It isn’t just your electric bill: Everyone’s paying more to power their homes these days.
This has actually been the case for at least a year. According to the U.S. Energy Information Administration, the average homeowner saw their electricity climb 4.3% last year, to 13.72 cents per kilowatt-hour. That was the largest jump since 2008.
The Crisis in Ukraine
We’ll start with this since it’s at the forefront of a lot of people’s minds: Russia’s invasion of Ukraine.
The bad news? “The war is adding pressure to natural gas prices,” says Alberto Lamadrid, associate professor of economics at Lehigh University in Bethlehem, Pennsylvania. Natural gas, Lamadrid says, is one of the main fuels used for electricity production.
Matias Vernengo, economics professor at Bucknell University in Lewisburg, Pennsylvania, agrees. “Prices of natural gas and oil are set in international markets, and they have spiked a bit before the war, and decidedly after tensions increased. Russia is one of the largest exporters of refined oil and natural gas,” he says.
Yes, the pandemic is still affecting your electric bill, according to Lamadrid.
“During the early part of the pandemic, many natural gas producers closed, and when demand reactivated, in many cases it was difficult for companies to obtain the parts and equipment needed,” he says.
And with many people quitting jobs for a variety of reasons – known as the “Great Resignation” – natural gas producers have had trouble hiring more workers, Lamadrid says. That, too, has contributed in a small but significant way to your burgeoning electric bill.
You can blame the weather for at least some of the increase in your electric bill in 2021, according to Lamadrid.
“Last year, there were several weather-related disruptions, such as winter storm Uri in Texas, as well as supply chain disruptions that increased the price of natural gas,” he says. And as you’ll remember, natural gas is important for electricity production.
Still, the news may not be all bad. According to a short-term energy outlook from the U.S. Energy Information Administration released March 8, 2022, natural gas generation is forecast to fall from $4.16/MMBtu in 2022 to $3.80/MMBtu in 2023. (MMBtu stands for one million British thermal units, a measure of the energy content in fuel.)
But it isn’t simply that weather will disrupt the supply chain and cause the electric bill to creep up. Preparing for the weather is lifting the numbers on your bill.
Electric companies are under a lot of pressure to make sure blackouts don’t happen. To do everything possible to shore up where they are weak, utilities invest in their grids. For instance, in California, many of the state’s utilities are making billions of dollars in investments to try to prevent power lines from starting wildfires.
“These, too, come at a cost borne by consumers,” says Don Whaley, president of OhmConnect Energy, headquartered in Oakland, California. He is also the founder and former president of Direct Energy.
Whaley says that moves many utilities make to have a “zero blackout” scenario means that costs compound, without necessarily being able to guarantee that the power will stay on.
It’s probably not a surprise that coal factors into higher electric bills.
Coal isn’t used for electricity as much as it once was, Whaley says, but it still accounts for approximately 22% of the total electric generation in the U.S. – and prices, he says, went from $66 per ton of coal to recently $336 per ton.
Meanwhile, China and India have moved in the other direction, Whaley says, “generating 60% and 75% of their electricity from coal, respectively. While Russia accounts for only 5.6% of global coal production, it’s worth noting that they account for 11% of global oil production, and the loss of this supply source has had a profound impact on the world energy market.”
Inflation is one of the reasons your electric bill is going up, since inflation affects everything. As Whaley says, “There’s more to your electricity bill than the cost of a (kilowatt-hour). Once it’s generated, it has to reach your home or business. The cost of that delivery and the services required to provide a stable grid has steadily increased over time.”
In other words, as it gets more expensive to do just about everything, operating a utility gets more expensive.
Everything Else – Even Health Care
It isn’t just one thing that drives up your electric bill. It’s everything from regulations to the supply chain to supply and demand.
“In our area – Pennsylvania – we are part of a restructured system that uses markets to determine the balance between supply and demand of electricity,” Lamadrid says. “This is controlled by a regional transmission organization, PJM, that acts as a neutral entity bringing together buyers and sellers of electricity.”
So if it gets harder to purchase natural gas and oil, their prices go up.
But again, there’s a ripple effect, and right now, many forces are in play that are causing electric bills to spike.
“The combination of a world economy emerging from pandemic lows with a resurgence in energy demand and the loss of Russian energy supply sources in the wake of their invasion of Ukraine have resulted in dramatic increases in the cost of energy in general and electricity in specific,” Whaley says.
Believe it or not, even the cost of health care is driving up the price of your electric bill. After all, some of the electric utilities have tens of thousands of employees with health insurance coverage.
“The cost of health care in the U.S. has skyrocketed over the last decade, and utilities are not immune to this effect. These costs, like every other cost they incur, are passed along to consumers,” Whaley says.