Fuel prices and global competition are among the factors putting pressure on the cost of electricity.

Gasoline prices have soared. Heating oil and natural gas prices are taking flight. The last thing consumers want to hear is more bad news about their energy costs.

The good news for co-op members is the increases they may experience, on average, shouldn’t be as severe as those at the pump. The bad news, analysts agree, is we could see several years of upward pressure on electric rates.

That’s because a complicated set of factors – everything from increased demand for power to dramatic increases in fuel costs in the United States, to long-term economic growth in the Far East – seems to be conspiring to increase the cost of making and delivering electricity.

There are steps the power industry, the government and consumers can take to help keep costs down. But a large part of the problem is simply that the world faces a new era of increased global competition for limited energy and other resources.

“You can always find fault for things, if you want, but this is largely driven by global issues where you can’t really blame anyone,” says Roger Gale, CEO of GF Energy, publisher of the highly respected report Electricity OutlooK.

The new reality starts with much higher costs for natural gas, which will make it more costly not only to stay warm in the winter, but also more expensive for Americans in some regions of the country to keep the lights on.

Natural gas is used to generate more than 17 percent of the electricity in the United States. The U.S. government’s Energy Information Administration(EIA) estimates that will grow to 20 percent by 2010. Almost all of the new power plants built during the last decade burn natural gas to generate electricity. When those plants were on the drawing board, natural gas was one of the great energy bargains, costing about $2 per million Btu as recently as 2002.

But in 2005, natural gas went as high as $14 per million Btu. That was a spike, but analysts project that prices should stay in the $6 to $8 range, an increase of as much as 400 percent.

The United States and Canada now use all the natural gas they can pump out of the ground and more, leaving no slack in the system.

“We’ve been living on this razor’s edge where any change in supply, any change in demand – any significant weather event – makes a difference,” says Chris McGill, of the American Gas Association. “We had a summer this year that was 19 percent warmer than normal. We had much more natural gas going to power generation. In the critical weeks of the summer cooling season, we were consuming up to 30 percent more.”

And 2005’s devastating hurricanes will dampen oil and gas production well into 2006. In a tight market, that can send prices skyrocketing. Some consumers have already seen “fuel cost adjustments” added to their electricity bills. More will be seeing them in coming months.

To make up for shortfalls in domestic supply, the United States has imported natural gas from both Canada and Mexico, as well as a small amount of liquefied natural gas, or LNG. Several nations that used to export natural gas – including the United Kingdom and China – have started importing to meet their needs. Efforts are underway to expand LNG import capability on a dramatic scale, but competition has also increased for LNG. With countries such as India, China and Brazil rapidly industrializing, world energy consumption is projected to increase by 57 percent from 2002 to 2025, according to the EIA.

Worldwide electricity use is expected to grow even faster. It could nearly double in the next two decades alone, the agency projects in its study, International Energy Outlook 2005.

Here in the United States, which still uses more power than any nation in the world, the demand for electricity is growing more modestly. Rising natural gas costs here could be partially offset by an increased investment in nuclear or coal-fired plants – although both face regulatory and environmental hurdles – and by increased conservation by consumers.

Unfortunately, another problem remains: The nation’s high-voltage electricity transmission network needs updating. Many analysts agree that state and federal attempts to deregulate the electric industry contributed to the reluctance to invest in transmission. To complicate matters, power plant construction in the last two decades and new players in the power market have resulted in more than a 100-fold increase in activity on the transmission grid.

“Throughout the 1990s, there was a significant slowdown in investment in transmission,” says Alan Beamon, director of the coal and electric power division of EIA. “Utilities are going to have to invest in updating their transmission as new generation comes on line.”

For consumers, the big question is, “how much are my rates going to go up?” The answer varies even by community, because the cost of generating and delivering power varies across the country. In some parts of Texas and California, power companies are requesting increases in the 14 to 17 percent range to cover fuel costs. In New England, one utility has proposed a 60 percent increase in industrial and commercial rates. But in other areas, increases will be modest or may not occur immediately.

Luckily, the equation doesn’t look as bad for co-op members as it does for most consumers. Most of the power used by the nation’s electric cooperatives is generated from coal. The United States has plentiful amounts of coal, and the price is more stable than oil and natural gas.

Historically, electric co-ops have not been as dependent on the spot market, where prices can be highest, for electricity. Cooperatives have tended to take a long-term view and build solid systems that provide rate stability. They’ve long been industry leaders in finding innovative ways to hold down costs. Still, even cooperatives will not be able to escape all the nationwide pressure on electricity costs. Some co-ops will have to make adjustments in their rates to deal with the new reality.

Electric cooperatives, however, hold one final advantage. As one co-op leader says, “Co-ops are not for profit. They don’t try to get the highest price from their members, but the lowest price for their members.”

Tucson-based Reed Karaim writes frequently on electric co-op issues.