As the years go on and prices increase, many of life’s necessities have increased proportionally or disproportionally with minimum wage.
In 1960, milk cost 49 cents, but the average wage yearly was $4,007. Nowadays, milk costs $3.54, while the average yearly salary is $87,864. Some may argue that this is proportional, but when you consider that in 1960 the minimum wage was $1, and in 2020 it’s $7.25, it no longer feels proportionate to the inflation of wages.
But the question renters and homeowners alike are sharing is, “what is the average electricity cost increase per year, and is it keeping up with inflation?”
Electricity is measured in cents per kilowatt-hour
Some just quick basic terminology before we break it down: electricity is measured in cents per kilowatt-hour. While cents per kilowatt-hour may seem like a small unit of measurement, it quickly adds up when you consider everything you have running in your house.
The average microwave oven that almost every American has in their house consumes about 800 watts. When used for a total of an hour in a day (assuming a family of four like microwave meals and popcorn) and the current electricity price is 13.31 cents per kilowatt-hour, that microwave oven costs 10 cents a day to run, 3.24 cents on your monthly bill and $38.89 a year to operate.
Using this same electricity price, we can determine a single air conditioner running in the south all day long is $58.33 a month, a heater running in the dead of winter costs $194.45 a month, a clothes dryer costs $24.30 a month, and a tv left running all day costs $6.80 a month.
Are Our Average Electricity Costs Per Year Going Up or Down?
Now that we have established that all these electronics in your house add up rather quickly, how does the average electricity cost compare to the inflation rates while wages have stayed the same?
According to many government agencies and entities separate from these electric utility companies, the average electricity cost increases each year. Relative to the cost of other things, electricity prices have gone down.
Still, because of the wages not keeping up, inflation has made it to where you are paying more than ever in electricity and will have less extra money for other things as a result.
For example, in Texas, the average electricity price has increased 67% in 14 years. Meanwhile, the inflation rate increased by 34% percent, while the average household income only increased by 24%.
To break down the numbers even further: the average electricity rate went from 7.47 cents per kilowatt-hour to 12.18 cents in 13 years in Colorado, but in that same period, the average income in Colorado only went from $49,397 to $61,303.
Electricity and Monopolies
One aspect that may have helped cap the price on the inflation rate of electricity was the deregulation of power companies allowing them to compete and have competitive prices within the power companies’ marketplace.
Recently there have been attempts to deregulate all utilities, not just electricity, water, trash, and recycling, by splitting the companies into two separate entities: a production company and a distribution company.
The deregulation means that the electric lines are owned by a distribution company such as Xcel Energy, PEPCO, Entergy, and more. The supplier (Pacific Gas and Electric, Consolidated Edison, etc.) pays rent to the electric line company to use their lines to deliver the electricity to consumers’ houses.
Like Payless Power, some companies work this into their costs and altogether remove the renting fee from their bills. However, they are only available in 16 states, not including Washington D.C. Unlike traditional electric grids, customers with Payless Power can lock in a summer rate for the winter months with the help of an Ambit agent.
This practice gives homeowners and renters the illusion of choice: they can choose if they are willing to pay the higher price and go for a cheaper producer. Therefore there is no longer a monopoly in an industry ripe with the potential for a singular market.
The Advantages of Deregulation
- Some companies work deregulation of power companies into their costs and remove the renting fee from their bills like Payless Power, for example. This is only available in 16 states, not including Washington D.C.
- Customers with Payless Power can lock in a summer rate for the winter months with a Payless Power agent’s help.
- Homeowners and renters can choose if they are willing to pay the higher price and go for a cheaper producer.
Electricity and the Government
While grid electricity costs fluctuate seasonally with higher prices in the winter and lower prices in the summer, solar and wind plants costs do not, but that comes at a cost.
From 2005 to 2015, the average electricity price has increased by 34%, while the cost of natural gas and coal have declined or have flatlined. Natural gas that powers utilities that run on electricity have reduced by 60%, and natural gas contributes to 32% of electric utilities.
With the Save the Planet movement and advances in science, wind and solar generation plants are slowly replacing coal and nuclear power plants. According to the Institute For Energy Research, wind and solar generation now represent 5% of electric utilities.
While the progress to more clean energy started with better science and understanding of how to harness clean power, previous U.S. President enacting or trying to pass legislation to push the electric companies.
Former President Barack Obama launched a major campaign to reduce carbon dioxide production with the Clean Power Plan. However, out of the 47 states affected by this initiative fought the legality of the movement and took the issue to the U.S. The Supreme Court issued a stay on the policy until The U. S. Supreme Court could hear arguments about the regulation’s legality.
Many argue that this is government overreach and that it will hurt the energy producers’ pockets and trickle down to hurt consumer’s pockets and jobs and move to other countries such as India and China. They so far have no such plans to reduce their carbon dioxide emissions by 2030.
The environment-conscious change comes with a massive drawback to consumers: these new methods are two times as expensive as their previous counterparts, with the wind plants being three times as expensive. Add on top of that the cost of fighting regulations and the regulations changes coming before many states are ready to accommodate them, and you have a recipe for a hefty price tag.
In 2018, former President Donald Trump enacted a corporate income tax cut. Sadly, according to utility experts, the payoff only led to some states seeing only $1 taken off their monthly electric bill, such as in Hawaii, to some seeing only fourteen dollars off their monthly bill, such as in Florida.
President Joe Biden has a climate plan worth $2 trillion that is supposed to take America’s current production of electricity produced from coal, natural gas, and petroleum products from 62% to 38% by the year 2035.
While writing this article, there are no clear answers to how much this will cost American households. Many experts say that changing 62% of electricity generation down to half will cost far more than what is currently being paid.
The Future of Wind and Solar Generation
- The Save the Planet movement and advances in science, wind, and solar generation plants are slowly replacing coal and nuclear power plants.
- According to the Institute For Energy Research, wind and solar generation now represent 5% of electric utilities.
The Price of Going Green
- Many experts say that changing 62% of electricity generation down to half will cost far more than what is currently being paid.
- The environment-conscious change comes with a hefty price tag: these new methods are twice as expensive as their previous counterparts.
- Wind plants are three times as expensive in addition to the cost of fighting regulations and the regulations changes coming before many states are ready to accommodate them, and you have a recipe for an expensive bill.
So What Does it Mean for the Future?
So with all that being said, what should we expect for the future? Despite the previous administrations attempting to help the American public with electricity and making it cheaper, it appears that electricity prices will continue to increase with these new measures, especially as the world turns towards more technology on a day-to-day basis.
The average electricity cost increase per year is expected to increase. The EIA expects electricity to go from 13.31 cents per kilowatt-hour in 2021 to 13.56 cents per kilowatt-hour in 2022.
In the year 1990, the average electricity cost was 7.83 cents per kilowatt-hour. When adjusted for inflation, the price was more like 13.06 cents per kilowatt-hour. In 2010, the most recent year available for analysis, the average electricity cost was 11.44 cents per kilowatt-hour when adjusted for inflation, it was 11.44 cents per kilowatt-hour.
While electricity prices are technically going down, thanks to inflation, electricity prices are technically higher than ever while wages stay the same. And with incoming legislation from both previous administrations and the present one, we can only expect that price to rise with time.