CEC Questions Utility Electricity Price Forecasts

By Published On: July 6, 2007

Members of the California Energy Commission this week blasted electricity price projections by state utilities as unrealistic, concerned that they may underestimate both long-term capital investments and natural gas prices. Utility forecasts—which show electricity prices are likely to fall in real terms—were outlined in a draft agency staff report that is to be rolled into the commission’s 2007 Integrated Energy Policy Report this fall. “It does paint a rather rosy picture for rates here in California,” said commissioner Jeffrey Byron at a July 2 meeting on the price forecasts. When averaged together they show the real price of electricity in the state will decline by 0.3 percent between 2005 and 2016. Commission chair Jackalyne Pfannenstiel said there is good reason to doubt the forecasts because they likely underestimate capital costs in the out years as well as gas prices. “If all we’re doing is republishing utility provided data, of course everything’s going to look wonderful,” said commissioner John Geesman. “Reality seldom turns out that way.” Energy consumers also questioned the forecasts. “The idea that these prices in real terms are trending downward, I just can’t go there,” said Bill Booth, an attorney representing large energy users, said. He pointed out upcoming costs of controlling greenhouse gas emissions and shifting toward renewable energy. “We’re going to have to spend a lot of money” to meet those policy goals, he added. At issue were a series of electricity price forecasts by utilities and the 13 largest publicly owned utilities. Many publicly owned utilities projected that the price of electricity to their customers would rise in real terms. The Los Angeles Department of Water & Power, for instance, projected the price of power would rise 0.6 percent a year in real terms. Redding projected an 11.8 percent increase in real terms over the period and Pasadena a 1.9 percent increase. The state’s three investor-owned electric utilities projected declining real prices. According to the draft CEC report, Pacific Gas & Electric said its average price in real terms would decrease from 12.1 to 11.6 cents/kWh, or by 4.1 percent. The real price for Southern California Edison would decrease from 12.5 to 11.9 cents/kWh, or by 4.8 percent, according to its forecast. The real price for San Diego Gas & Electric customers would fall by 7 percent from 14.5 to 13.5 cents/kWh, reported the utility. Utility representatives offered varying explanations for their power price projections, but a common theme was the expectation that natural gas prices would fall through most of the period. “Our gas price forecast is consistent with what was presented earlier,” said Bob Hansen, SDG&E electric rate design manager, referring to projections by the Energy Information Administration and other organizations pointing toward declining prices. However, a consultant to the commission questioned the validity of those long-term price projections due to the increasing cost of producing natural gas. Utilities also explained that while they plan to spend money to install new advanced meters and make other updates to their systems over the next few years those investments will save money in the long run.

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