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-----Over the past several weeks, rising tensions and conflict involving Iran have pushed global oil prices higher. Not even a month, ago Brent Crude was trading in the $60/barrel range while now it is above $100. While most people immediately think about gasoline prices when oil rises, the effects often extend further particularly into electricity and natural gas markets that ultimately influence residential utility costs across the United States.
-----Even though most U.S. power generation runs on natural gas rather than oil, global energy markets are closely linked. When geopolitical events tighten global energy supply, demand for U.S. natural gas exports often increases, which can put upward pressure on domestic natural gas prices. Because natural gas fuels a large portion of the country’s electricity generation, increases in gas prices can eventually work their way into electric rates and heating costs.
-----It’s also important to remember that many electric and natural gas utilities structure their rates with both fixed components and variable fuel-cost components. For example, Washington Gas (which serves much of Maryland, Washington, DC, and Northern Virginia) includes a line item on customer bills known as the Purchased Gas Charge (PGC). This charge reflects the actual cost of natural gas the utility purchases and can change from month to month based on market conditions. Similar fuel adjustment mechanisms exist for many electric utilities as well, meaning fluctuations in global energy markets can show up in utility bills more quickly than many people realize.
-----My advice is since we are within the window when many new utility allowances become effective, it may be wise to conduct your utility allowance studies sooner rather than later. Completing studies now can help ensure that allowances reflect the most current market conditions before additional fuel cost changes work their way through utility rates. If you have questions about how changing utility costs could impact your properties, I’m always happy to help.
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