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Business Costs & Regulation

Electric Bills to Surge in Coal Burning Areas

Green power requirements will require utilities to invest big -- and raise rates.

Electric utility bills will rise by as much as 10% a year from 2011 through about 2020 in areas that depend heavily on coal fired generators -- especially the Midwest and Southeast.

Rates will go up as power suppliers seek to recoup their coming investments in new generators and other modern equipment that’s needed to replace old infrastructure -- much of it dating from the 1970s. The industry as a whole figures to invest around $80 billion per year through 2020 and probably beyond.

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Given the likelihood of new regulations to control carbon dioxide emissions, many utilities will opt to build large new fleets of natural gas generators rather than retrofit coal plants. Either way, it will cost billions.

Also contributing: more regulations. Nearly two-thirds of the states have green power laws that require electricity retailers to get progressively more of their electricity from solar, wind, water or geothermal sources. For example, renewable power must account for nearly 30% of electricity sold to New York customers by 2015, 20% in Colorado by 2020 and 33% in California by 2020. Moreover, look for the U.S. to require a minimum of 20% of all electricity to come from renewables by around 2025, compared with about 5% now.

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To manage electricity flow from renewables and boost efficiency, electric utilities will also build out the smart grid -- a system of computerized sensors and meters in homes and offices. The cost to build the new grid: at least $100 billion by 2020.

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“These renewable portfolio standards increase costs because electricity made by wind, solar and other renewables generally costs more than conventional power” made in coal, natural gas or nuclear plants, says Branko Terzic, regulatory policy leader with Deloitte Services, a business consulting firm.

Ramping up green power also requires more spending on new transmission lines to get the electricity from the windy Great Plains, the sun baked Southwest and other fairly remote areas to large distant coastal and other cities with the highest demand for it.

Further, state regulators are pushing utilities selling power in states with large metro areas to slow the growth of electricity consumption to help reduce pollution. Such moves will buoy electric bill costs by eliminating an important buffer for power companies. “For many years, even though costs were going up, utilities were getting more customers, allowing the companies to cover low-level cost increases” without big electric rate hikes, Terzic says.

Electric power retailers are lining up to file rate hike petitions with state regulators. About 100 petitions will be filed by year-end, matching 2009’s total, which was up around 20% from preceding years, says Richard Cortright, managing director for Standard & Poor’s utilities and infrastructure group.

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