States Need to Answer for Stubbornly High Electricity Bills
While fuel prices are plummeting, electricity prices are staying stubbornly high. This is bad news particularly for tens of millions of low-income Americans. It also puts an unnecessary drag on economic growth.
Natural gas prices, as measured by the benchmark Henry Hub Natural Gas Spot Price, have fallen nearly 50 percent since the end of 2017. And yet according to the U.S. Energy Information Administration, the average American family paid 4 percent more per kilowatt hour of electricity in November 2019, the most recent period for which information is available, than in December 2017.
According to the U.S. Department of Energy, low income families spend 8.6 percent of their income on energy, three times more than non-low-income households. And it hurts.
A September 2018 study by the U.S. Energy Information Administration found one in five American households goes without food or medicine at least once a year to stay warm in the winter or cool in the summer. Seven million households face this decision nearly every month.
Simply put, those who can afford Teslas can deal with higher electricity prices. But many senior citizens, the poor and those struggling to get by are hit hardest.
In addition to fuel, consumers pay to maintain and improve the electric grid. And politicians like to insert hidden taxes for renewable energy subsidies and general revenue purposes into electricity bills. Deciphering one’s energy bill often requires being determined to plow through opaque jargon and bureaucratic-filled language.
With natural gas accounting for 35 percent of the nation’s electricity fuel generation, it drives down the price of other fuels. Lower natural gas prices mean lower nuclear and coal prices.
In fact, it is disturbing that many high natural gas consuming electricity states have also had the highest price increases since the end of 2017, when natural gas prices have fallen 50 percent.
Massachusetts, for example, gets 67 percent of its electricity from natural gas. Yet, since December 2017 to November 2019 (the most recent period for which information is available), the average retail price of electricity rose 11 percent for a Massachusetts family, according to the U.S. Energy Information Administration. California, which gets more than 40 percent of its electricity from natural gas saw a 9 percent increase. New York, with nearly 40 percent of its electricity from natural gas, saw a 6 percent increase.
And, in each of these states, the price of electricity was already a minimum of 36 percent above the national average in December 2017. Thus, these above average price hikes come from an above average base.
The White House Council of Economic Advisers has identified a key reason for New York’s high natural gas prices: state policies. It found, “New York’s failure to approve new pipelines causes consumers in New York and New England to pay an estimated $2 billion more in energy costs each year, or $233 for a family of four.”
There are many factors affecting each state that determine what its retail price of electricity will be. These include renewable energy purchase mandates as well as the hidden taxes and infrastructure costs.
Utility regulators and policy makers nationwide, and especially in high natural gas consuming states like Massachusetts, New York and California owe consumers an explanation for high prices. More importantly, they should look for steps to reduce such prices.
This will be increasingly important because in the coming years America will need to spend significantly more to improve the quality of its electric grid and better protect it from cyber threats. Much of the grid is more than 50 years old and has been neglected. And national security experts have made clear that our enemies are mapping and looking for ways to attack our electric grid.
Today, and in the future, Americans deserve affordable electricity. And they deserve answers to why prices today are so high.
Paul Steidler is a Senior Fellow with the Lexington Institute, a public policy think tank based in Arlington, Virginia.