Summer Electric Bills Won't Rise Much

Apr 04 - USA TODAY

Finally, some good news for consumers about energy prices.

With electricity costs expected to be up only slightly this summer from last, air conditioning bills likely will not be a shock to the wallet this year, according to data from the Energy Department.

The nationwide average retail electricity price is expected to be up 3% during June, July and August from the same time in 2005. That's about in line with inflation and follows a 4.3% gain last summer, according to the Energy Information Administration, the statistical arm of the Energy Department.

Consumers paid $197 on average to cool their homes during the summer in 2001, the year of most recent data. That summer was the ninth-warmest in U.S. history, according to the National Oceanic & Atmospheric Administration.

Based on projected electricity prices and assuming similar weather patterns, it would cost families an average $218 to cool their homes this summer.

Although air conditioning costs will vary widely based on location and weather, the likelihood of a small increase from a year ago is good news for consumers and businesses. That's particularly the case given that energy users have been hit by rising costs at the gasoline pump and double-digit gains in home heating in recent years.

It's also a positive for the economy. When people are forced to spend more on energy, they often have to cut spending in other parts of the economy. Business spending, another key component of the U.S. economy, can also be affected.

Consumers "will have additional money available for other spending" such as for summer vacations, says Keitaro Matsuda, senior economist at Union Bank of California in San Francisco. "That is good news."

Electricity prices are being held down by fairly stagnant costs for the raw materials used to produce electricity. Nearly half of electricity is produced using coal. Most utilities buy long-term contracts for coal, smoothing out any gyrations in costs, says Stephen Brown, director of energy economics at the Federal Reserve Bank of Dallas.

Wholesale prices for natural gas, a key fuel for electricity generation during peak times, are about where they were a year ago. That, too, suggests electricity costs may be largely unchanged from a year ago this summer, says IFR Markets senior energy analyst Tim Evans.

"From the current snapshot, (electricity) conditions look a lot more similar to last year than they appear different," Evans says.

But residents in at least one state are facing a huge jump in electricity prices. Some Maryland residents have been warned they could see electricity rates jump 72% this summer as a rate freeze enacted by lawmakers ends.

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