Regulatory Commission, warned last month that California is "skating on the edge" when it comes to its electricity supply.
But officials at the California Independent System Operator, which manages the high-voltage transmission grid for the majority of the state, do not expect blackouts. Spokesman Gregg Fishman, however, warns there is little excess supply, providing scant cushion in the case of a utility problem or a sudden spike in demand.
"We are asking Californians in general to be cautious about how and where to use energy," he says. |
