Electric rates not falling along with fuel costs

[NickB79]

http://apnews.excite.com/article/20120711/D9VUU4AG0.html

NEW YORK (AP) - A plunge in the price of natural gas has made it cheaper for utilities to produce electricity. But the savings aren't translating to lower rates for customers. Instead, U.S. electricity prices are going up.

Electricity prices are forecast to rise slightly this summer. But any increase is noteworthy because natural gas, which is used to produce nearly a third of the country's power, is 43 percent cheaper than a year ago. A long-term downward trend in power prices could be starting to reverse, analysts say.

"It's caused us to scratch our heads," says Tyler Hodge, an analyst at the Energy Department who studies electricity prices.

[LiberalEsto]

1. We are still paying for nook-u-lar power plants

and their upgrades and their fuel storage issues

[phantom power]

2. I know that my utility (SRP) is asking for a 4.7% increase...

to fund new generating capacity, prominently renewables. Generally speaking, building new capacity of any type requires money.

As I understand it, just because raw materials like NG went up in price, does not mean they immediately raised their rates by the same amount. Utilities at least partially "ride out" price spikes in NG.

[GliderGuider]

3. Ummm...

You meant "price dips in NG, right?

There are a lot of costs that remain constant - delivery costs, coal costs, the cost of nuclear evacuations. Then there's the need to honour their fiduciary duty to their shareholders by maximizing dividends, then there's the need to accumulate money for O&M, M&A, etc...

"Lower our prices? Couldn't possibly, old chap! It's just the way the market works - nothing personal, you see..."

[phantom power]

4. I mean spikes. For example...

SRP has to get permission to raise rates. If they get hit with a spike in NG prices, they don't just get to raise their rates. It's a somewhat lengthy process, and not one that is guaranteed to actually give them a rate increase, or one as high as they ask for.

Not that I really disagree with your other point. If they "decrease" rates, it is only via inflation, by just holding them constant for some period of time against an inflating dollar. Their last rate increase was 2010, I think.

[kristopher]

5. You are on the right track

Utilities work hard to avoid price volatility; in fact that effort is one of the main drivers of how the economic structure of the electric market is designed.

There are a number of tools they use to hedge against large price fluctuations. One of them is built around the term dealt with in fuel contracts. The spot market for a given fuel might be high or low at any given time, but the way those spot market prices are determined is affected by the amount of the resource that is already sold to meet contracts that might have been signed years ago. The long term contract works well to hedge against price increases, but it obviously exposes the buyer to risk if the price of the commodity declines, like gas has done. This leads the buyer to purchase some of their fuel on the spot market. Usually though, most of their fuel will have been purchased last month, last year or even during the last decade.

Another approach is the 'fuel surcharge' that many utilities use. That is approved by the regulator and is determined by a baseline formula. The results appear as a line item on the customer's electric bill and will track the changes in fuel costs from the baseline.

Fla. PSC denies Gulf Power nuclear plan rate hike

TALLAHASSEE, Fla. — Florida regulators again have denied Gulf Power Co.'s request to increase rates for acquisition and evaluation of a possible nuclear power plant site.

The Public Service Commission originally declined in February to include those costs in the Pensacola-based utility's base rate. The panel on Tuesday in Tallahassee rejected Gulf's request to reconsider that decision. Gulf Power is a unit of Southern Co.

The plant costs would have added about 20 cents to a typical residential customer's monthly bill.

<snip>

Since then, the PSC has cut Gulf's fuel cost fee, reducing a typical monthly bill by $9.92 to $116.61.

http://www.cbsnews.com/8301-505245_162-57474023/fla-psc-denies-gulf-power-nuclear-plan-rate-hike/