Learning Center

Rising Electric Energy Costs - What's Driving Them?


 

Rising Energy CostsFor the past few months the high cost of fuel has made headline news on an almost daily basis. Like you, I feel its impact every time I stop to gas up my car. Yet I am confident that in the next few months, like all other commodities, supply and demand for fuel will even out and price will go down. Unfortunately, I can't say the same for electrical power.

In the past decade we have seen a sharp rise in affordable electronic gadgets, computers and home appliances. As a result, most Americans today have in their homes multiple television sets, stereo systems, clock radios, decorative lights, microwaves, computers, etc. This new life style has a price, however: Rising need for electrical energy. Likewise in the business sector; the demand for energy to power computers, networks, automation and robotics equipment has exponentially grown. In fact, the more sophisticated an economy is in terms of technology, the proportionally more energy it demands.

Unfortunately, what has not grown is the construction of new power plants. The reason is two folds. First, in the 70's there was a glut of plant construction and the market became saturated. Then came the environmental regulations, which forced utility companies to allocate capital expenditures to meet new standards on existing plants instead of constructing new ones. As a result, few new plants came on line in the past decade. Meanwhile, the rising demand for electricity has continued to escalate. Although we have not reached capacity yet, in the next few years we will. Since it takes years to build a new plant at a cost of billions of dollars, one would assume that utility companies have already started aggressive construction of new plants and power lines to deal with the rapidly rising demand.

The reality is that the industry is undergoing deregulation and there are still a lot of unresolved issues. For example, although the goal is to move to a free market, local and state agencies, which oversee the pricing of electric power to the consumer, still have authority to regulate. In the past these agencies were designed to protect the interests of consumers against the monopoly power utility companies enjoyed. But now that we face a new manufacturing and distribution paradigm, the very agencies, which protected consumers in the past, may be interfering with the deregulation process.

In the near future, the industry will consist of three groups: The producers of power, the carriers (those who own the power lines and grids) and the distributors. This means that a producer of electricity could sell power across state lines to any distributor. But to get the power to distributors, manufacturers will have to negotiate with those who own the power lines and pay a fee for the use of the lines.

Finally, the distributors, which are the resellers of power, will be competing among each other for consumers. This new system will be very similar to our current telephone/communication paradigm. But for it to work properly, all participants must be free to establish their own competitive rates and this has yet to happen; and as a result most players are reluctant to invest in developing their part of the system until the regulatory hurdles can be overcome. What does it mean for us? Higher electric utility bills for many years to come.

That's not good news. Yet there are a few things we can do to cut costs without having to throw away the TVs and computers. It happens that technology is on our side. Air conditioners are the biggest consumers of power at our houses. In the past years great strides have been taken to improve the efficiency of comfort systems.

So much so that many smart homeowners are replacing their inefficient and costly, antiquated units with new ones; and they are finding that the monthly savings in utility bills are easily paying for the cost of the new units. These homeowners are informed and are not waiting for the power crisis to affect them. If you have an old air conditioning unit in your home, you to may want to consider replacing it.

« Back to the Learning Center menu