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Electric Rates Are Dropping

Electric Rates Are Dropping

Wholesale electricity prices are the lowest in five years.

Looking for good "pocketbook" news? You've found it. Wholesale costs of producing electricity are plummeting. And, residential and commercial electric rates are likely to hold steady or decline over the next year. So now may not be the time to lock in electric rates for the coming year.


That's the latest word from U.S. Department of Energy's Energy Information Administration. EIA's Tyler Hodge, who tracks electric rates and utility generating costs, tells us that all price-predicting models point to cheaper rates ahead.


Wholesale electricity prices are the lowest in five years. For the first time since early 2003, electricity retail prices are expected to show year-to-year declines due to lower fossil fuel costs for generating. The 2010 projected annual national average residential price is 11.4 cents per kilowatt hour, 2% lower than 2009.


Here's why:

* Energy conserving measures are gaining traction. Total U.S. electricity consumption fell by 4.4% during the first half 2009, compared with the same period in 2008.


* The biggest factor, according to Hodge, has been the economic downturn's impact on industrial usage. The expected year-over-year decline in total consumption during the second half of 2009 is 2.3%.


* Cheap natural gas is competing with coal. While industrial usage of natural gas is 12% off a year ago, EIA expects natural gas use in the electric power sector to increase by 4.3%, sucking market share of base load power supply away from coal.


That's not expected to continue, due to rising natural gas prices. And, the anticipated addition of up to 10 gigawatts of new coal-fired generating capacity during 2009 and 2010 could mitigate or reverse the fuel-switching trend.


Cheaper electrical rates ahead?


That'll depend on many things, hedges Hodge, including where you're at in the country. Generally, kilowatthour rates are lowest in the South and mid-section of the country, and far higher in the Mid-Atlantic and New England.


It also depends on how far ahead your electricity supplier has contracted its wholesale price, whether it's paying for new or updated generating facilities and whether how the utility is emerging from state-mandated rate caps. Here's a quick regional look at EIA's residential rate projections for 2010, based on 2009:


* New England: Down 3% to 17.4 cents per kilowatthour.

* Mid-Atlantic: Down 1% to 15 cents per kilowatthour, due to lifting of Pennsylvania's long-standing rate cap.

* East North Central:  Down 2% to 10.8 cents.

* West North Central: Down 2% to 8.9 cents.

* South Atlantic: Down 3% to 11 cents.

* East South Central: Down 4% to 9.3 cents.

* West South Central: Down 3% to 11.4 cents.

* Mountain: Down 1% to 9.9 cents.

* Pacific: Down 1% to 12.1 cents.

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