Electricity prices rise as delivery costs increase

The price of electricity rose 1.5% between 2006 and 2016 — similar to the 1.6% annual rate of inflation over the same period, according to the U.S. Energy Information Administration. But the price U.S. power companies pay for natural gas used to generate electricity has fallen 8.4% since 2006.

Retail electricity prices have not followed the price the power companies pay for fuel used to generate electricity because of other costs related to production and delivery of electricity in the United States.

The cost of electricity includes generation, transmission, distribution, plant-in-service additions and plant operations and maintenance, “Over the past decade, the portion of total electricity costs attributed to power production for most utilities has decreased from 69% to 54%, while the portion associated with delivering that electricity to customers has risen,” according to the EIA. “These costs are based on financial reports filed with the Federal Energy Regulatory Commission by major utilities and represented about 70% of all electric utility spending.”

Production costs include fuel costs; nonfuel costs; the costs of building, upgrading, operating and maintaining generators; and the costs to purchase power from independently-owned generators or from power markets. Nonfuel costs have increased slightly over the past decade, while fuel and purchased power costs have fallen as a result of the decline in natural gas prices.

Electricity delivery costs have risen to 3.2 cents per kilowatt-hour in 2016, from 2.2 cents per kilowatt-hour in 2006. Some of these costs include transmission infrastructure, distribution equipment and customer billing.

Transmission and distribution costs have risen because aging electric infrastructure has been replaced with equipment that allows utility companies to repair faults remotely, read meters remotely and to communicate to customers more quickly about outages and to resolve them faster.