Why Are My Utility Bills Going Up?

For more than 35 years we’ve witnessed a tiresome and familiar cycle in energy prices.  When prices go up it brings heightened awareness to a continuing problem – when it comes to the supply of our natural resources we are in dire straits. When the volatility seems to subside and prices seem reasonable at the pump – people again become complacent and return to their old energy-hog habits and neglect addressing the need for energy efficiency and renewable energy resources. To keep this issue front and center, here is a list of the top 10 reasons hydrocarbon prices will move back up and why our dependence should be on energy efficiency and renewable energy, rather than on the vanishing resources we rely on today.

Let’s stop history from repeating itself, again.

1. In spite of the recession, energy usage, and therefore demand, continues to grow in China and around the World. The burgeoning middle class in China, India, and elsewhere are now used to a basic (but energy intensive) lifestyle that is not easily taken away.
2. Hydrocarbons, especially oil, are still in a supply challenged position relative to current demand. This tight supply increases volatility in prices. In addition, as the last barrel of oil gets more expensive to extract, all barrels of oil go up in price. Therefore, the price of hydrocarbons is highly leveraged and prices and volatility can jump dramatically in a short period of time.
3. In a lot of cases, natural gas and crude oil extraction methods are now effectively mining operations. Depletion rates for natural gas have gone up sharply. Therefore,  supply will collapse at some point in the near future given that investment in hydrocarbon extraction has crashed. US Government subsidies for oil and gas drilling will be rolled back in the near future, thereby increasing hydrocarbon prices.
4. Coal has not fallen in price as much as natural gas and oil. This is because China and others use more coal than any other hydrocarbon. So, if you live in Austin, San Antonio and Colorado where coal is used heavily, your grid power prices will not fall as far as some areas of the country.
   
5. Huge investments are planned in each utility’s transmission and distribution systems. This means that power prices will go up to pay for these investments. Smart grid investments, while useful and needed, will also cause power rates to increase.
6. The contraction of available credit is causing investment in power plants that burn natural gas, oil and coal and the natural gas, oil, and coal development projects themselves to be cancelled. These projects take years to start up again and bring on line, meaning the response time to higher power prices will be in years rather than in months.
7. Governments worldwide are implementing climate change and pollution taxes on hydrocarbons. The tar sands of Canada for instance are an environmental catastrophe of global proportions. If these fields existed in the US, they would be deemed Super Fund Clean-Up sites. Dirty hydrocarbon supply will become more limited in the coming years as a result of environmental actions taken by governments. Natural gas, the cleanest hydrocarbon, will see demand jump as dirty hydrocarbons are replaced by natural gas or renewable energy. This occurred in the 1990s, and the trend will resume once again here shortly. As a result, this jump in demand and price for natural gas will increase grid power rates in gas-heavy states like Texas and Florida.
8. Metal prices such as steel and copper will increase as governments worldwide implement large construction projects to generate economic growth. This means investment in centralized grid generation and transmission/distribution will become more expensive. These expenses will be passed on to grid users.
9. The US dollar will resume its long-term downtrend soon due to the huge budget and trade deficits in the US. The US dollar currently makes up approximately 71 percent of the currency exchanged in the world today, but our share of global GDP is roughly only 27 percent. If US consumers continue to spend less money on buying goods, then fewer currency reserves will end up in China. As a result, the Chinese will buy fewer US treasuries, thereby increasing US interest rates and causing a drop in the price of the US dollar. Since all hydrocarbons and metals are priced in US dollars, a drop in the value of the dollar will drive the prices of these commodities higher. An increase in general inflation may also occur, further increasing grid power prices.
10. Democratization of energy is happening faster. What does this mean? It means that in prior years oil and gas firms and utilities took government subsidies and investments and competed in the market to bring down hydrocarbon and electric grid power rates. Now, most of the government incentives go almost directly to the individual business or retail consumer. This is appropriate and is due to the solar and energy efficiency technological shift that makes these power solutions more effective in a distributed, non-utility environment. Similar to what the cell phone did to Ma Bell, solar and energy efficiency is taking throughput away from the electric and gas utilities, but these companies have unrelenting, large, fixed-cost centers to feed. A simple rule says that as your neighbors become more efficient by adopting solar and wind technologies, then your rates will go up as you rely completely on the grid. This is because your neighbors will use the grid system less, and therefore, you will pay more of the expensive grid’s escalating costs. This means that individuals can and must act on their own to save themselves money!