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All About Energy

Gas Prices Down, But Energy Rates Still Going Up

Eli Sachs Jan 26, 2016 12:11:00 PM
Eli Sachs
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If natural gas prices are so low, then why are energy rates increasing? I get asked all of the time, and it is a great question that I will address here. I like to look at all-in energy rates as a cake. While flour is the main ingredient, there are close to a half a dozen other components that make up the final product. Electricity and natural gas consumption aren’t too different.

 

powerlines

 

There are many more components to a complete energy (both natural gas and electricity) price than just the commodity itself. Your system operator and utility distribution company (UDC) have to charge for the transportation of the given commodity from where it is being generated or refined to the end consumer. Typically, the commodity makes up 50-80% of your “all-In” energy price while taxes, transportation and distribution makes up the remainder.

 

Aging Infrastructure

In utility territories like PSE&G, while the commodity price of power has fallen drastically over the past 12 months, the cost of transportation and distribution has increased just as much. [1] PSE&G is currently in the middle of a $4 billion system maintenance project, and these costs are passed on to the rate payers. The pipes are made of cast iron and unprotected steel and wires dating back to the early 1900s, leaving 510 miles of pipes and 38,000 Service lines that are in dire need of an update.

 

The infrastructure for our natural gas networks is also aging. UGI is increasing its service delivery rate by $58.6 million annually, hiking rates for residential customers by $19.75 while commercial rates are up by 7.4% and industrial rates up by 3.2%. [2] These increases only effect the delivery change, not the supply charge, making it possible for the supply charge to decrease while the total price of power or gas increases.

 

Can you reduce these charges?

In short, no. These charges are unavoidable and in PSE&G’s case, the reason they are doing these improvements now is because commodity prices are so low. As Ralph LaRossa, PSE&G's President and COO, said, “Since 2009, our residential customers’ gas heating bills are down 47% because of the lower cost of natural gas supply. The timing is right to accelerate this work -- while gas prices remain low.” [3]

 


 

Sources

[1] Riverhead News Review, Joseph Pinciaro, PSEG rates are back on the rise

[2] PennLive, Teresa Bonner, UGI asks for 19.7 percent rate increase residential natural gas customers 

[3] PSEG, PSE&G Receives Approval of $905 Million Program
to Accelerate Replacement of Aging Gas Infrastructure. 

[4] PSE&G, PSEG Transmission The Essential Link 

[5] LVB.com, Stacy Wescoe, UGI seeks first base-rate hike in 21 years 

 


 

 

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Topics: energy rates, Natural Gas