Why is my electricity bill so high? | family finances

It’s not just about your electricity bill – everyone is paying more for energy in their homes these days.

This has been the case for at least a year. According to the US Energy Information Administration, the average homeowner saw their electricity increase 4.3% last year, to 13.72 cents per kilowatt-hour. That was the biggest jump since 2008.

The crisis in Ukraine

We’ll start with this, since it’s on many people’s minds: Russia’s invasion of Ukraine.

The bad news? “The war is increasing the pressure on natural gas prices,” says Alberto Lamadrid, associate professor of economics at the Lehigh University in Bethlehem, Pennsylvania. Natural gas, says Lamadrid, is one of the main fuels used for electricity production.

Matías Vernengo, professor of economics at the Bucknell University in Lewisburg, Pennsylvania, agrees. “Natural gas and oil prices are pegged on international markets and have spiked a bit before the war, and decidedly after the heightened tensions. Russia is one of the largest exporters of refined oil and natural gas,” he says.

the pandemic

Yes, the pandemic continues to affect your electricity bill, according to Lamadrid.

“During the early part of the pandemic, many natural gas producers closed and when demand picked up, in many cases it was difficult for companies to obtain the necessary parts and equipment,” he says.

and with many people quit jobs For a variety of reasons, known as the “Great Renunciation,” natural gas producers have struggled to hire more workers, Lamadrid says. That has also contributed in a small but significant way to your rising electricity bill.

The weather

You can blame the weather for at least part of the increase in your electric bill in 2021, according to Lamadrid.

“Last year, there were several weather-related disruptions, like winter storm Uri in Texas, as well as supply chain disruptions that increased the price of natural gas,” he says. And as he will remember, natural gas is important for the production of electricity.

Still, the news may not be all bad. According to a US Energy Information Administration Short-Term Energy Outlook published on March 8, 2022, natural gas generation is forecast to fall from $4.16/MMBtu in 2022 to $3.80/MMBtu in 2023. (MMBtu stands for one million British thermal units, a measure of the energy content in fuel.)

But it’s not just that the weather disrupts the supply chain and causes the electricity bill to go up. Preparing for the weather is upping the numbers on your bill.

Power companies are under a lot of pressure to make sure blackouts don’t happen. To do everything they can to shore up their weak spots, utilities invest in their networks. For example, in California, many of the state’s utilities are spending billions of dollars to try to prevent power lines from starting wildfires.

“These also come at a cost to consumers,” says Don Whaley, president of OhmConnect Energy, based in Oakland, California. He is also the founder and former president of Direct Energy.

Whaley says the moves that many utilities make to have a “zero blackout” scenario means that costs add up, without necessarily being able to guarantee that the power will stay on.

Coal

It’s probably no surprise that coal is a factor in higher electricity bills.

Coal isn’t used as much for electricity as it used to be, Whaley says, but it still makes up about 22% of total US power generation, and prices, he says, recently jumped from $66 a ton of coal to $336. . by Ton.

Meanwhile, China and India have moved in the other direction, says Whaley, “generating 60% and 75% of their electricity from coal, respectively. While Russia accounts for only 5.6% of global coal production, it is worth noting that it accounts for 11% of global oil production, and the loss of this source of supply has had a profound impact on the energy market. world”.

Inflation

Inflation it’s one of the reasons your electric bill is going up, because inflation affects everything. As Whaley says, “There’s more to your electric bill than the cost of a (kilowatt-hour). Once generated, it has to reach your home or business. The cost of that delivery and the services required to provide a stable network has steadily increased over time.”

In other words, as it gets more expensive to do just about everything, running a utility gets more expensive.

Everything else, including medical care

It’s not just one thing that increases your electricity bill. It’s everything from regulations to supply chain to supply and demand.

“In our area, Pennsylvania, we are part of a restructured system that uses markets to determine the balance between electricity supply and demand,” says Lamadrid. “This is controlled by a regional transmission organization, PJM, which acts as a neutral entity that brings together buyers and sellers of electricity.”

So if it becomes harder to buy natural gas and oil, their prices go up.

But again, there is a ripple effect, and right now, many forces are at play that are causing electricity bills to rise.

“The combination of a world economy emerging from the lows of the pandemic with a resurgence in energy demand and the loss of Russian energy supply sources in the wake of its invasion of Ukraine has resulted in dramatic increases in the cost of electricity. energy in general and electricity in particular. Walley says.

Believe it or not, even the cost of medical care is driving up the price of your electric bill. After all, some of the power companies have tens of thousands of employees with health insurance coverage.

“The cost of health care in the US has skyrocketed over the last decade and utilities are not immune to this effect. These costs, like any other costs they incur, are passed on to consumers,” says Whaley.

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