Energy Cost Facts

During the last 6 months, the Public Utilities in California have raised electricity rates by up to 18%. Some Municipal Utilities have announced increases of up to 35% already this year, while others have made no rate changes for several years. It seems as if a crystal ball is needed to predict future electricity prices!

We don’t have a crystal ball, but we can provide you with a comprehensive selection of facts upon which you can base your own prediction of future electricity prices.

United States Of America

Electricity generation in the U.S. depends primarily on fossil fuel (coal, oil and natural gas), fulfilling over 71% of our electricity needs. Another 20% of our electricity generation is from nuclear power. Increasing demand for electricity will likely increase electricity production using fossil fuels faster than that using nuclear power since any approval for a new nuclear power plant has to overcome huge technical and political hurdles.

Source: Energy Information Administration, Form EIA-906, "Power Plant Report." 11-2006

California

While California’s use of oil for electricity generation is negligible (disregarding the importation of electricity from other states), the dependency on other fossil fuels is significant with almost a 58 percent share. An increase in California’s rates has to be expected even more that in the U.S. as a whole because of the even bigger problems in getting new nuclear power plants approved in the State.

Source:
Energy Commission Publication # CEC-300-2006-009-F, 4-13-2006

Gas And Oil

We typically experience high peaks in the prices of oil and gas as a result of events such as hurricanes and wars. But is there a long-term trend independent of singular events? Historical data prove that there is only one long-term trend – upwards – at the rate of 250% every 4 years, or more than 60% annually.

Source:
Energy Center for Energy Efficiency and Renewable Technologies, 05-2006

The graph below shows data for oil and gas prices over the last 9 years, proving the direct relationship between oil and gas prices.

Source: Energy Center for Energy Efficiency and Renewable Technologies, 05-2006

Coal

Can the use of coal to generate electricity bring relief from the constant upward pressure on electricity prices? Unfortunately the answer is “No.” As demand for coal increases, producers begin offering coal with lower energy content in order to meet the demand and at the same time pass on higher production costs, effectively negating coal’s normally lower relative price. Thus, the price of coal is rising just as steeply as that of the other fossil fuels, roughly 80% over the last 3 years or 27% annually.

Conclusion

Electricity rate increases are unavoidable because there is no rational indication that the price increase for fossil fuels will slow down. We believe that a very conservative prediction should use the low end of fossil fuel increase, that is 20% per year, and the low end of dependency on fossil fuel, that is 50%. Also we assume that the prices for other energy sources will not go up significantly. Based on these assumptions, a conservative prediction for the next 20 years is a 10% annual increase. Thereafter we expect a much steeper increase based on further depletion of fossil fuel sources and continued increase in demand.