U.S. electricity rates rise about 5% annually – outpacing inflation

While electricity generation costs have gone down thanks to technology like solar and wind, transmission and distribution costs have driven bills higher, said a report from Lawrence Berkeley National laboratory.

January 7, 2025 Ryan Kennedy

Image: Wikimedia Commons

The price of nearly everything has increased in the last couple of years as the world grapples with the reverberations of a global supply chain shunted by the COVID-19 pandemic. Borrowing costs and inflation drove prices higher, but in the United States, electricity prices are significantly increasing at a faster rate than inflation.

A report from the Lawrence Berkeley National Laboratory (LBNL) shows that retail electricity prices increased at an average moderate rate of 2.5% per year from 2014 to 2023. However, in recent years, price increases have ramped up.

Average U.S. electricity rates rose 4.8% per year from 2019 to 2023. The Energy Information Administration reported that state utility regulators signed off on $9.7 billion in net rate increases in 2023, more than double the $4.4 billion authorized in 2022. EIA said rate increases totaled roughly $9 billion in 2024. Over the past three winters, nominal year-over-year increases in residential electricity prices averaged 7%, EIA said.

While inflation played a role in these rate increases, the LNBL analysis suggested that increased utility costs related to the distribution and transmission of electricity are driving increased rates.

“Taking inflation into account, U.S. average retail electricity prices were mostly flat between 2019 and 2023, though have been rising faster than inflation for residential customers. Since 2019, collected revenues increased by more than 20%, whereas retail sales remained fairly flat, indicating that recent increases in retail electricity prices have been driven principally by rising revenues (costs),” the report said.

While the total volume of electricity solar has been flat or gone down in recent years, the total collected revenue has risen faster than the pace of inflation, as seen below.

As seen in the chart below, generation costs are falling. This can be attributed to technology such as solar and wind, which are continually reaching new lows for the levelized cost of electricity. LBNL reported that 63% of the cost increases from 2019 through 2023 can be attributed to transmission and distribution costs.

The steadily rising costs due to an ageing grid highlight the potential for a different way to engineer electricity systems. Distributed resources such as rooftop solar panels reduce the amount of transmission and distribution needed to be built.

Residential solar loans and leases, sometimes called power purchase agreements, are often tied to either a fixed monthly rate for 25 years, or one that increases on a 2.9% escalator each year for the term of the contract. With rates increasing nearly 5% each year, and demand from electric vehicles, datacenters, and a grid overhaul expected to raise prices further, adopting solar energy at home may offer an opportunity to have more clarity over their future costs and achieve significant long-term savings.

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