Why Are Electricity Rates So High Right Now?

Jun 20, 2022 | Energy Conservation

With inflation at a 40-year high, we’re all feeling the pinch. And some people have felt it in their monthly electricity bills. According to the U.S. Energy Information Administration, electricity rates increased by an average of over 4% last year to 13.72 cents per kilowatt-hour (kWh) — the biggest jump since 2008. And in Texas, the average kWh rate went up by 70%, from 10.6 cents to 18.4 cents. What is going on?

What’s Causing Electricity Rates to Go Up?

There are several factors affecting the spike in electricity rates. The state of the world economy, lingering disruptions from the pandemic, and the repercussions of Russia’s invasion of Ukraine are just a few of the intertwined variables causing energy prices to soar. Let’s break it all down and take a closer look.

The Pandemic

Fast-changing headlines can make it seem like the pandemic is over, but we’re still very much feeling its effects. At the start, many natural gas producers closed. When demand returned, companies experienced supply chain problems that limited the parts and equipment they needed to resume production, thereby further reducing an already limited supply.

Rising Temperatures & Peak-Demand Pricing

Texas summers are infamously hot, and the National Weather Service expects this summer to be even hotter than usual. Those sweltering days not only stress the electricity grid but, if demand is high enough, can result in extremely high peak-demand pricing and a higher bill at the end of the month.

Russia’s Invasion of Ukraine Is Driving Up Natural Gas Prices

Natural gas is essential for electricity production. In fact, 40% of America’s electricity is produced by burning natural gas. And it’s also how many European nations produce electricity, too. The problem? Russia is one of the largest natural gas exporters. As many European nations reduce their dependence on Russian natural gas, relying instead on natural gas produced stateside, domestic supply has decreased while prices continue to ascend.

Coal Prices Are Up, Too

Coal may seem like an old-fashioned relic from a bygone era, but you might be surprised to know that it still accounts for over 20% of electricity generation in the U.S., not to mention other countries. And when coal prices recently shot from $66 per ton to $336 per ton, electric bills went up, too.

Inflation Is Skyrocketing

Undoubtedly you’ve heard people talking about inflation – or the increasing costs of goods and services accompanied by a decrease in the value of money. That’s because inflation is currently as bad as it’s been in decades, and prices are up across the board. Not only have electricity generation and transmission costs gone up, but the costs of doing business are up, as well, the effects of which are felt by consumers. Consider healthcare costs, for example. Like everything else, they’re on the rise, and if an electric utility has thousands of employees with health insurance, those costs will likely be passed on to consumers.

Infrastructure Upgrades

The past few years have seen an uptick in extreme weather events stressing the grid and causing blackouts — which nobody wants. As a result, many utilities are upgrading their infrastructure with new transmission lines while investing in renewable technologies like wind and solar. Although renewable energy generation involves up-front implementation costs, maintenance costs are low once production is up and running. As a positive outlook, the Energy Information Administration expects average electricity rates to fall to about 10.5 cents per kWh by 2030 and roughly 10 cents by 2050 due to increased renewable energy usage.

Increasing Transmission & Distribution Costs

The amount of electricity you use is one component of your electricity bill, but it’s not the only one. Depending on your provider, you may have noticed other charges on your monthly statement for taxes and fees, including transmission and distribution costs. These costs, established by the government, help maintain physical infrastructures like wires and towers — and they’ve doubled in the last two decades. 

This is another reason to closely examine the fine print of your electricity facts label. Charges are frequently included as part of your kWh rate. However, in order to advertise what seems like an ultra-low rate, some providers add these fees separately — significantly raising your bill from the tempting teaser rate.

How to Save Electricity & Money

Political leaders have been urging the energy industry to produce more natural gas and oil, but experts say it could take a year or two to see an increase on the supply side. In the meantime, all of us need to conserve electricity. With the hot summer already upon us, now is the time to optimize your household’s electricity usage.

Making good choices about energy use is a topic we’ve covered at length. If you haven’t already, check out our archive for a multitude of strategies to help you use reduce energy costs, save energy with smart home tech, and even perform a DIY home energy audit.

Most Important: Get the Right Electricity Plan

In deregulated energy markets like Texas, you have the power to choose your retail electricity provider and the plan that best suits your needs. When researching your options, keep in mind that in addition to the rate, you also need to consider the contract end date, hidden fees like transmission and distribution, and potential early termination fees. Do you want to skip all the homework and make the right choice in record time? Go with the state’s most trusted retail electricity provider – Energy Texas. Every plan we offer is 100% renewable energy-powered and features a fair and affordable fixed rate so you can enjoy stability and peace of mind even in these uncertain times.

Sources:

https://www.nytimes.com/2022/04/26/business/energy-environment/oil-us-europe-russia.html

https://www.nytimes.com/2022/02/22/business/energy-environment/russia-ukraine-oil-gas.html

https://www.nytimes.com/2021/07/29/climate/electric-utilities-climate-change.html

https://www.nytimes.com/2021/10/28/business/energy-environment/electric-grid-overload-solar-ev.html

https://fortune.com/2022/05/11/higher-electric-bills-this-summer/

https://money.usnews.com/money/personal-finance/family-finance/articles/why-is-my-electric-bill-so-high

https://www.chron.com/news/houston-texas/article/Texas-power-grid-electricity-cheapest-plans-rate-17217426.php

https://www.nytimes.com/2018/05/15/climate/air-conditioning.html

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