Electricity rates are on the uptick across the country. According to a report by the U.S. Energy Information Administration (EIA), 78 of 89 utilities proposed a rate increase to their regulators.
To put this number into perspective, the 89 utilities that requested rate changes from their regulators represent almost half of the entire electricity utilities in the country.
In accordance with the law, regulated electric utilities need permission from their regulators before any rates are changed. Historically though, regulators only approve a fraction of the requested rate changes. This means there’s a real disparity between the proposed rates and the delivered changes.
But overall, this begs the question, why were so many regulated utilities requesting price increases in the past year?
Why Rate Changes Are Being Requested
Regulated utilities have needed to request higher rates because of infrastructure costs, electricity generation and delivery, as well as equipment-related costs (among others).
As the EIA states in the aforementioned report, the surging rate increases is a result of higher electricity delivery demands. Electricity delivery is getting more expensive because modern systems for customer information and billing, sustainable energy modifications to equipment, and a more modern grid require a lot of financial support.
Electricity generation also factors into the rising asking price for electricity rates: nuclear power plants are expensive to operate and maintain as well as ramped up environmental compliance costs.
Events That Lead to Rising rates
When considering large events that necessitate a rise in rates, look no further than these examples provided by the EIA. They state that there haven’t been this many requests for rate changes since the Oil Embargo of 1973-1974, the partial nuclear meltdown at the Three Mile Island plant, and the PURPA Act of 1978.
And recent events like Hurricane Sandy and the Northeast Blackout of 2003 have meant that regulatory bodies are allocating more money for improving the grid and less for reducing the costs for electricity generation and delivery for utilities.
But these complications and rate proposals don’t affect a huge sector of the electricity industry: the deregulated electricity providers in Texas. In fact, none of this is really the case for retail electric providers (REPs) in deregulated parts of Texas.
The Difference in a Deregulated Market
If a REP in a deregulated market wants to adjust their own rates to offset infrastructure costs or increase their revenue, they can do that. But local competition naturally curbs any sharp spike in rates.
Because electricity in deregulated parts of Texas is customer-centric, there are natural pressures to keep prices low. After all, higher rates will drive customers away to the nearest competitor.
So, as the proposals for rates keep increasing for regulated utilities, the invisible hand of the free market continues to self-regulate in various parts of Texas.
We will see how 2019 shapes up as the data is collected.