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Fuel cost now driving up electric bills

Disconnect notices have risen sharply, indicating stress on more households.

By Ron SchererStaff writer of The Christian Science Monitor / July 25, 2008

Spinning dials: Utility bills for millions of homeowners and other consumers are going up as the costs of producing and distributing energy continue to rise. This has tightened the typical family’s discretionary income, and it’s also increased the number of consumers who have had their electric service terminated for failure to pay.


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New York

Rising energy prices are now squeezing consumers from a different direction: their utility bills.

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Consumers from California to New York are facing rate increases of as much as 30 percent. Average homeowners' electric bills are now heading towards $70 to $80 a month in some states. And low- and middle-income residents are having trouble paying their bills as evidenced by a large increase in disconnect notices.

"Electricity's been cheap for a long time, it's just catching up," says Mark Wolfe, executive director of the National Energy Assistance Directors' Association in Washington.

On a national basis, the federal Energy Information Administration (EIA) estimates that electric bills will rise 5.2 percent this year. But next year, they're expected to rise 9.8 percent.

"In the last two months, 20 to 30 utilities started requesting to have their rates increased," says Tyler Hodge, an electricity analyst at EIA in Washington. "With the rise in fuel costs, other utilities will follow suit pretty soon."

The fuel cost that has risen the most so far is natural gas, up about 40 percent in the past year. Last year at this time, the spot price of natural gas was $6 per million BTUs. Thursday morning, the price was $9.85 per million BTUs. In early July it reached as high as $13.31.

The rising price of natural gas is one of the reasons why Southern California Edison, the largest utility in California, recently warned customers it would be requesting a sharp increase in rates. Mid to high use residential customers can expect a rate hike in excess of 30 percent. For their overall system of 4.8 million customers, the average rate increase will be 25 percent.

"On August 1, we normally make a filing to the California Public Utilities Commission that will highlight what we feel our fuel and power costs will be," says Gil Alexander, a spokesman for the utility. "Last week we issued an early warning because of spiking natural gas prices."

The giant utility uses natural gas for 60 percent of the energy that it generates or buys since it is one of the cleanest fuels. "The price has doubled over the last twelve months, and we are quite vulnerable," says Mr. Alexander.

But, coal has also been climbing. In the past 18 months, the spot price of coal has doubled, says Jim Owen of the Edison Electric Institute, which represents the investor-owned utilities in Washington.

"One of the main drivers is global demand. People, especially in China and India, are buying coal here. And in the US, demand for coal continues to grow," he says.

The increasing price of coal is showing up in filings for fuel adjustments. For example, American Electric Power (AEP) recently filed for a 12 percent increase for its Appalachian Power subsidiary that services 500,000 customers in western Virginia.