Updated: Mar 4
The Good Ol' Days
Electricity used to be cheap, just like gasoline and cigarettes. We didn't think much about it, it was just always there, like water and air. Below is a Statista graph based on a report by US Energy Information Association (EIA), demonstrating the national trends for residential electricity prices since 2000:
The overall change was a 64% total increase over 20 years, an average of 3% annually, slightly lower than general inflation. As an example, if your power bill was $50 a month in 2000, it would be $82 a month in 2021. In the last year, however, the national average for electricity went up 11.9%. If your average monthly power bill was $85 in 2022, it will be $95.12 a month in 2023, and rates are still rising.
What changed recently? There are several factors, and each is relevant to considering future trends.
In my home state of North Carolina, Charlotte-based Duke Energy grew from James B Duke's land development projects along the Catawba River more than a hundred years ago to the second largest utility company in the U.S., currently valued at approximately $24.7 billion. Over more than 100 years, Duke Energy purchased and merged with dozens of utility companies, most recently Raleigh-based Progress Energy in 2012 and Piedmont Natural Gas in 2016. By swallowing up the competition, Duke Energy eliminated consumer choice.
Not only did Duke Energy change the landscape with the Lake Norman system along Catawba River, Duke is also responsible for the 2014 coal ash spill into the Dan River basin, a major environmental disaster that contaminated a 70 mile area of the Dan River (a source of drinking and agricultural water throughout North Carolina and Virginia) with unburned carbon and various metals that are released from coal burning, including arsenic, cadmium, chromium, copper, lead, mercury, nickel, selenium and zinc. Duke Energy pled guilty to the EPA's charge of criminal negligence and related $5 million in fines, as well as committing to millions more in continued clean up of the toxic sludge leaked into the water.
This is what a monopoly looks like:
A New York Times article from earlier in 2014 claimed Governor Pat McCrory (a former employee of Duke Energy) had consistently pressured the North Carolina Department of Environmental Quality (NCDEQ), to block attempts by environmental groups to sue Duke Energy to address previous coal ash reservoir leaks. Based on public reports filed by Duke Energy under federal law since the spill, coal burning plants and coal ash reservoirs across the state have leaked heavy metals including arsenic, beryllium, cobalt, lithium, thallium, radium 226 and 228, molybdenum, and selenium at levels that exceed federal groundwater protection standards.
And despite a current company value of about $25 billion, Duke Energy petitioned the North Carolina Utilities Commission (NCUC) to pass the $8-$9 billion estimated clean up and coal plant shutdown costs to residents in the form of a rate hike to reduce company profit loss for shareholders. In 2021, the North Carolina Supreme Court ruled Duke would not be forced to shoulder the entire financial burden, but could not profit from the clean up, allowing the NCUC to reject the requested 6% rate increase.
According to WFAE:
Regulators reduced Duke's request to charge customers $342 million for cleanups in 2018 and 2020 by $224 million. The settlement also reduces by $108 million what Duke can charge customers for cleanups through 2030. And it requires Duke to pass on to customers any money received from its insurance companies in ongoing lawsuits over who should pay for coal ash cleanups.
Although this sounds like a regulatory win for consumers, Duke Energy customers have to shoulder some of the cost of clean up to please Duke shareholders, and Duke Energy has found other ways to convince the NCUC to approve rate hikes of more than 10%, including the cost of shutting down coal plants under the state's new Net Zero plan, which I will discuss below.
The shocking rise of energy costs
Inflation rose dramatically in 2022, with energy costs rising more quickly than most other commodities. As the image above from US Bureau of Labor Statistics demonstrates, the cost of electricity rose an average of 11.9% nationwide in 2022, and the cost of natural gas rose an astounding 26.7%. The international price of natural gas went up because of a supply chain shortage caused by the conflict in Ukraine and the associated sanctions that halted Russian export of natural gas.
The rising cost of natural gas affected the price of electricity because many utility companies either use natural gas in the operation of power plants or burn natural gas to produce electricity. Because natural gas burns more cleanly than other fossil fuels and has cost less historically, utility companies have increasingly employed natural gas for energy production since the early 2000s, as demonstrated by the EIA graph below:
For example, Duke Energy in North Carolina shifted to burning natural gas instead of coal because of the costs associated with coal ash spill clean up and the low price of natural gas. The unprecedented cost hike for natural gas caused an unpredictable rise in operating costs for Duke Energy and other utility companies across the country. Those for-profit utility companies are now asking state utility regulation commissions to approve rate hikes to pass along those operating costs to consumers to avoid profit losses, and those rate increases have resulted in the average cost of electricity rising 11.9% over the last year.
The cost of natural gas is still high and current rate increase requests refer to last year's increased expenditures, so there is ample evidence to suggest rates will continue to increase dramatically nationwide.
Here are a few examples from major utility companies and co-ops alike:
El Paso Electric requested an 11-13.14% increase (about $10-$11/month) for customers this year due to increased costs related to natural gas prices, but settled for a lower average $2.20/month increase; however, the utility increased the line item "fuel charge" (which isn't regulated) by 40% last summer.
Florida Power and Light (FPL) received approval to increase rates about 10% in 2023 due to natural gas prices and hurricane repair costs.
The city of Winterville, North Carolina last fall approved a $0.05/kWh rate increase for its co-op due to the unforeseen increased cost of natural gas, which for a home of average usage (~10,000 kWh/year) would be an extra $500 a year on their electric bill.
TECO will raise rates about 11% in 2023 due to the rising cost of natural gas.
In California, PG&E expects to raise natural gas rates and electricity rates, somewhere between...18% and 50%?
And in North Carolina, Duke Energy Carolinas just requested an increase between 16.2% and 16.6% by September 1, followed by another 0.4% increase next January (which follows a 9.6% increase last September) to cover the increased cost of natural gas; and those increases coincides with a SEPARATE request to increase rates 18% over the next three years to cover infrastructure improvement costs, which include the costs of shutting down coal plants.
As long as natural gas prices stay high or continue to rise, the cost of electricity will rise, unless dependency on fossil fuels ends.
The Clean Energy Solution
The Clean Energy boom is happening. According to EIA, natural gas contributed to the production of 1,700,000 Gigawatts of energy last year, compared to 1,000,000 Gigawatts produced by all renewables combined, but renewables are on the rise in popularity and investment (particularly wind and solar):
Here is a broad view of international, national, and state-level investment in green energy:
The Paris Agreement: in 2015, 196 parties at the UN Climate Change Conference (COP21) in Paris, France, signed a legally binding international treaty on climate change, with, among other goals, a "net zero" carbon emissions standard by 2050. Net zero refers to a combination of carbon emission reduction, carbon production offset, and initiatives like carbon taxes and credits that amount to a "net" elimination of carbon emissions.
Inflation Reduction Act: among other things, the IRA provided tax incentives for homeowners to invest in improved home efficiency and green energy, including increasing the federal income tax for solar to 30% and adding a separate federal income tax credit of 30% for storage systems, as well as a number of tax incentives for energy efficient appliances, improved insulation, doors, and windows, and adding technology like smart thermostats. The IRA also invested in domestic green technology for American made solar panels, electric vehicle (EV) manufacturing, and an EV charging infrastructure. All of these initiatives contribute to an improved goal of 31-44% reduction of carbon emissions for the US by 2030:
State level initiatives: many individual states in the US have passed laws to support the Paris Agreement; in North Carolina, HB951 was passed in October 2021 to mandate goals of 30% reduction of carbon emissions by 2030 and net zero carbon emissions by 2050. Because roughly 25% of carbon emissions produced annually are due to energy production, Duke Energy is the primary agent in the state plan. Duke Energy plans to spend around $145 billion over the next 10 years to upgrade the state's energy infrastructure and make the change in energy production from coal and gas burning plants to solar, wind, and nuclear production of energy ahead of 2050.
Change is expensive
These initiatives have varied impacts on the average consumer. Tax credits benefit homeowners who can afford to make these investments, but can hardly benefit those who do not own property. The Fed rate hikes have also steadily increased the cost of financing, limiting the full benefit of the tax credits. The giant utility companies are making investments in updating the nation's energy infrastructure from analog to digital, and improving security to protect against cyber attacks and terrorism; these companies are also investing in clean energy production like solar and wind farms and other technologies.
During the transition, the reliance on natural gas will cause electricity rates to steadily climb. If the cost of natural gas does go down, the cost of electricity will continue to rise to compensate for the cost of upgrades and transition.
Burning fossil fuels for energy is not sustainable. Burning coal releases harmful toxins into our air and drinking water, and the volatile market of fossil fuels internationally makes our energy costs unpredictable. As supply diminishes over the next few decades, costs will skyrocket unless we reduce demand.
Investing in a green future is good for our health, our environment, our continued sustainability, and the economy; but, in the short term, change can be expensive. Just as federal and state taxes have increased the cost of tobacco in order to deter smoking and pay for related health programs, the international, federal, and state net zero initiatives move subsidies away from fossil fuels and apply them to green energy. In the short term, this will mean a major investment that will be passed along to consumers; in the long term, this will mean fossil fuels will become more expensive, and green energy will be more affordable by comparison. This is happening now, in fact, as energy costs rise dramatically, and green energy is not affected.
Switching to green energy provides a stable cost that protects families from inflation, making it more stable and cheaper to sustain in the long run. The more we shift to green energy, the cheaper our energy will be to produce. For the average homeowner, this means taking control of your energy by taking advantage of the tax incentives, and establishing independence from the energy monopolies.
As a recent opinion in industry publication Utility Dive states:
Today, the U.S power system is built upon energy infrastructure that was invented at the turn of the last century, leaving our power industry dependent on an outdated system of subsidies and monopolies. The long-standing utility monopoly model is a relic from a time when it was deemed a social good to have a single wire going to a single home, and when consumption of power was ever-increasing. Times have changed. Solar, batteries, smart generator sets, artificial intelligence, and software have become increasingly available to provide power service directly to homes and businesses. Yet our current power system’s monopolistic ecosystem continues to thwart price signaling, technological improvements, consumer choices and technological advancements.
Energy consumers are demanding more sustainable and reliable options with better customer service — and they want it all at consistently lower costs. They want the power to choose and finally take control of their energy. This can only be achieved by allowing competition in the power industry.
The end is near for monopolies: We must liberate the US power consumer, William J (John) Berger, July 8, 2022
If we participate in this shift to green energy, as Berger says, the future of our national energy infrastructure could look "much like the internet does today: intelligence will be pushed to the endpoints of the power system, with the American home taking on the role of generation, storage, energy management and grid support." Parts of the nation already look like this model, and many communities are finding greater energy stability by shifting to their own energy production in areas where the utility grid is at risk. A decentralized energy system is cheaper to maintain and better protected from outside attacks on the grid. Solar, wind, and geothermal production with battery and/or generator backup systems spread across a community would be durable, reliable, and self-contained in an emergency. And none of these systems releases carbon into the atmosphere or arsenic into the groundwater.
I hope this is informative and helpful for homeowners thinking about solar and improved energy efficiency. If you have any questions about energy independence for your family, feel free to contact me. I'm here to help!
Jamie Duncan is an energy consultant providing virtual consultations nationwide. Please click the button to learn more or set up a virtual appointment to discuss solar for your home.
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