Monday, May 08, 2006

What's with Electric Rates?

National Grid, Pepco, BGE, PSC, etc, etc... These large utilities have more than just strange acronyms in common. More frequently these utilities are finding themselves on the receiving end of huge rate increases that are being passed along to you.

In 2005 I switched most lights to low-wattage fluorescent light bulbs and made a conscious effort to reduce my overall use of electricity. To my surprise it worked! My usage as measured by kilowatts was down almost 15% from 2005 to 2006, but to my surprise my bill was up 20%!!! The kicker? National Grid had managed to boost my rate by nearly 25% from 2005 to 2006.

The only notes I've seen regarding National Grid's rate increases relates to additional healthcare and pension costs they've incurred. I suppose it could be worse - we could live in Maryland.

Maryland residents are facing hikes of 35-70% in their electric rates according to this Washington Post article.

I do not have a problem with a competitive company operating in a free market charging more for their product if demand dictates higher prices. I do however have a problem with protected companies charging more for a product because their cost structures are flawed, they continue to exhibit poor management skills, and they invested cheap power vs. long-term solutions.

1) Cost Structure - Utilities are run like GM and Ford. Employ an aging workforce that is prone to health issues while doing little to reduce personnel costs.

2) Lack of Management Skill - Managing a utility is unlike managing any traditional business. Their inability to foresee demand or supply shifts is never punished, but rather is rewarded in the form of higher rates.

3) Poor Investments - Utilities around the country are now crying over the price of natural gas and oil. Well, I studied lots of clean, environmentally friendly coal technologies in 1991-94 that made sense with oil above $26/barrel. However, with oil at $18/barrel, every power plant in the country seemed to go w/oil or gas. How's that working out?

Frankly, for 85% of us higher rates are little more than an inconvenience, but consider for a moment the senior on a fixed income. He is told that there is little or no inflation so he earns 1% on his savings. However, he watches his heating oil bill jump 60%, his gas price at the pump jump 50%, his electric rates jump 30-70%, every delivery has a fuel surcharge of 5%, etc. etc.

Someone is being less than honest - either we have inflation and rates need to adjust OR the price increases are artificial.

I'll let you draw your own conclusions.

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