Electricity Markets

Retail Residential Electricity Rates Rose At Fastest Rate Since 2008: EIA

Average retail residential electricity prices rose to 13.72 cents per kilowatt hour (kWh) in 2021, the biggest increase since 2008, according to data from the Energy Information Administration (EIA).

The 4.3 percent increase in the average nominal retail electricity price paid by U.S. residential electric customers from 2020 to 2021 was driven by higher prices for most types of energy commodities, including the cost of power generation fuels, especially natural gas, according to the EIA’s latest Electric Power Monthly report.

The cost of natural gas delivered to U.S. power plants in 2021 averaged $4.98 per million British thermal units (MMBtu), more than double the $2.32/MMBtu average cost recorded in 2020, the EIA said.

Severe weather, including a major 2021 winter storm in Texas, led to “significant energy disruptions” and contributed to higher average electricity prices, EIA said. In addition, extreme cold weather in Texas and other parts of the central United States restricted the flow of natural gas for power generation and many wind turbines froze, constraining energy supplies. Those constraints created price spikes in the wholesale electricity market in Texas and throughout the United States, raising electricity retail prices for some customers, the agency noted.

The February 2021 extreme weather event, known as Winter Storm Uri, affected utilities and consumers in the Electric Reliability Council of Texas (ERCOT), the Southwest Power Pool (SPP), and Midcontinent Independent System Operator (MISO) and resulted in high gas prices.

In the aftermath of the storm, a November 2021 report by the Federal Energy Regulatory Commission (FERC) and the North American Electric Reliability Corporation (NERC) recommended that Congress, state legislatures, and regulatory agencies with jurisdiction over natural gas require those facilities to implement and maintain cold weather preparedness plans.

Looking forward, the EIA in its latest Short-Term Energy Outlook forecast that residential retail electricity prices will continue to rise in 2022, but at a slightly slower rate.

This year, the agency expects the average nominal price of electricity will increase by 3.9 percent to 14.26 cents/kWh, a rate similar to EIA’s assumption of a 4 percent rate of inflation for next year.

The increase in the Consumer Price Index was 4.7 percent in 2021.