Electric Bill

[Dr. Shane]

Has anyone else noticed the cost of their electricity is skyrocketing? Our coop produces electricity with natural gas and that is why the cost has went up so much.

I wonder if those that get their electricity from coal, garbage incineration, nuclear or wind are also seeing spikes in their electric bill. My average cost was 11.6¢/Kwh last month. That is up from 6.5¢ a year ago.

[cricket]

Haven't noticed an influx. St. Louis' electric provider, AmerenUE, has the 2nd lowest rates in the nation.

[Dr. Shane]

Ours is a coop so it is virually non-profit. Our base rate is 6¢/Kwh and then an energy charge is added or deducted from that depending on the cost of power generation. My last bill was $75.91 plus the energy surcharge of $47.84. The energy surcharge does go up and down from month to month.

[Gregory Matthews]

Presently, where I live, the cost of eletricity from wind is lower than the cost of other electricity. Therefore, the major utility company in this State has a long waiting list for people to sign up for wind powered electricity.

However, my cost is moderated by the fact that I am actually on a co-op that supplies the entire city.

[lazarus]

Its amazing how something that looked like it was a disaster turned out to be a blessing...

In August, our Air conditioning/heat system died. For us it was a disaster principally becasuse it was going to cost thousands to get a new one. God took care of it and someone we knew who is a HVAC engineer cut us a good deal even though it still cost us money we didn't have. He installed a high efficiency heat pump and did some tricks with an expansion valve that gave us extra efficiency. Our bills went down in early fall.

So the rise in prices has bought us back to where we were before and the house is much warmer than it was lst winter.

We're praising God for the disaster in the summer.

[bevin]

Yes

PSNH - our electric company - has just increased their rates 12%

The reason is simple. Energy is traded globally and the US$ is down, energy demand is up, and Iraq is still not producing very much.

Fortunately we are having a very mild winter in NE.

/Bevin

[Dr. Shane]

The value of the dollar only affects comodities that are bought and sold in other currencies. I realize some fail to grasp that.

[bevin]

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The value of the dollar only affects comodities that are bought and sold in other currencies. I realize some fail to grasp that.

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Currencies are bought and sold.

I realize some fail to grasp that.

/Bevin

[Dr. Shane]

The value of the dollar does not impact my electric bill because I buy my electricity in dollars and my electric co-op buys their natural gas in dollars.

If my electric co-op bought its natural gas in euros or pesos than the value of the dollar would impact the price of my electricty.

The price of rice in China has nothing to do with the cost of my electricity.

[bevin]

It works like this.

Japanese and American power companies both want to buy natural gas. The NG company will sell it to the highest bidder.

The power companies each bid. The amount they can afford to pay depends on the amount their customers will pay them - of course the Japanese customers will pay their company in Yen and the American's in dollars. The Japanese company will then convert these Yen into Dollars to pay the NG company.

If the American dollar falls, then the Japanese company gets more Dollars for its customer's Yen, and so can afford to bid higher. So the price of natural gas in Dollars will go up.

/Bevin

[Dr. Shane]

Close but not quite. Japanese and others do bid (if you want to call it that) for natural gas. BUT the bid is in dollars. When demand exceeds supply the price goes up. It is supply and demand that drives the cost up - not the value of the dollar, becuase the comodity is traded in dollars.

The only way the value of the dollar would affect the price of the comodity is if the droping value of the dollar INCREASES the demand of the comodity. If colder winters in Japan were caused by the falling value of the dollar than it could be tied to the demand for natural gas.

[bevin]

The dropping of the dollar =>

The Japanese can buy more NG for the same number of yen =>

The Japanese companies can sell for less =>

The demand for their product goes up =>

They need to make more =>

They need to buy more natural gas =>

The natural gas price goes up

[Dr. Shane]

Times like this really make me feel smart. But than I do have a degree in business and do business in an international market. So I have a little unfair advantage.

When the price of electricity drops people do not use more electricty just because the price drops. They use the savings to go on vacations, buy new appliances, new clothing, nicer cars, etc.

When the cost of heating a house drops, people do not turn the thermostat up to 80º or 85º just because the cost of heating is less.

It is true that when the value of the dollar falls, US and other commodies sold in dollars falls too. So nations using other currencies can afford to buy more of them and thus drive up the cost of them. However, in the energy sector, a lower cost does not result in a higher demand except in cases of gasoline. However even with gasoline, it takes years of lower prices to increase demand. That is what happened during the 1990s.

[Gregory Matthews]

I agree in part, but not totally.

When the price of natural gas, which I use to heat my home, went up, I turned my thermostat down. If the cost of natural gas were to go down, I would turn my thermostat up.

In the State where I live, the higher price for natural gas has resulted in a greater number of people unable to pay thier bills, with a potential for greater nubmer of utility shut-offs, and therefore a decrease in the useage of natural gas.

[Beryl]

Phew, Shane. For how long was that energy bill? One month?? 3 months?

[cricket]

Guess what, Shane! I have an "unfair" advantage too. My degrees are in Business Administration, Accounting and Mathematics.

Just thought I'd mention something that might stem from one of my logic classes:

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When the price of electricity drops...

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people...use the savings to...buy new appliances...

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While some new appliances are more cost-effective than others, doesn't your logic fail when you say:

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people do not use more electricty just because the price drops

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And, just another dynamic to the equation: if people are spending more money, the stores will be open longer and there will be an increased demand in the utilities market as well.

[Dr. Shane]

I agree that extreame jumps or drops in the price will impact the market marginally. As a rule, energy is much like food. If the cost of food were to fall we wouldn't start eating more just because it is cheaper.

[Dr. Shane]

Of course you know that an increased demand will not impact the price unless the supply is unable to keep up with the demand.

Many are saying the price of oil will never go back to $35/barrel. Perhaps they are right. However at $60/barrel there is so much money to be made that oil exploration has dramatically increased. It wouldn't surprise me if oil does go back to $35/barrel within 10 years as the supply may increase eventually to the point where it surpasses demand. If alternative fuels become a reality, they will further add to the equation by decreasing the demand while the supply is increasing.

[bevin]

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If the cost of food were to fall we wouldn't start eating more just because it is cheaper.

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ROFLOL

95% of the world would - just check with any starving kid in India

/Bevin

[bevin]

Ok, Shane. I will try to explain this to you one last time, then leave you to your delusions in peace.

1. The demand for oil and NG in the USA is price-sensitive. The amount of heating, cooling, and travelling done is easily adjusted by people and they do so based on the price of oil.

2. The demand for oil and NG in the rest of the world acts the same way.

3. As foreign countries get wealthier, their ability to purchase fuel and their uses for fuel are skyrocketing

So the demand is up, the supply is down, the stuff is sold at auction on the world market, other countries are bringing more dollars to the auction because the exchange rates are moving in their favor, and so the price in USD is up due to TWO factors (a) increased demand/supply, ( the competition has more dollars.

The USD dollar is simply not worth as much as it was - whether measured in barrels of oil, Honda Civics, Yen, Euros, or tons of steel.

Your logic about "oil is sold in dollars" is utterly wrong, because yen and rubles and dollars are interchangeable and because oil is a movable entity.

If you look at things that CAN'T move - housing prices, dentist bills, etc - even those are going up because of follow-on effects.

The USA simply does not have the big production advantage it had 10 years ago. Expect the situation to get worse for the USA and better for most other countries for quite a while yet.

In particular, there is NOTHING that the USA produces that can not be bought at a good price and quality from another country today. That was not true ten years ago.

/Bevin

[Dr. Shane]

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The demand for oil and NG in the USA is price-sensitive.

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This is determined by suppply and demand. That is taught in Economics 101.

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The amount of heating, cooling, and travelling done is easily adjusted by people and they do so based on the price of oil.

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The tempenture outside determines the amount of heating and cooling much more than the price of energy. Travel is only impacted with spikes in price but even with the high gas prices we saw this past year AAA reported an increase in travel.

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The demand for oil and NG in the rest of the world acts the same way.

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Yes, supply and demand is covered in Economics 101. It works the same way all around the world.

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As foreign countries get wealthier, their ability to purchase fuel and their uses for fuel are skyrocketing

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Yes, as third world countries develope their demand for energy increases. It is their demand for a comodity that drives the price up - not the value of the dollar. Their demand is not increasing because the value of the dollar. Their demand is increasing because their economies are growing and they are developing out of their third world status.

An example is our discussion about appliances. In the US and other developed nations, when we purchase appliances they replace old appliances. The new ones are more efficient so the required energy decreases. However in developing nations like China or Mexico they may be buying air conditioners for homes that have never had it. Many are even buying washing machines, refrigerators and kitchen ranges for homes that have not had them. Thus when they buy appliances there is more of a demand for energy.

Increased demand does not increase the price of the comodity unless the supply cannot increase at the same pace as the demand. These countries purchase the energy they need based on the demand they have - not the price of the energy. It is all about supply and demand and not the value of the dollar.

Since China is rich in coal, I suspect that most of their electricty is produced by coal and not natural gas but I do not know that for sure.

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logic about "oil is sold in dollars" is utterly wrong, because yen and rubles and dollars are interchangeable and because oil is a movable entity.

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Now we move beyond Economics 101. This gets a little harder to grasp. Since the dollar is no longer backed up by gold or silver, its value is determined by what it can buy. Oil is sold in dollars and in some countries euros. This means if a person wants to buy oil they must first either buy dollars or euros.

The demand for oil is not determine by its price. If it was than the arguement that "as the dollar falls, so does the price of oil, thus increasing demand" would be correct. However over the past two years we have seen the price skyrocket and demand continues to grow. The demand is not driven by a falling dollar. Such a view demonstrates a lack of understanding the international market.

The "people don't eat more food when its price decreases" is a classic illistration from basic micro-economic classes. It should be recognizable by those that have taken micro-economics in college. I didn't think that up on my own

[Gregory Matthews]

Re: "If the cost of food were to fall we wouldn't start eating more just because it is cheaper."

When the cost of food decreases, I purchase more expensive food. When it rises, I buy more basic food.

[Nicodema]

I haven't noticed any unusual increase in my electric bill. It always jumps up during the winter months when we have "winter rates" and it looks about the same as is typical for this time of year.

[Dr. Shane]

My economics professor made the comment that when one's income increases they may eat steak more often but on the whole, their grocery bill really doesn't go up substancially. I guess most people will use their extra income for something other than their belly.

[Dr. Shane]

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I haven't noticed any unusual increase in my electric bill.

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Nico, do you know how your power is generated? If it is coal I bet that is why it has stayed stable.