Why Your Electric Bill is Going Up. Spoiler – That Pain is from Gas

Your electric bill is going up. Hard to see how a war in the Middle East will help.
Gas pains are a bitch.

Gift Link, Wall Street Journal:

America’s power bills are rising even faster than the cost of groceries.

Higher natural-gas prices are partly to blame. Utilities investing billions of dollars to stabilize the aging electric grid are passing those costs on to customers, too. And in some states, huge data centers are pushing power prices higher as electricity supplies tighten.

Electricity prices across the country have increased 4.5% in the past year, according to Labor Department data released Wednesday, topping the 2.2% jump in the price of groceries. More broadly, consumer prices rose 2.4% in May from a year earlier.

Electric bills are expected to keep climbing this summer along with the temperatures. The Energy Information Administration expects the average U.S. residential electric bill to be about 4% higher this summer than last, mostly because of a jump in natural-gas prices, the largest source of power generation. Natural gas deliveries to power plants will cost about 50% more from June through September than last year.

Hugh Wynne, an analyst with Sector & Sovereign Research, said expected increases in liquefied natural gas exports are likely to continue to pressure power prices in the long term. “The more we export gas, the more the domestic price will begin to reflect the international price,” Wynne said.”

The EIA expects electricity prices to outpace inflation through next year, a trend that began in 2022 when Russia’s invasion of Ukraine drove up the price of natural gas. Although energy prices receded after the invasion, utilities ramped up their spending to repair the grid and reduce storm-related outages and wildfire risks as well.
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Power bills include the cost of producing and delivering electricity. “On both fronts, there is little reason to believe that ratepayers will see easing pressure on their pocketbooks,” said Akshat Kasliwal of PA Consulting Group, who expects elevated electricity costs for the next 12 to 18 months.

The average household power bill will reach $784 for the combined period from June to September, according to forecasts from the National Energy Assistance Directors Association and the Center for Energy Poverty and Climate. That is up 4.2% from last year when adjusted for inflation.

Mark Wolfe, NEADA executive director, said one of every six U.S. households is behind on their electricity or natural-gas bills. Customers owed gas and electric utilities more than $24 billion in late payments as of March. 
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The frenzy over artificial intelligence, along with new manufacturing and the adoption of electric vehicles, is helping drive U.S. power demand forecasts higher for the first time in two decades. The U.S. wants to build more gas-fired power plants to meet the soaring demand, but construction can cost three times as much as it did a few years ago, utility executives say. 

Across the U.S., the growing pains are sparking fights over how to pay for upgrades and costs. 

About $9.3 billion in additional electricity costs will begin trickling down this month to customers in the PJM Interconnection, the country’s largest grid operator and wholesale electricity market. 

The main cause is the “unprecedented” demand from new and planned data centers, according to a report from Monitoring Analytics, the independent grid monitor for PJM, which provides power to 13 states and Washington, D.C.

Heatmap:

Inflation is slowing, but electricity bills are rising. While the below-expectations inflation figure reported by the Bureau of Labor Statistics Wednesday morning — the consumer price index rose by just 0.1% in May, and 2.4% on the year — has been eagerly claimed by the Trump administration as a victory over inflation, a looming increase in electricity costs could complicate that story. 

Consumer electricity prices rose 0.9% in May, and are up 4.5% in the past year. And it’s quite likely price increases will accelerate through the summer, thanks to America’s largest electricity market, PJM Interconnection. Significant hikes are expected or are already happening in many PJM states, including Maryland, New Jersey, Delaware, Pennsylvania, and Ohio with some utilities having said they would raise rates as soon as this month.

This has led to scrambling by state governments, with New Jersey announcing hundreds of millions of dollars of relief to alleviate rate increases as high as 20%. Maryland convinced one utility to spread out the increase over a few months.

While the dysfunctions of PJM are distinct and well known — new capacity additions have not matched fossil fuel retirements, leading to skyrocketing payments for those generators that can promise to be on in time of need — the overall supply and demand dynamics of the electricity industry could lead to a broader price squeeze.

“Trump and JD Vance can get off tweets about how there’s no inflation, but I don’t think they’ll feel that way in a week or two,” Skanda Amarnath, executive director of Employ America, told me.

And while the consumer price index is made up of, well, almost everything people buy, electricity price increases can have a broad effect on prices in general. “Everyone relies on energy,” Amarnath said. “Businesses that have higher costs can’t just eat it.” That means higher electricity prices may be translated into higher costs throughout the economy, a phenomenon known as “cost-push inflation.”

Aside from the particular dynamics of any one electricity market, there’s likely to be pressure on electricity prices across the country from the increased demand for energy from computing and factories. “There’s a big supply adjustment that’s going to have to happen, the data center demand dynamic is coming to roost,” Amarnath said.

Jefferies Chief U.S. Economist Thomas Simons said as much in a note to clients Wednesday. “Increased stress on the electrical grid from AI data centers, electric vehicle charging, and obligations to fund infrastructure and greenification projects have forced utilities to increase prices,” he wrote. 

Of course, there’s also great uncertainty about the future path of electricity policy — namely, what happens to the Inflation Reduction Act — and what that means for prices.

The research group Energy Innovation has modeled the House reconciliation bill’s impact on the economy and the energy industry. The report finds that the bill “would dramatically slow deployment of new electricity generating capacity at a time of rapidly growing electricity demand.” That would result in higher electricity and energy prices across the board, with increases in household energy spending of around $150 per year in 2030, and more than $260 per year in 2035, due in part to a 6% increase in electricity prices by 2035.