Although U.S. average retail electricity prices were mostly flat over the past several years when taking inflation into account, residential customers have seen their prices rise faster than inflation.
With most categories of utility costs increasing between 2019 and 2023, including distribution CapEx growing by 50% and double the rate of inflation, some customers are certainly feeling the effects.
A new Berkeley Lab report, Retail Electricity Price and Cost Trends: 2024 Update, summarizes recent trends in retail electricity price levels and price drivers in the United States. National, regional, and state trends were reported for 2019 through 2023, using publicly-available data for: average retail electricity prices, retail sales, and utility revenues; utility capital expenditures, operations, and maintenance costs, and fuel and purchased power costs; and retail electricity sales impacts from behind-the-meter resources. The report also includes qualitative case studies highlighting recent and/or regionally specific issues contributing “significantly” to retail electricity price trends.
The report is intended to serve as a reference document for the decision-makers impacted by changes in retail electricity prices and to provide a factual basis for assessing recent changes in retail electricity prices and key underlying drivers. The report is not, however, intended to track changes in retail rate structures; precisely quantify how each driver has impacted retail electricity prices; or address every factor impacting rates, especially those that are utility-specific.
Retail electricity prices reflect the direct costs to generate and deliver electricity to consumers, including capital expenditures, fuel and power purchase costs, financing costs, and more. The report focuses on the past five years, which Berkeley Lab argues is long enough to see broad trends and capture price changes made through periodic rate cases.
The report also indicates that load growth, such as from data centers or manufacturing facilities, was not a major driver of recent cost growth at the national level, but some states and utilities have seen “significant” recent load growth and forecast continued growth into the future.
Retail electricity prices increased from 2019 to 2023
On a nominal basis, U.S. average retail electricity prices increased 2.5% per year over the decade from 2014 to 2023, though the majority of this change took place over our study period (from 2019-2023, rates rose 4.8% annually).
Taking inflation into account, U.S. average retail electricity prices were mostly flat between 2019 and 2023, though they have been rising faster than inflation for residential customers. Since 2019, collected revenues increased by more than 20%, whereas retail sales remained “fairly flat,” which Berkeley Lab argues indicates that recent increases in retail electricity prices have been driven principally by rising revenues (costs).
Prices in most states rose by less than 0.5 cents/kWh per year and by <6% per year, with some variability in average annual growth rate (AAGR) based on differences in absolute retail price levels across states. Larger increases occurred throughout the Northeast and parts of the upper Midwest. The largest increases were in Hawaii (2.5 cents/kWh per year), California (2.0 cents/kWh per year), and Maine (1.7 cents/kWh per year). Prices fell in only one state over the same period: North Dakota (0.2 cents/kWh per year).
Additionally, states with higher-than-average retail rates saw faster electricity price increases than states where rates were relatively cheaper, the report found. Among the 10 states with the highest prices in 2019, prices rose by 7% annually between 2019-2023, compared to 4% in the lowest-priced states. This gap continues to widen: the difference in average prices between the 10 highest- and 10 lowest-priced states rose from 10 cents/kWh in 2019 to 14 cents/kWh in 2023.
Distribution system costs grew the most among utility costs
Utility costs were key retail electricity price drivers, the report found. Fuel and purchased power (FPP) is the largest expense, followed by operations and maintenance (O&M) and depreciation. All types of utility expenses, except general & administrative, rose from 2019-2023.
Distribution capital expenditures (CapEx) have grown steadily and at a rapid clip, growing by 50% over 2019-2023, more than double the rate of inflation (see Figure 2). Distribution is currently the largest source of utility CapEx (44% of the total in 2023). Similarly, distribution operations and maintenance (O&M) costs have grown the most since 2019, especially in the West. Utility fuel and purchase power (FPP) costs have risen and fallen with natural gas prices, which comprise roughly 40% of the U.S. electric generation mix. While natural gas prices in 2023 returned to 2019 levels, FPP costs remain elevated at roughly 30% above 2019 levels.
Load growth was not a major driver in cost growth at the national level
Retail electricity sales remained nearly flat from 2019 to 2023 and were not a major driver of cost growth in recent years at the national level, though some states and utilities experienced significant load growth due to new data centers and industrial facilities.
There was also considerable fluctuation in year-over-year growth, depending on the customer class. Commercial and industrial (C&I) sales fell sharply from 2019 to 2020 with the onset of the COVID-19 pandemic, rebounding the following year. Residential sales dropped markedly from 2022-23, partly due to milder weather, while C&I sales remained flat.
Load growth imposes additional utility costs to be recovered through retail rates, while also spreading the cost of prior investments across a broader base of retail electricity sales, the report said. This can either increase or decrease retail electricity prices, depending on how those effects balance out. The impacts also depend on regulatory and ratemaking factors such as regulatory lag.
However, some utilities have seen a “dramatic” increase in load growth in recent years, and/or are forecasted to see significantly higher growth in the near term. The table above shows the ten highest public- and investor-owned utility AAGRs from 2019 to 2023, and the 2019-2023 difference by GWh. Most utilities in the table experienced AAGRs greater than 10% per year.
Customer investments in behind-the-meter (BTM) resources grew
Behind-the-meter (BTM) resources can either accelerate load growth (electrification) or dampen load growth (energy efficiency, onsite generation), while demand flexibility primarily dampens peak demand growth. The cost impacts, either positive or negative, depend heavily on the temporal profile of the resource and its location on the grid. BTM resources may also incur programmatic costs such as rebates from ratepayer-funded efficiency programs. However, it is beyond the scope of the report to estimate the impact of BTM resources or load growth on retail electricity prices.
BTM resources, including energy efficiency, distributed solar PV, electric heat pumps, and electric vehicles, grew from 2019 to 2023. On an absolute basis, energy efficiency load impacts grew the most by roughly 250,000 GWh from 2019 to 2023, inclusive of utility ratepayer-funded energy efficiency programs and federal appliance standards. On a percentage basis, electric vehicle load impacts grew the most at more than 400% from 2021 to 2023.
Depending on the net metering structure, BTM solar generation typically represents a one-for-one displacement of retail electricity sales, the report said. BTM solar generation grew by roughly 40,000 GWh from 2019 to 2023, reaching roughly 2% of sales. This equates to roughly a 40% reduction in retail sales growth over the period. Residential solar represents about 70% of total BTM solar growth.
More than 3.6 million air-source heat pumps were sold in the U.S. in 2023, representing a 16% increase from 2019. Electricity consumption by air-source heat pumps sold from 2019 to 2023 totals between 88,000 and 120,000 GWh, depending on the efficiency level of the units sold. The net impact on retail electricity sales depends on the extent to which new heat pumps are replacing fossil fuel-based heating equipment (increasing electricity sales) versus existing, less efficient electric heating equipment (reducing electricity sales), the report said.
Electricity savings from utility ratepayer-funded energy efficiency (EE) programs and federal appliance efficiency standards grew by roughly 250,000 GWh from 2019 to 2023, the report found. This represents more than 4x the total realized retail electricity sales growth over that time period. More than 80% of that growth in savings is associated with federal appliance efficiency standards.
Customer enrollment in time-varying rates
Residential customer enrollment in time-based pricing, including time-of-use and critical peak pricing, has increased by almost 80% from 2019 to 2023. Commercial customer enrollment has also increased and is more than 20% higher in 2023 than in 2019. In 2023, more than 10% of all residential customers and more than 11% of all C&I customers were enrolled in time-varying rates nationwide.
The full report is available here.
