Electricity prices on the rise. Higher bills to come?

A rise in natural gas prices pushed wholesale electricity costs higher in the first half of 2013, according to the Energy Information Administration. While that doesn't directly translate to retail energy costs, the upward trend doesn't bode well for ratepayers in the long run.

The US may be awash with newfound energy resources, but that's not keeping prices down.

Rising natural gas prices are pushing wholesale electricity costs up, according to a briefing released Tuesday by the US Energy Information Administration (EIA). Historically speaking, the prices of natural gas and electricity are still low, but a slowdown in the country's boom in natural gas production is pushing them higher again.

That upward price trend probably means ratepayers will suffer in the long run.

"That’s the fun and frustrating thing about electricity," M. Tyson Brown, a statistician at EIA and the author of Tuesday's briefing, said in a telephone interview. "It’s complicated because of all the regulatory and market structures involved in keeping the lights on."

Public utilities commissions set electricity prices in most states, which means the financial relationship between domestic natural gas supplies, wholesale electricity prices, and what you pay your utility, isn't as direct as one might think. For example, when a public utility pays less for its fuel, it may reinvest that into its physical assets, instead of passing the savings on to the ratepayer.  

In the first half of 2013, utilities that run on natural gas say the price of their fuel rise anywhere between 40 and 60 percent, according to EIA. That's largely due to a slowdown in the enormous shale gas boom that has turned the US energy outlook on its head.

In 2011, US dry natural gas production grew by 7.3 percent in the first half of 2011, according to Bentek Energy, an energy market analytics company. That fell to 5.6 percent growth in the first half of 2012 and was even lower in 2013: only 1.8 percent.

A colder winter than previous years also increased demand for natural gas and lowered storage inventories. Consumption grew by more than 3 percent through the first half of this year, helping to push natural gas prices upward.

The effect is already being felt in the wholesale electricity market, which is electricity that is traded as a commodity by power companies before eventually being consumed. Prices in New England and New York, where pipeline constraints limited natural gas delivery, were the highest in the country. Wholesale electricity reached above $200 per megawatthour for several days this winter, according to EIA. 

In the Northwest, a lack of rain has hampered hydroelectric generation and forced a greater reliance on natural gas, driving an 82 percent increase in power prices this year, compared with the first half of 2012, according to EIA.

The shutdown of the San Onofre Nuclear Generating Station isn't helping matters in California. With the 2,200 megawatt plant off-line, Californians have seen a 59 percent increase in wholesale power prices in the first half of 2013. Southern California Edison announced last month it would shut the plant permanently.

The jump in wholesale prices won't immediately affect the average home electricity bill, Mr. Brown noted, but the long-term trend is upward. Last year, residential electricity prices in the US averaged 11.9 cents per kWh in 2012, according to EIA. That's projected to rise by 1.1 percent in 2013 and by 1.6 percent in 2014.

"They were at 10-year lows last year and they’ve come up but, historically, they are still pretty low," Brown said of wholesale electricity prices.