Electricity rates in many parts of the United States will be stable or fall for the next 18 months and then will rise more slowly than the rate of inflation for the next decade, utility officials and observers say.
Utilities companies, such as Potomac Electric Power Co., Baltimore Gas & Electric Co. and Virginia Power, will be able to keep prices stable or lower them, they say. Fuel costs will be lower because of falling oil prices. A moderate increase in demand in the mid-Atlantic Region combined with a surplus of electricity available across the country will mean there will be no immediate pressure to build expensive new generating plants.
"The annual energy outlook shows electricity rates decreasing in real terms by an average 0.9 percent a year" through 1995, said Mary Hutzler, director of the electric power division of the Energy Department's Energy Information Administration. She also said if the inflation rate is 3 percent, then electricity rates would go up only slightly more than 2 percent.
"The two big components of electricity price are the capital and fuel costs and both are trending down," said one Department of Energy official. "It can't help but mean lower electricity prices but it is going to be gradual." Fuel costs are falling because the collapse of OPEC is forcing down prices not only for oil but also for competing fuels. Capital costs are decreasing because of falling interest rates.
"We do not anticipate filing for a rate increase in 1986 in any jurisdiction," said Nancy Moses, a spokeswoman for Pepco. "Our rates have stablilized for the past three years, since our construction programs have wound down. In the last three years, the price per kilowatt hour sold increased just 1.8 percent for residential customers, compared to a 12.1 percent increase in the consumer price index generally."
Edward Hargest, manager of economic research at Baltimore Gas & Electric, said the utility does not plan to seek higher rates in 1986, and the part of each bill that pays for fuel will come down. "I would expect that our rates this year will be lower than 1985," he said.
C. M. Jarvis, vice president of regulation at Virginia Power, said the utility will need "some minor rate relief" to cover the renovation of existing plants and upgrading of transmission lines. "Throughout the rest of the decade, we will continue to keep our price increases below the increases in prices in the consumer price index," he said.
In other parts of the country, customers still will experience higher rates because of major new plants, said Michael Foley, director of financial analysis for the National Association of Regulatory Utility Commissioners.
But overall, fewer utilities are bringing on new generating plants, which means fewer rate hikes are being sought, he said. "Orders for new nuclear and coal plants are zero; everybody is sitting tight to see where demand is going to go."
State regulators also are taking a hard line on rate increases for plants that are not needed. "Since 1980, there have been $35 billion in rate hikes, double for the entire decade of the 1970s -- now regulators are definitely getting tougher on companies that are bringing white elephant nukes into the rate base" by disallowing substantial amounts of the costs, he said.
Those companies asking for rate hikes "are not getting much because interest rates and the cost of capital are coming down and rates of return on equity are being lowered," said Mark D. Luftig, an electricity analyst at Salomon Bros.
Another factor driving prices downward is excess electric generating capacity throughout the industry, Luftig said. "It's become a buyer's market -- because a lot of utilities want to sell, they sell just slightly above the cost of producing it and the ratepayers are benefiting from that."
Some experts caution, however, that consumers should not expect electricity rates to fall as dramatically as oil prices.
According to Bruce Humphrey, director of economics for the Edison Electric Institute, about 30 percent of the electric industry's revenue goes toward fuel costs. But 62 percent of all electricity is generated by coal, while only 9 percent is generated by oil and another 9 percent by natural gas, Luftig said. Utilities using the most oil are concentrated in Northeastern states and in Florida, but not in Maryland, Virginia or the District.
Oil prices are between $13.50 and $17.50 a barrel for long-term contracts, according to Energy Futures Group Inc., a Bethesda consulting firm. Those prices would have to fall to $12 barrel before significant shifting from coal to oil were seen in the electric industry, Luftig said.
Local utilities like Potomac Electric Power Co. and Virginia Power have "worked hard to get off oil and onto coal and nuclear" so much of an impact won't be seen in the fuel portion of consumers' bills, said the DOE official. However, a reduction in the fuel component of bills will be seen in the summer months, when utilities like Pepco and Virginia Power use oil or natural gas generators to meet times of heaviest demand.