• April 12, 2022

    Inflation and Resource Scarcity Drove Electricity Rates Higher in 2021

    Heath Knakmuhs

Given widespread inflation across all sectors of the economy, it is probably not a surprise that electricity prices rose in 2021. Our annual Electricity Price Map reflects an overall increase of 5.6%—the largest year-over-year residential electricity rate increase in thirteen years. As always, there is wide variation between states, and specific policies in individual states can and do result in higher electricity rates. Given continued challenges across the economy, it is likely that electricity costs will continue escalating. Let’s take a closer look at this year’s analysis. 

As in years past, we built our electricity rate map utilizing the most recent calendar year price data released by the U.S. Energy Information Administration (EIA). The electricity price “bands” highlighted on the map reflect what consumers, businesses, and industry must pay for a standardized unit—or kilowatt hour (kWh)—of electricity.  We compile this data into our now familiar “heat-map” theme, which readily identifies the states with lower electricity prices (e.g. cooler shades of blue) while highlighting those where residents are paying more per unit to power their homes and run their businesses (orange and red hues). Yellow rounds out the middle ground between the lower- and higher-priced states. Our companion state price page sorts all fifty states and the District of Columbia according to their respective price bands and ranking within an individual band. The states with competitive (i.e. lower) retail electricity prices are grouped toward the left, while the states where individuals and businesses are enduring higher rates for their electricity use appear toward the right. 

Compared with past editions of our electricity map, there was a fair amount of movement between categories as compared with 2020 data. Unfortunately for consumers, the majority of this movement was driven by higher electricity rates, reflective of a 4.3% nationwide increase in residential electricity prices—the fastest year-over-year increase of these rates since 2008. Projections indicate that upward pressure on prices will continue through 2022.   

Meanwhile, the cross-sectoral electricity rates we use for our map (inclusive of residential, commercial, industrial, and transportation sector rates) saw an even higher 5.6% increase over calendar year 2021. This increase represents a significant uptick from the minor 2020 difference we recognized last year.  Only six states enjoyed minor decreases in 2021 electricity rates, and of those six, two states (Connecticut and Rhode Island) continue to experience some of the highest electricity prices in the country. Across 2020, nearly half of our states had experienced decreasing electricity rates. This dynamic is no more, with increasing electricity rates outpacing declines by nearly ten to one. 

Overall, nationwide average electricity prices topped out at 11.18 cents per kilowatt-hour (cents/kWh). Nebraska, North Carolina, North Dakota, Rhode Island, and Wyoming all appreciated modest electricity price reductions across 2021. Connecticut saw the largest year-over-year decrease of .35 cents/kWh. But unfortunately for the Constitution State, this reduction was only enough to move Connecticut from the 3rd to the 5th least-affordable electricity state in the nation. This decrease did enable the state to shed its reign as the most expensive electricity rate state within the mainland United States for the first time since we began our maps in 2012.   

Alaska and Hawaii retain the two highest overall rates, due largely to their geographic and electrical isolation and their perpetual inability to access the diversity of resource types that generally benefit the three large grid networks serving the lower-48 states. Nevertheless, when comparing 2021 electricity rates with that first 2012 price map, one striking observation is that anti-energy policies in some states have significantly narrowed the price gap between high-priced Hawaii and the most expensive states in the lower-48. Instead of the nearly 20-cent/kWh gap between Hawaii and #3 Connecticut reported in 2012, 2021’s most expensive mainland U.S. state—California—now only trails Hawaii’s rates by around 10.5-cents/kWh. Hawaii’s rates have moderated about 10% downward during this ten-year period, while California’s rates are now 143% higher than one decade ago.   

Policy matters, and similar efforts to reduce access to certain energy sources have kept most New England states, New York, and California in our dubious over-15 cent club. New England continues to prevent the development of new natural gas pipeline capacity, while California eschews all energy resources (even emission-free nuclear) except for wind and solar that have to be paired with expensive battery facilities to provide greater reliability. For the second year in a row, California experienced a significant jump in its average electricity rate (adding 1.76 cents/kWh!), thereby surpassing both Connecticut and Rhode Island to rank as the highest rate state in the lower 48, now nearing the 20 cent/kWh threshold.   

Unfortunately for Michiganders, the Wolverine State also continues its own march toward higher rates, increasing by .74 cents/kWh in 2021 on top of the .81 cent/kWh increase we reported for 2020.   

The states comprising our lowest electricity pricing tier—below 9 cents/kWh—benefit from rates less than half of that common across California and New England. Nebraska joined this group in 2021, helped out by its portfolio of renewables, nuclear and coal that insulated the state from the current uptick in natural gas prices. Arkansas and Kentucky edged into the more than-9 cents/kWh category due to their respectively greater reliance on natural gas. Idaho takes the prize for the lowest average electricity price in the nation with its preponderance of cheap and clean hydroelectric generation. Texas also departed from the lowest rate band with a nearly 1 cent/kWh increase in 2021 fueled primarily by the electricity rate pressures stemming from well-known February electricity shortfalls.

As we began to emerge from the dark (and largely shuttered) days of the pandemic, 2021 became a challenging year for global supply chains, and the “supply chain” for our electricity was not immune. Decreased resource production and lower natural gas inventories, layered upon price pressures on most other segments of the economy and surging demand, brought generally higher electricity rates to many Americans. Northwestern, mid-southern, and mid-Atlantic states generally continue to appreciate comparatively lower rates, while isolated Alaska and Hawaii continue to be joined by California and New England states with the highest domestic electricity rates.

Fortunately, there are a number of common-sense strategies that can guide our domestic energy policies in the direction of increased supply, and therefore reduced scarcity. The increasing development of renewable energy resources can provide additional downward impact on electricity rates due to the free fuel costs for these resources. Smart resource development and the retention of a diverse generation mix should help to blunt the continuing inflationary pressures on electricity prices as we progress through 2022.

Author’s Note: In order to eliminate any confusion that may arise when making a direct comparison of the 2021 electricity price map to the 2020 version, it is important to note that we utilize the U.S. Energy Information Administration’s (EIA) preliminary annual data, from the February edition of Electric Power Monthly, to develop our annual maps and rate comparisons. The EIA’s preliminary data is then subject to modification in subsequent months as EIA finalizes their annual data. We use EIA’s preliminary data in order to deliver timely information, but slight variances from the final figures do occur. Please note, however, that for the purposes of comparing year-over-year trends by state or nationally we have used EIA’s near-final 2020 numbers instead of the preliminary numbers used in last year’s pricing map to maximize the accuracy of our trend analysis.