Already Stunned by Gas Prices, Shockingly High Electricity Prices May Await Americans This Summer
Posted: June 4, 2008
Americans may pay a lot more for electricity this summer, federal energy officials and the spot power market indicate. Worst hit could be the Northeast, especially the area from Boston to New York City, where forward prices from the InterContinental Exchange for July-August 2008 have been running up to 75% and higher over year-ago levels.
While higher forward prices aren’t a guarantee of higher actual prices this summer, “Wholesale electric prices are likely to be considerably higher than they were a year ago,” America’s Federal Energy Regulatory Commission (FERC) warned last month. FERC said this year’s higher price for natural gas, the most frequently used fuel for peak power generation, is the main reason why. On Monday Raymond James & Associates, the investment banking firm, raised its forecast for summer natural gas prices by 20%, citing colder weather, low imports of liquefied natural gas (LNG), and ongoing infrastructure repairs as reasons why it anticipates a 200 billion cubic foot (Bcf) year-over-year storage deficit by July.
FERC said that even if natural gas prices don’t keep rising, power prices likely will still go up because the U.S. has added little baseload capacity over the last few years. “As a result,” FERC said in its summer reliability report, “the electric system must use generators that cost progressively more to run.”
Newspapers including the Wall Street Journal last week reported on rising power prices in Texas, but sharply higher prices appear to await Americans from coast to coast. In parts of southern California, for instance, forward prices have been running roughly 75% higher than a year ago, while parts of the Midwest have been seeing roughly 50% increases.
Higher power prices due to higher fuel costs aren’t just an American phenomenon. Officials in countries from Great Britain to Australia have warned that rising costs will force their electricity rates to rise as well. But in America the financial pain of higher utility bills may be particularly severe because it would come on top of record-high gasoline prices that have already knocked the confidence of American consumers for a loop.
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