Why Are Electricity Rates Going Up If Gas Prices are Down
The price of natural gas has been steadily declining. This means that utility companies should be able to offer lower rates for electricity. And yet, electricity rates on the whole are going up across the nation. What is that all about?
Lower Gas Prices
Customers may not realize that the cost for utility companies to purchase natural gas is considerably lower than it was a year ago. In fact, natural gas is more than 40% cheaper now that it was at this time in 2011. One third of the country's power is produced through natural gas so utility rates should theoretically be down.
When Rates Are Set
Customers who aren't seeing a lower rate for power may just need to wait a little bit longer. You see, in many states it is the regulators who set the rates for power and those rates are determined a year or more in advance of when they occur. So even though the price to buy natural gas is down now, the rate that customers see now may have been set more than a year ago.
There are pros and cons to this rate-setting design. Right now customers are seeing the "con" because they aren't able to take advantage of lower rates since they are locked into what regulators set as the price previously. The "pro" is that when the cost of natural gas does go up, customers won't see a corresponding increase in their rates right away.
Other Factors In Pricing
The price of natural gas does help to determine the total cost of electricity. However it is not the only factor that sets rates. Another major factor is the cost to deliver electricity to homes. Utility companies across the nation are installing smart meters, upgrading their infrastructure and improving delivery of service. All of that costs money so it offsets the savings potential of the lower rate of natural gas.
Electricity Rates Now and Then
Electricity rates have been steadily declining over the last 25 years although of course there have been fluctuations during which prices rise. At this time it seems that rates are going up slightly. This varies from state to state and utility to utility of course. And thanks to energy deregulation customers can choose to shop around in many states to get lower rates.
Publish Date: 2012-08-13 11:41:04
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