US electricity prices are rising. Thank the 'polar vortex.'
US ratepayers will pay 3 percent more for electricity this year – the biggest increase since 2008, according to US government projections. The higher prices come after a harsh winter that strained the Northeast's grid and boosted natural gas demand.
Fog covers Lake Michigan along the Chicago shoreline during January's 'polar vortex,' which strained much of the US electric grid and increased demand for electricity. It partly explains why residential electricity prices are expected to rise 3 percent this year.
Teresa Crawford/AP/File
Washington
US consumers can expect a 3 percent jump in residential electricity prices this year, according to government projections. The price increase is the biggest since 2008.
The culprit? Unusually cold bouts of weather and infrastructure bottlenecks are stretching the supply and distribution of natural gas, even amid a boom in domestic production. The result is higher fuel costs for power plants, according to the US Energy Information Administration report, and those costs are eventually passed on to the consumer.
The average price that electric utility companies paid for natural gas was 57 percent higher during the first quarter of 2014 than during the same period in 2013, EIA economist Tancred Lidderdale said in an email Monday.
Residential electricity prices have been climbing since at least 2003, according to EIA data, with prices spiking 10.3 percent in 2006 and 5.7 percent in 2008. Price hikes are likely part of a long-term, upward trajectory in the cost of electricity, as the Christian Science Monitor reported last July. Growing prices are the result of bottleneck in the supply chain, a move away from coal-fired and nuclear power, and the web of regulatory and market forces that govern utilities prices in most states.
“This is not only expected, but it’s going to be the norm,” said Dan Kish, senior vice president for policy at the Institute for Energy Research, a conservative Washington-based advocacy organization.
“[R]ising costs for natural gas have driven power generators to use relatively more coal for supplying electricity,” according to EIA’s report. Coal accounted for 40 percent of total electricity generation in the first half of this year, compared with 39 percent in the first half of 2013. Meanwhile, natural gas accounted for only 24.8 percent of electricity generated in the first half of this year, compared to 26.1 percent last year.
Ratepayers who weathered the polar vortex in January likely already paid more this year due to increased consumption. Electricity consumption in the first half of 2014 was 2.5 percent higher than in the first half of 2013, EIA research indicates, largely as a result of extreme cold in the eastern US.
EIA’s report said the biggest residential electricity price increases will hit the Northeast. The polar vortex severely strained the electric grid in the eastern US, as demand for natural gas outpaced deliverable supply. And the increasing incidence of weather shocks like the polar vortex could also spell price increases for consumers in the long-term.
“This past winter we had a situation in the Northeast where there wasn’t sufficient pipeline capacity to deliver at peak demand times,” Mr. Kish said in a phone interview Monday.
But the electric utilities industry argues that even as Americans use more electricity than ever before, prices remain a relatively good value.
Electricity prices “have, in fact, increased at a lower rate than the prices for other consumer goods,” said Richard McMahon, vice president for energy supply and finance at Edison Electric Institute, a trade association of electric companies.
EIA predicts a smaller, 2.4 percent uptick in residential electricity prices for 2015.