Electricity Rate Increases – Why are prices going up so fast?

What’s the deal with electric rates going sky high recently?

Electricity prices have been skyrocketing recently at an alarming rate. We get so many questions from our clients about why that we wanted to dedicate a post to help you understand why. 

First, let’s lay out some stats:

  • Across the the U.S., retail electricity rates have risen 103% in the past 20 years.*
  • Over the past 5 years, the trend of rate increases escalated to 17% per year.** 

*All Information sourced from the Energy Information Administration of the United States. **Referencing 2018-2022. Jury is still out on 2023.

We attribute the recent spike in electric rate increases to grid maintenance, operation expenses, inflation, and the renewable energy transition. Let’s dive in:

A brief history of the electric grid as we know it:

Most people are unaware, but our power grid began in 1880 with the invention of two water wheels that were used at first to power about a dozen light bulbs, then to power a half mile radius. 

Over the next 10 years, isolated power generation systems were built to power local communities. The technology still wasn’t powerful enough to run electricity from community to community though.

In the 1890’s the use of alternating current was implemented, allowing electricity to travel much farther distances, and viola! The grid as we know it today was born. 

Grid maintenance, investments, and operating expenses:

Now, we’ve come a long way from just 2 water wheels and some local power plants, but the basic infrastructure is still running off of what was created back in the late 1800’s. Think about how much maintenance goes into a home built in 1880, and how expensive each thing that needs to be repaired costs due to the fact that nothing in the home is made the same way anymore. Every time something needs to be replaced or repaired, it’s either a custom project or complete overhaul. It’s the same thing on the grid. 

Today, over 70%*** of power lines and transformers are over 25 years old, which means a ton of money goes into maintenance and upgrades each year. One of the major updates recently has been replacing the old wooden power poles that are subject to rot and decay with something more permanent – steel. Now, imagine how much the cost of raw materials has gone up lately. Then think about how many electric poles you’ve seen driving around your neighborhood. Then amplify that to a statewide project… yeah. It’s a lot of money.

The alternative to steel poles is running electrical conduit underground. This entails ripping up roads and established areas to run conduit underneath. Another huge project.

Not to mention the fact that we don’t have enough transformers or power lines in the areas with the best new energy resources, so electric companies are spending a fortune to bring infrastructure to those areas. 

Check out our posts on grid hardening here and solar ready meters if you’re curious to learn about some of the improvements that are being made to the grid. 

***Information sourced from Building a Clean Energy Economy: A Guidebook to the Inflation Reduction Act’s Investments in Clean Energy and Climate Action, The White House, January 2023, Version 2, CleanEnergy.gov.

Renewable energy transition:

Many homeowners and corporations are transitioning towards cleaner, more sustainable energy sources like solar power, wind power, and hydropower. Xcel and Pacific Power, our two biggest electricity providers in Colorado and Oregon respectively, talk about their net-zero emission goals right on their website. In case you doubt us, we’ve included links for you at the bottom of this post.

With every client that makes the transition to renewable energy, there is one fewer client for a utility company to spread all of those maintenance, investment, and operating costs between. If just one person were to make the switch to renewable energy each year, the difference to an electric company would be nominal. But, when you consider the fact that Klick has helped almost 1,000 homeowners make the switch to solar so far in 2023 alone, you start to get the idea. 

Cost of fuel:

The grid as we know it is heavily dependent upon fuel sources such as coal, oil, and natural gas. Economic and geo-political influences create fluctuations in pricing that have a significant effect on your electric bill. Remember when gas prices spiked in 2022 because of the Russia/Ukraine war? That spike applied to gas prices for your utility provider as well – it’s all connected. 

All in all, it’s an outdated system that isn’t big enough for where we’re going as a culture, requires a lot of maintenance, and pumps carbon emissions into the atmosphere at an alarming rate. All while demanding that its customers pay more and more as time goes on.