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The Numbers Are In, And They Don’t Lie: The Price Of Electric Service Is Falling

January 17, 2017

A number of recent reports and analyses have shown that by almost any measure, the cost of electricity service fell noticeably in 2016. Data from the U.S. Commerce Department, the Energy Information Administration, the Labor Department, and the Energy Department all show that wholesale and retail prices have dropped, that residential and commercial and industrial customers are paying less, and that power is cheaper now than it has been in recent years.

Commerce Department, Bureau of Economic Analysis (BEA)
Every month, the BEA publishes a detailed look at Americans’ personal spending as a way to estimate the U.S. Gross National Product. Public Utilities Fortnightly dug down into the recent numbers and discovered that electric service has never been less expensive than it was in November 2016.

Total spending for the month was roughly $12.97 trillion, with $168 billion of it going to electric service. That amounts to about one-sixth of $1 trillion. And that amounts to the lowest percentage of U.S. consumer spending on electricity in history – 1.297 percent – below the previous mark of 1.31 percent.

As Fortnightly correctly points out, the less Americans pay for power, the more they have for other purchases – and the more of those goods and services they buy, the better for the economy.

Labor Department CPI Tracking
Since 1913, the U.S. Labor Department has been tracking trends in the prices of goods and services that Americans typically purchase – the Consumer Price Index (CPI). Public Utilities Fortnightly also analyzed the most recently available numbers and held them up against the CPI, finding once again that the cost of electric utility service has effectively dropped.

Fortnightly’s deep dive into the data revealed that while the CPI rose 1.5 percent from September 2015 to September 2016 nationally, it increased only 0.1 percent for electricity. In the Northeast, the respective gap was 1.3 and 0.3 percent. But in the South, where the overall CPI went up 1.4 percent, the electricity CPI fell 2 percent – a difference of 3.4 percent. The trend was the same in the Midwest, where regional CPI was up 0.2 percent, but electricity CPI was down 0.8 percent.

The publication went on to compare five-year CPI figures and reached a similar conclusion. From September 2011 to September 2016, the overall CPI rose 6.4 percent. But during that same time frame, the CPI for electricity only rose 4.7 percent.

“As changes in the price for electricity lag changes in the price for all goods and services,” Fortnightly stated, “electricity is effectively cheaper.”

Energy Department Electricity Pricing
Fortnightly looked at September numbers from the Energy Department, too, and uncovered some clear parallels to the Commerce and Labor data.

When not adjusted for inflation, the price of electric service for residential customers in September 2016 was 1.2 percent lower than it was in September 2015, and 0.6 percent lower than the September 2014 figure. When inflation was factored in, the difference was more pronounced: 2.7 percent lower than in 2015 and 2.1 percent lower than in 2014.

The same held true for C&I prices. Not considering inflation, they were down 2.8 percent from September 2015 and 4.1 percent from September 2014. With inflation, they fell 4.2 percent from last September and 5.5 percent from the previous September.

“That’s really something,” the publication reported. “Residential customers are paying over 2 percent less for every kilowatt hour than two years ago. And commercial and industrial customers are paying well over 5 percent less than two years ago.”

EIA Wholesale Price Data
On Jan. 11, the U.S. Energy Information released wholesale energy price data for the first quarter of 2016, and reported that they had fallen considerably due largely to the sustained low cost of natural gas. The decreases varied by region from the same period in 2015, from 24 percent in California to 64 percent in New England. Monthly wholesale prices for the remainder of the year were down slightly from the 2015 figures.

EIA also reported that the cost of natural gas delivered to generators averaged $2.78 per million Btu over the first 10 months of 2016, a 17 percent decline in price from the same period in 2015.

A Good Time To Lock In Prices
Given the trends, data, and analyses, this is obviously a good time for electricity consumers to lock in prices. Fixed-price contracts, which are not subject to market volatility, provide a shield against commodity price spikes, allowing for greater budget certainty and no sticker shock. While no one can predict with absolute certainty what the market will look like in six months or a year, the low current cost of service provides a strong incentive to act now and maximize the advantages of today’s price climate.