FERC Examines Causes of and Responses to Rising Electricity Costs

According to the Federal Energy Regulatory Commission (FERC), higher fuel prices, increased capital costs and continued uncertainty about climate policy are helping raise the costs of electricity faced by consumers across the country. FERC’s Office of Enforcement presented a report that estimates the rising cost trends are likely to continue for years.
The report pegs current futures prices for natural gas at $2.50 to $5 above the average 2007 spot price for natural gas, and costs for everything from iron and steel to cement and copper wire rising significantly over the past several years. Those have contributed to increases in the cost of new generation for every type of power plant, from nuclear power to combustion turbine and wind generators.

“FERC regulatory policy must be based on reality, and that sobering reality is that the upward pressure on electricity prices—higher capital costs for new power plants, higher construction costs and higher fuel costs—should continue for some time,” said Joseph T. Kelliher, FERC chairman. “That means electricity prices will be higher than many Americans would like.”

The report states that consumers and the market likely will respond with demand response measures that help reduce energy consumption during times of peak prices, energy efficiency and conservation measures, and technological innovations. Innovations could usher in changes that help reduce costs and improve value, as they did in other competitive industries, such as telecommunications.

The FERC staff report, “Increasing Costs in Electric Markets,” is available at www.ferc.gov.

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