A New Look at Why Electricity Prices Have Gone Up in Your ZIP Code

Electricity prices rose faster than overall inflation last year. Yet at the local level, it’s been difficult to know why. Is it data centers? Renewables? Aging infrastructure? Or something else more mysterious? Everyone in the political system — including senior Trump officials — wants to blame their favorite energy bugbear. But if we actually want to fix the problem, getting the real answer matters.

Now, Heatmap and MIT’s Center for Energy and Environmental Policy Research are teaming up to answer this critical question. On this episode of Shift Key, Rob announces the launch of the Electricity Price Hub, a new public data platform that provides monthly, utility-level estimates of residential electricity rates and bills across the United States going back to 2021, broken down by generation, transmission, and distribution costs.

Joining Rob to discuss the tool are Brian Deese, an MIT Institute Innovation Fellow and the former director of the White House National Economic Council under President Biden, and Lauren Sidner, a senior advisor at MIT's Center for Energy and Environmental Policy who previously served as a senior advisor to U.S. Special Presidential Envoy for Climate John Kerry.

Shift Key is hosted by Robinson Meyer, the founding executive editor of Heatmap News.

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Here is an excerpt from their conversation:

Brian Deese: Bills matter in an absolute sense, but rates do matter in a relative sense, because people’s lived experience is also not just about ... It’s why inflation has the unsettling economic effect that it has, which is that as prices go up, even if they’re off a lower base — your point about Manhattan is a good one, which is it’s a good example of sort of high rates, low bills. But if the rate of increase of the bill is going up, then it also means that people are going to feel this more.

Robinson Meyer: And it’s complicated because from a utility revenue perspective, the bill is also what matters. And if you think about from a systems perspective, the utility is trying to recoup the costs of running its system and then make a profit. The volumetric rate is a technical mechanism it uses to like allot the costs of running its system, but actually, the size of the revenue that it receives from each household matters far more in terms of its ability to turn a profit, to cover its cost, to invest further in the system. That is the number that matters in terms of actual upkeep for the system — although I still find it requires a bit of a brain reformatting to remember that’s actually how the entire power grid works.

Deese: It’s why it has been so difficult for us to figure out how to credit efficiency within our system. Because in an overly crude way, if the bill matters, then the utility actually wants to avoid incremental efficiency, which is not true in practice. But the mechanism to actually credit efficiency, whether that efficiency is actually at the household level or is efficiency of the system, efficiency of the grid, capacity and storage — all of those things run into this basic challenge, which is, if you make the system more efficient, the utility often doesn’t get paid for it.

Meyer: This is one of the classic problems that I think we’re now struggling with in terms of governing utilities. I mean, when you looked at individual states or individual political jurisdictions, were there any that stood out where you were like, man, you can really see in this state the difficulty of utility governance or the difficulty of incentivizing utilities or customers to be more efficient in their energy use?

Lauren Sidner: A good number of states have adopted mechanisms that try to do away with the sort of internal disincentive to support efficiency. So very frequently, you’ll see charges that allow utilities to recover the costs of efficiency programs. But you will also, in maybe a more limited number of examples, see charges that allow utilities to recover the revenue that they lose because of those programs, or because of distributed energy or other policy-related aims that may be in place. I believe Arizona has that kind of recovery mechanism, but it’s not uncommon.

And then occasionally in states like California, you’ll see charges that will give a benefit to a customer for using less power. So it’ll be a tiered charge where if the customer kind of stays within the lower tier, they can actually get sort of a bill credit or something along those lines. So they sometimes even build it into the rate design in addition to just making sure the utility is made whole for supporting that kind of investment.

You can find a full transcript of the episode here.

Mentioned:

What Americans Really Pay For Electricity, by Brian Deese and Robinson Meyer

Factors Influencing Recent Trends in Retail Electricity Prices in the United States

Rob’s piece on power prices from last year: How Electricity Got to Be So Expensive

This episode of Shift Key is sponsored by …

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Music for Shift Key is by Adam Kromelow.