Power Struggle – False Narratives Cloud the Drivers of Higher Residential Electricity Prices.
Rising residential electric bills are fast becoming a top political issue in state and federal elections and each side of the aisle is jumping in with false narratives. But before we shred any narratives, let’s lay out the facts.
FACT 1: Over the last 5, 10, and 15 years, residential electric rates in the US are up in line with inflation.
FACT 2: The largest contributor to rate increases is the cost of distribution, that “last mile” of wires and associated transformers and substations that require the most repair/ maintenance.
The total delivered price of residential electricity includes generation (G), transmission (T) and distribution (D).
In 2015 the average residential price for electricity was 12.7 cents per kilowatt hour (¢/kwh):
12.7¢ = 6.4¢ (G) + 1.1¢ (T) + 5.2¢ (D)
This year (2025) those numbers will be approximately:
17.2¢ = 7.3¢ (G) + 1.7¢ (T) + 8.2¢ (D)
(Source: EIA and EIP estimates)
So 65% of the increase is in the distribution cost.
It is at the distribution level where a utility’s wages for operations and administration and management are added to the bill. And those wages tend to rise with inflation. Include medical benefits and they rise faster than inflation.
FACT 3: The wide dispersion in electricity rates between states has a 95% correlation to the cost-of-living index (COLI) in each state, not whether it is red or blue nor whether they have a renewable or clean energy mandate.
Since transmission is so small and the generation component of the bill is fairly consistent across the US (varying by less than 2 cents between regions) it is the difference in the distribution cost that accounts for regional differences and why those differences are so highly correlated to the state level COLI. For example, Massachusetts and California have average rates of about 32 ¢/kwh and an average COLI of 143 vs the US average of about 17 ¢/kwh and a COLI of 100. (source: EIA and Missouri ERIC)
This, not state policies on renewable energy, explains the difference between residential rates. Some want to blame wind and solar and their all-in cost including transmission costs of connecting to remote locations and the cost of backup power. But even if ALL the increase in generation costs since 2015 are a result of building backup power for wind and solar AND even if ALL the increase in transmission is hooking up remote wind and solar, that would account for only 1.5¢ of the 4.4¢ increase in residential rates over the last 10 years.
Lowering costs of distribution – which is owned by regulated monopolies operating on a cost-plus regulatory revenue scheme – will require incentivizes for cost reductions not just capital investment. Allow the companies/shareholders to hold on to a portion of cost savings and watch the costs of distribution come down.
Power Struggle – False Narratives Cloud the Drivers of Higher Residential Electricity Prices.
Rising residential electric bills are fast becoming a top political issue in state and federal elections and each side of the aisle is jumping in with false narratives. But before we shred any narratives, let’s lay out the facts.
FACT 1: Over the last 5, 10, and 15 years, residential electric rates in the US are up in line with inflation.
FACT 2: The largest contributor to rate increases is the cost of distribution, that “last mile” of wires and associated transformers and substations that require the most repair/ maintenance.
The total delivered price of residential electricity includes generation (G), transmission (T) and distribution (D).
In 2015 the average residential price for electricity was 12.7 cents per kilowatt hour (¢/kwh):
12.7¢ = 6.4¢ (G) + 1.1¢ (T) + 5.2¢ (D)
This year (2025) those numbers will be approximately:
17.2¢ = 7.3¢ (G) + 1.7¢ (T) + 8.2¢ (D)
(Source: EIA and EIP estimates)
So 65% of the increase is in the distribution cost.
It is at the distribution level where a utility’s wages for operations and administration and management are added to the bill. And those wages tend to rise with inflation. Include medical benefits and they rise faster than inflation.
FACT 3: The wide dispersion in electricity rates between states has a 95% correlation to the cost-of-living index (COLI) in each state, not whether it is red or blue nor whether they have a renewable or clean energy mandate.
Since transmission is so small and the generation component of the bill is fairly consistent across the US (varying by less than 2 cents between regions) it is the difference in the distribution cost that accounts for regional differences and why those differences are so highly correlated to the state level COLI. For example, Massachusetts and California have average rates of about 32 ¢/kwh and an average COLI of 143 vs the US average of about 17 ¢/kwh and a COLI of 100. (source: EIA and Missouri ERIC)
This, not state policies on renewable energy, explains the difference between residential rates. Some want to blame wind and solar and their all-in cost including transmission costs of connecting to remote locations and the cost of backup power. But even if ALL the increase in generation costs since 2015 are a result of building backup power for wind and solar AND even if ALL the increase in transmission is hooking up remote wind and solar, that would account for only 1.5¢ of the 4.4¢ increase in residential rates over the last 10 years.
Lowering costs of distribution – which is owned by regulated monopolies operating on a cost-plus regulatory revenue scheme – will require incentivizes for cost reductions not just capital investment. Allow the companies/shareholders to hold on to a portion of cost savings and watch the costs of distribution come down.