(Bloomberg) - The good news is that the shale gas boom has finally brought down U.S. power bills. The bad news is they’re going right back up next year.
U.S. households this year are set to benefit from the first annual drop in average electricity rates since 2002 as surging production from shale deposits including the Marcellus in the East dragged down gas prices. But their respite from higher bills will be limited as rates are set to rebound the most in nine years in 2017, government data show.
“We have been blessed over the last few years in that gas prices have been low and the cost of generation has accordingly been low,” David Bonar, public advocate for utility ratepayers in the state of Delaware, said by phone Monday. But “natural gas can by its very nature be very volatile, and we saw that when there was a polar vortex” in the winter of 2014 when prices surged, he said.
Consumers can expect to see the cost of powering appliances and heating their homes rise as wholesale electricity from gas-fired plants, the source of more than one-third of the nation’s power, jumps. Gas prices are projected to advance on growing demand to burn it to generate power.
“In any particular year gas is the prime suspect for changes you’re likely to see with electricity prices,” Kit Konolige, a utilities analyst with Bloomberg Intelligence, said by phone. “Fuel price is a big factor and the fuel price that moves the most rapidly is gas.”
Electricity for the average U.S. consumer is on course to gain 3.3 percent to 12.95 cents per kilowatt-hour for 2017, according to the Energy Information Administration. Benchmark Henry Hub gas prices are expected to climb to $3.07 per million British thermal units in 2017, or about 22 percent above this year’s average.
"The electricity industry is building out a lot of new natural gas plants, so in the future that raises the demand for natural gas," Tyler Hodge, a Washington-based analyst at the agency, said by phone. Higher consumption "could put a floor on natural gas prices."
For the time being, though, average electricity costs are seen slipping to 12.54 cents per kilowatt-hour this year, down 1 percent from 2015. The price cuts come as the average cost of gas delivered to power producers dipped to $2.58 per million British thermal units in the first half of the year, down 28 percent from the same period a year earlier.
"Gas prices have been so low for a year or two that they’re finally being passed through to customers now," Hodge said.