10222017Sun
Last updateThu, 19 Oct 2017 5pm

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Electricity Prices Reflect Delivery, Power Production Costs

Over the past decade, retail electricity prices have not closely followed the costs of fuels used to generate electricity, such as coal or natural gas, mainly because of changes in the other costs involved with producing and delivering electricity in the U.S.

The cost of electricity reflects money spent on generation, transmission, distribution, and other plant-in-service additions, as well as plant operation and maintenance. Over the past decade, the portion of total electricity costs attributed to power production for most utilities has decreased from 69% to 54%, while the portion associated with delivering that electricity to customers has risen.

Power production costs incurred by utilities include fuel costs; nonfuel costs, including the costs of building, upgrading, operating, and maintaining generators; and the costs of purchasing power from independently-owned generators or from power markets. While the fuel and purchased power costs have decreased over the decade with the decrease in natural gas prices, nonfuel costs have increased slightly. 


Energy M&A Slowed but Not Stopping

“Almost $97 billion in U.S. oil- and gas-related mergers and acquisitions (M&A) have been announced in 2017, an increase of more than 41% from this time last year,” Bloomberg reports.

“That activity may slow over the next month or so as companies assist displaced employees and people take time to help friends, neighbors and colleagues with flooded homes,” according to energy M&A bankers. 

Weather May Affect Gulf Refining, Chemical Projects

According to Industrial Info Resources, “investment in the Gulf Coast is expected to hit $51.9 B next year, near the 2015 peak, requiring an army of pipefitters, ironworkers and other craftsman,” Reuters reports.

“There is no sign that major new projects are under threat. Several with plans on the drawing board, including BASF SE, DowDuPont Inc and Exxon Mobil Corp are sticking to growth plans. Others said they will repair Harvey's damage before making any decisions on long-term strategy for the region.” 

Tank Failures in Harvey Reveal Vulnerabilities

“More than two dozen storage tanks holding crude oil, gasoline and other contaminants ruptured or otherwise failed when Harvey slammed into the Texas coast, spilling at least 145,000 gallons (548,868 liters) of fuel and spewing toxic pollutants into the air,” according to an Associated Press analysis of pollution reports submitted to state and federal regulators.

“More of the massive storage tanks could be put to the test in coming days as Hurricane Irma bears down on Florida. The tanks are prone to float and break during floods, and Harvey's unprecedented rainfalls revealed a new vulnerability when the roofs of some storage tanks sank under the weight of so much water.” 

$380M Pipeline, Terminal Project Planned in Texas

V-Tex Logistics, LLC, a subsidiary of Valero Energy, has signed an agreement with Magellan Midstream Partners to jointly build an approximately 135-mile, 16-inch products pipeline from Houston to Hearne, TX. In addition, Valero will separately build a terminal in Hearne, a terminal in Williamson County, TX, and an approximately 70-mile, 12-inch pipeline connecting the two terminals. Valero’s expected cost for the projects is $380 million with targeted completion in mid-2019. Construction of these pipelines and terminals will provide a reliable fuel supply alternative for the fast-growing Central Texas marketplace. The new pipelines and terminals are expected to supply up to 60,000 barrels per day into Williamson County. 

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