Natural gas is cheap. Why electricity isn't.
- By Avi Salzman,
- Barron's
- – 04/19/2024
Electricity costs have been surging, up 0.9% on a seasonally adjusted basis in March over February, and 5% on an unadjusted year-over-year basis, according to the latest consumer price index. Last year saw a 10.2% annual increase.
That’s surprising, given that the top input cost for electricity—natural gas—has gotten cheaper. Natural gas generates 42% of U.S. electricity. Gas prices spiked after Russia invaded Ukraine, as more U.S. gas went to Europe to replace Russian supplies. But prices have since fallen under $2 per million British thermal units, down from above $9 in 2022.
In some states, utilities cut electricity prices as prices fell; others raised rates months after prices dropped. One reason for the price hikes is that about half of the average consumer bill reflects transmission and distribution costs, which are rising fast as electricity demand grows from electric vehicles and AI-focused data centers.
Some utilities have been asking regulators for permission to raise prices. In Indiana, Duke Energy (
Price pressure is bound to escalate as natural-gas prices rise again in the years ahead and demand grows. Says David Springe, National Association of State Utility Consumer Advocates executive director, “It’s going to get a lot worse.”