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Will U.S. Electricity Rates Increase in 2013?

Will U.S. Electricity Rates Increase in 2013? Short Answer: Not Likely

Over the past several months, electricity rates for U.S. residential customers have shown little fluctuation in many markets across the country and are expected to remain relatively stable for the remainder of the year, thanks to both cheap natural gas and retail electric competition.

The average U.S. electric rate for residential customers was 11.47 cents per kilowatt hour (cents/kWh), according to the latest numbers from the Energy Information Administration’s monthly electric rate report. This was only slightly higher than January 2012’s average rate of 11.39 cents. All regions across the U.S. show similar patterns, with rates staying at or near January 2012 prices.

Competitive Retail Market Matures, Drives Prices Down

Over a dozen U.S. states participate in electric choice, meaning that homes and businesses can shop around for a retail electricity provider for their electric supply. As retail electricity providers compete with each other for customers, prices are naturally driven down, which is the reason that many states first adopted their deregulated retail electric models.

Many utilities in retail electric choice areas have actually decreased electric rates, including utilities in New York, New Jersey, and Illinois. Still, many others have scheduled a cut in rates for later this year. What this means for the shopping customer is that they will want to continue to monitor their utility’s Price-to-Compare (the average rate for a residential customers) for decreases in pricing. If a shopping customer expects their utility’s rates to decrease, they should shop for a short term plan or wait until the rate changes are announced. Prices aren’t expected to drop significantly, so those customers that are locked into a plan with rates below their utility’s rates shouldn’t fret. Rate cuts aren’t expected to be largely significant.

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Natural Gas Used for Electricity Helps Keep Rates Low

Natural gas is expected to account for much of the electric rate stability over the next year, as more electricity generation companies are choosing cheap natural gas to make up for increased demand and the rising costs of coal. Gas prices have actually increased over the past year, from $2 per million British thermal units (BTU) in Spring 2012 to about $4 currently. This increase has been attributed to increased demand, primarily from electricity generation companies, industrial companies, and the decline in the amount of gas held in storage. Of course, this is still well below the price peak of $13 in 2008, prior to the new discoveries of traditional and shale reserves that prompted the current natural gas boom.