Rising Electricity Costs

(sorry another long article- but good reading)

Rising energy and electricity prices have been in the news a lot lately. More than 100 state regulatory actions are planned or in progress to address rising electricity costs.

Even with recent price increases, the growth rate for electricity prices remains comparable to, and even lower than, other important consumer goods. The national average price for electricity today is less than what it was in 1980, adjusted for inflation.

What's Causing Electricity Costs to Rise?
The Costs to Generate Electricity Are Rising
Electric companies use a diverse mix of fuels to generate electricity. Fuel prices greatly affect the price of electricity. An important long-term solution to high fuel costs is to maintain the diversity of our nation’s available fuel resources to ensure that we do not become too dependent on one fuel source. But, this requires higher capital costs and new infrastructure investments.

Demand for Electricity Is Growing
While efficiency improvements have had a major impact in meeting national electricity needs relative to new supply, the demand for electricity continues to increase. According to the U.S. Department of Energy’s Energy Information Administration (EIA), electricity consumption is expected to increase 45 percent by 2030. To meet this increasing demand, electric utilities must invest in a new generation of baseload power plants, those that run continuously to meet the country’s minimum demand.

Infrastructure Investment Costs Are Growing
Electric utilities must reinforce the nation’s electricity delivery infrastructure—high-voltage transmission lines, substations, and distribution systems. Electric utilities now have invested, or are planning to invest, an additional $28 billion through 2008 on transmission infrastructure—a 60 percent increase over the previous five years.

Environmental Compliance Costs Are Significant
All electric utilities are subject to hundreds of environmental rules, including dozens of federal and state air and water quality requirements created in the wake of the Clean Air Act and Clean Water Act. From 2002-2005, the electric utility industry spent $24 billion on compliance with federal environmental laws; state and local rules drive that total even higher. According to the U.S. Environmental Protection Agency, complying with two new federal regulations—the Clean Air Interstate Rule and the Clean Air Mercury Rule, which are aimed at further reducing power plant emissions of nitrogen oxides (NOX), sulfur dioxide (SO2), and mercury—will cost the electric utility industry $47.8 billion between the years 2007 to 2025.
Price Caps Set During Industry Restructuring Are Expiring
As part of the transition to competition, many state policymakers decreed that customers’ bills would be frozen, and in many cases reduced, typically for a period ranging from two to ten years. The first rate caps were put in place in 1997, and the last are set to expire in 2011. As rate freezes and reductions are being phased out, many customers perceive that their rates are being "increased" when in fact they are gradually reflecting the costs already incurred by utilities.
What Are Electric Utilities Doing To Help Control Prices?
Electric utilities are taking steps to help shield customers from rising fuel costs. Many electric utilities try to "hedge" or enter into long-term, fixed contracts for fuel at set prices. However, not all companies have this option, and such forward contracts cannot cover all fuel needs.

Utilities have increased the productivity (capacity factors) of their power plants while at the same time decreasing their operations and maintenance costs. Electric utilities also have taken a leading role in developing energy efficiency and demand response programs for residential, commercial, and industrial customers. In fact, between 1989 and 2004, electric utility efficiency programs saved about 736 billion kilowatt-hours of electricity—enough electricity to power nearly 68 million average U.S. homes for one year.


What we’re up against

Fuel prices are having an impact on all of us. Whether we burn natural gas and oil in a power plant to make electricity or fill the tank of our car at the local gasoline station, we are witnessing dramatic price increases in fuels that significantly touch all our lives.

Since 1999, the price of crude oil has increased by 438 percent and natural gas prices have increased by 744 percent. As an example of the dramatic increases in fuel prices since 1999, natural gas prices have increased from $1.69 per million BTUs in 1999 to $14,26; crude oil prices increased from $12.34 per barrel in 1999 to $66.44 in September. Experts who monitor future fuel prices predict 2006 prices will be even higher.

All of this is particularly frustrating to us at FPL as we’ve worked hard to reduce our non-fuel expenses and we’ve been able to lower basic rates by 15 percent since 1999 -- saving you, our customers, approximately $4 billion!

Most recent Florida Public Service Commission action

The Florida Public Service Commission (PSC), the regulatory authority that oversees costs customers pay for electricity, in November approved our request for a fuel cost adjustment on customer bills which began in January 2006.

The adjustment reflects the extraordinary expenses for fuel used to generate electricity during a period of skyrocketing global energy costs compounded by the impact of major hurricanes last summer on natural gas and oil production and distribution in the Gulf of Mexico.

Our total fuel costs to be recovered this year will exceed $6.5 billion. The total fuel adjustment is composed of the projection for fuel costs this year and fuel costs for the first nine months of last year that were not collected through last year’s adjustment.

How your bills are being affected
Beginning January 5, 2006, residential customers’ bills increased by approximately $16.99 per 1,000 kilowatt hours (kWh), to $108.61. Commercial and industrial customers’ bills increased between 22 and 41 percent, since fuel makes up a larger portion of those bills.

While we cannot control factors driving world fuel prices, we’ve taken a number of aggressive actions to mitigate the volatility of these extraordinary fuel costs and their impact on you, our customers. Without these efforts, fuel prices would be even higher.

We’re maintaining a diverse fuel supply. This helps stabilize fuel costs and maintain the reliability of our electric system. Our fuel mix includes nuclear (21 percent), coal (6 percent), purchased power (18 percent), oil (18 percent) and natural gas (37 percent).
We make maximum use of our nuclear generating units. Nuclear power plants have low operating costs and produce safe, reliable, emissions-free power. We’re hopeful that over time we can add nuclear units to our generation portfolio in Florida and that’s why we’re advocating more certainty and better predictability in the state and federal licensing process for new nuclear units.
We’re maximizing the use of coal-fired generation. While coal prices have increased, coal is far cheaper than oil and natural gas and subsequently we’ve been maximizing our use of the limited coal-fired generation that we own and increasing purchases of coal-fired power whenever possible. We believe that using more advanced technology coal generation can help us further diversify our fuel mix and lower fuel costs for our customers so we’re evaluating potential locations in Florida where we might site an advanced technology coal plant that woukl fulfill these objectives in a way that is sensitive to Florida’s environment.
A number of our plants can burn either oil or natural gas, so we can switch fuels depending on which is cheaper.
We employ a “fuel hedging†buying strategy that takes advantage of preset contract prices to reduce the impact of fuel price volatility. Using this strategy saved our customers more than a half billion dollars from 2002 through 2005. We expect that hedging activities will provide significant savings to customers in 2006 as well.
Our non-nuclear power plant fleet is approximately 12 percent more efficient than just five years ago. We’ve invested heavily to re-power older, less efficient generating units and build new, state-of-the-art natural gas-fired units which now take less fuel to produce the same amount of electricity. This increased fuel efficiency has saved our customers nearly $500 million over these last five years.

Im sure the power companies in other states are saying the samething as FPL...