The Ho-hum Decade

The final electric rate figures are in for the 1990s and the story is-kind of
boring.

Depending on how you look at the numbers (these are statistics, after all), electric
rates ended the decade about where they started.

The good news is that the price of this essential service didn’t change much in
10 years. The bad news is there are reasons that stability may not last long into
the new century. Here’s the tale of the totals.

The numbers

Each year the U.S. Department of Energy publishes a thick book of statistics.
It takes awhile to compile all that information so we just got Electric Sales
and Revenue 1999. Those figures show that the national average residential price
of electricity declined slightly from 8.26 cents a kilowatt-hour in 1998 to
8.l6 cents in 1999. The average residential price in Kentucky declined from
5.61 cents to 5.58 cents. Those are averages, of course, and your kilowatt-hour
price might be higher or lower.

The decade

Since this latest list of figures includes 10 years of Energy Department
statistics from the 1990s, it seemed like a good time to look at the trend of
the decade. You can see from the nearly straight lines on the graph of electric
prices, this is the boring part. U.S. residential rates increased slightly,
then dipped back down, ending the decade about 4 percent higher than they started.
Kentucky residential rates did about the same thing, but closed out the millennium
about 2 percent lower than 1990 rates.

Inflation

A 2 percent price cut over 10 years usually means pretty good news. But
the news gets even better when you account for yearly increases in the cost
of living. The graph of residential electric rates in 1999 dollars shows that
when you figure in the cost of inflation, residential electric rates actually
declined about 20 percent across the U.S., and nearly 25 percent in Kentucky.

Kentucky’s low rates

Both graphs show that Kentucky’s rates are consistently lower than the U.S.
average. In fact, all during the 1990s, Kentucky has been among the three or
four least-cost states when it comes to electric rates.

The future

Beneath the calm, friendly surface of 1990s electric rates, several issues
could threaten that continued stability.

One of those issues is deregulation, which has already led to temporary wholesale
rate spikes that increased prices as much as 1,000 times during heat spells
of the past three summers. So far those incredible price jumps have mainly affected
prices that utilities charge each other-a result of the 1992 federal deregulation
of wholesale electricity. But as more and more states restructure their electric
utility industries, the volatility of the marketplace could start reaching consumers.
For example, in California, one of the first states to restructure its electric
utilities, a heat wave this summer in San Diego brought a doubling of electric
bills in just a couple of weeks. Twenty-four states have passed laws restructuring
their electric utilities. Kentucky is in the third year of a four-year study
to determine if restructuring would help or hurt the state’s electric consumers.
That study is due out late next year.

The future of the economy will have a lot to say about the future of electric
rates. Low inflation and stable energy prices have had a lot to do with why
electric rates haven’t changed much in the 1990s. Recent natural gas price increases
could make it hard to hold the line on electric rates since there is an increasing
dependency on natural gas as a fuel source for generating electricity.

Another reason for stable rates this past decade is that there have not been
many large power plants built recently. But this high-tech economy runs on electricity,
and power plants are incredibly expensive. The more electricity we use, the
more it could affect future prices.

Environmental regulation brings still more questions. Coal generates virtually
all the electricity in Kentucky. Will research be allowed to continue to make
coal a cleaner source of fuel? Or will shorter-term, and expensive, regulations
be enacted, affecting electric rates?

Those are all scary omens for electric rates. But knowing about them ahead of
time may allow the kind of planning that could minimize rate increases in the
next century.

More information

The 1999 report described above can be found on the Internet at www.eia.doe.gov/
cneaf/electricity/esr/esr1999.pdf. For even more information the Energy
Department has a good Web site at www.eia.doe.gov/fuelelectric.html.

-Paul Wesslund