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Higher fuel prices, increased capital costs and continued uncertainty about climate policy are helping fuel the rising costs of electricity faced by consumers across the country, according to a report by the Federal Energy Regulatory Commission (FERC).

The rising cost trends are likely to continue for years, according to the report presented to FERC by analysts from its office of enforcement. The report pegs current futures prices for natural gas at $2.50 to $5 above the average 2007 spot price. In addition, costs for everything from iron and steel to cement and copper wire have risen significantly over the past several years. These increases have contributed to the rise in the cost of new generation for every type of power plant - from nuclear power to combustion turbine and wind generators, according to the report.

"We must confront three realities: FERC is regulating in a high-cost environment; the United States needs massive investments in new electricity generation, transmission and distribution facilities; and we are beginning to confront the climate change challenge, which puts us in a period of uncertainty regarding policy," says FERC Chairman Joseph T. Kelliher. "There is tension among these three realities, and they work at cross-purposes. The United States cannot simultaneously make the massive investments necessary to assure security of our electricity supply, make additional large investments to confront climate change and lower electricity prices."

The report also says that consumers and the market will likely respond with demand response measures that help reduce energy consumption during times of peak prices, energy efficiency and conservation measures, and technological innovations that could usher in changes that help reduce costs and improve value.

To read the report, go to ferc.gov

SOURCE: Federal Energy Regulatory Commission

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