What’s the deal on electricity costs?


Cape Light Compact promises a reduced rate for electricity from now through January 2011, nine percent lower than what we’ve been paying during the first half of the year. A decline in electricity consumption because of the recessionary economy and lower fuel costs to the generators are among the influences on retail electricity pricing.

But, as Times reporter Janet Hefler explains in a news report today, Dominion Retail offers a three-year deal that fixes the price a cent and a half higher than Cape Light offers, but without the uncertainty that comes with the Cape Light deal in January. Only 10,000 customers can sign up for the three-year deal.

What’s going on here, you may very well ask. What’s going on is a marketing effort, in the face of grave uncertainty about the future of electricity prices.

Of course, the cost of generating electricity has always fluctuated with demand associated with economic growth and with supply issues in the natural gas market. Natural gas is the chief fuel used to create electricity. For instance, a storm in the Gulf of Mexico that damages producing natural gas wells can squeeze supply and send electricity prices up.

The price of coal, given its generous abundance, is less susceptible to such influences, and oil produces only about two percent of the nation’s electricity, so price spikes in oil have only an indirect influence on electricity prices, though they can make for considerable pain in the transportation sector and other parts of the economy.

Generally, electric power plant operators want flexibility to adjust prices and their cost of fuel fluctuates. But they also want customers, so that when the volume of electricity sales declines — for instance, in a long, sputtering recession/recovery period — they can strengthen the bottom line by narrowing margins and increasing market share.

Into the mix of uncertainty these days is the government pressure, at both the federal and state levels, to increase the share of electricity produced by wind. Outright and substantial subsidies for wind-powered generation and legislatively imposed requirements that suppliers buy “green” electricity and pay more for it than they would for electricity from conventionally fueled generating plants suggest that the price per unit of electricity will certainly rise to both residential and commercial users.

Add to all this the further uncertainty about whether new wind-generated electric plants will ever be financed or built and how to make the necessary calculation that fixes the proportion of high priced “green” electricity that actually end up in the supplier’s mix — it’s bewildering.

For all these reasons, in their attempts to attract customers without committing themselves to insupportable prices over the medium term, suppliers offer six-month deals, or three-year deals (but only to a fraction of their customer base), or wait to decide whether to offer deals at all.

For generators, suppliers, regional demand aggregators like Cape Light, and for residential and business consumers, it’s a fraught landscape, made more confusing, uncertain, and expensive by the myth-driven political pressure to imagine wind as an important future contributor to the national electricity mix.