US Power Prices Kept Pace With Inflation for a Decade. The Next Decade's Bill Is Being Written in Rate Cases

There is a reassuring way to read the latest federal data on household electricity prices. Between 2013 and 2023, average US residential prices rose by less than 1% in inflation-adjusted terms. In 2023 itself, residential bills rose about 2% a month compared with 2022, while general inflation ran at 4.1%. Over ten years of shale gas, cheaper renewables and flat demand, electricity has been one of the more stable items in the household budget. The stability has come from falling fuel and generation costs offsetting rising costs elsewhere in the bill, and those rising costs are now accelerating.

The Energy Information Administration's ten-year comparison shows most states within a few percentage points of inflation. California's real residential price rose from a little over 21 cents per kilowatthour in 2013 to almost 30 cents in 2023, an average annual increase of 2.8% above inflation. The EIA cites investment in grid modernization and renewables, higher operating and maintenance costs from wildfires, and declining sales as causes. California's problem is mainly the cost of the network and of the risks it carries.

The EIA notes that distribution and transmission charges make up nearly 40% of electric bills on average. That share matters because it is recovered through regulated rates even in states where customers can choose a competitive power supplier. The cost of generation has fallen over the past decade, thanks to cheap gas and declining costs of wind and solar. The 2023 net increase of $9.7 billion reflects $10.3 billion in authorized increases and only $0.6 billion in decreases.

The real question is not whether utilities should invest, but how regulators decide which investments are worthwhile and how the cost is shared. Regulators approve or reject rate requests, but they have other tools too. A decade of electricity prices tracking inflation was the product of an unusual combination: falling generation costs, flat demand and moderate network spending. The outcome is unlikely to be a sudden price shock at the national level.