ELECTRICITY PRICE INCREASES IN MANY US AREAS WILL REVERSE DECADES OF REAL PRICE DECLINES

Electric customers are experiencing some of the largest price increases in decades. The main cause is the rising cost of input fuels, which will have an impact on both regulated and unregulated areas alike as the 2005-06 time frame ushers in the biggest fuel cost increases in history for the power industry. Understanding price shock is key to understanding the future path of the US power business. Although policymakers may seek to treat price shock as a short-run problem, the policies they establish in response will have long-term, fundamental impacts. The long-term consequences of price shock will include

- phasing in rate increases over time-a likely response that may take the edge off for residential consumers, but will increase regulatory risk for power firms
- economics setting the pace for continued restructuring, as rising prices may slow deregulation efforts that are already under way
- increased interest in energy efficiency and load management, as consumers and regulators search for ways to mitigate rising prices
- the vivid nature of price increases serving as a distraction from longer-term but crucial issues such as resource adequacy

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