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Although overall energy costs are on the decline, electricity prices remain high.
According to the latest inflation figures, the electricity index rose by 3.8% over the past 12 months, while other components of the energy index fell.
The main reason for this is that infrastructure costs are preventing lower utility rates. It is estimated that the industry spends more than $100 billion annually maintaining aging power grids and investing in renewable technologies.
Much of America’s residential electricity is generated from natural gas (NG=F), which has plummeted more than 30% since the beginning of the year. However, household utility bills are unlikely to decrease immediately.
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“When you generate electricity, you have to have very large facilities, large factories, expensive equipment and expensive land. And then you have the transmission lines that you have to maintain,” Mike Klatten said. says Mr. Director of Accounting Program Initiatives at the CT Bauer College of Business tells Yahoo Finance. A transmission line is a cable or other wire that conducts electromagnetic waves.
Renewable energy initiatives are also driving investment in components that are compatible with green energy sources. These costs offset falling prices for the fossil fuels used to generate electricity.
“Certainly, power lines may be the biggest bottleneck in the transition to carbon-free energy sources,” said Benjamin Lee, a professor of engineering at the University of Pennsylvania.
“These utility companies are passing these costs on to individual consumers,” he added.
Fossil fuel prices can fluctuate widely, but electricity prices tend to rise over time, despite industry regulation levels. Utility companies often need to get rate changes approved, which can delay energy costs appearing on customers’ bills.
“In the case of residential rates, it’s clear that approval takes time because you often have to get rate approval through a government agency,” said Tyler Hodge, senior economist at the Energy Information Administration. It will take more than a year,” he said. Yahoo Finance.
Last year, California’s PG&E (PCG) received permission to raise rates by 13% for 16 million customers. The company has committed to investing more than half of its required revenue requirements in a wildfire risk management plan.
Once interest rates rise, they are unlikely to fall.
The last time average household utility bills declined was in 2016, when lower natural gas prices prompted the industry to use more of the fuel for power generation.
EIA forecast rates for 2024 are expected to decline by up to 4% in some states and increase by up to 3% in others, resulting in an average decline of 1% this year.
But some industry watchers warn that the price drop is likely an anomaly.
“Even if it goes down by 1%, if it goes up by 8% the next year, it really won’t start.” [to] “We’re happy about the 1%, because that’s probably unusual considering it’s a steep climb overall,” Klatten said.
See below for more information on the latest inflation data and how it impacts the market.
Ines Ferre is a senior business reporter at Yahoo Finance. Follow her on Twitter @ines_ferre.
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