What's Causing Increasing Energy Rates?

With energy prices surging to the highest levels seen in 15 years, many people are feeling the pinch to their wallets.

Everything from groceries, gasoline and the costs of goods and services have soared as the country emerges from the supply and demand issues created by the pandemic.

The National Energy Assistance Directors Association (NEADA) estimates the average U.S. household will pay more than $1,200 to heat their home this winter (about $175 more than last winter). For the 40% of U.S. homes that use natural gas, heating costs could go up by a third, although that number could go down if temperatures remain mild.

One factor that hasn’t helped energy costs is Russia’s war with Ukraine. When Western countries imposed sanctions on Russia at the start of the war, Russia retaliated by reducing its natural gas supplies to Europe – causing a global shortage and price hikes.

When it comes to electric bills, things aren’t looking any better. According to the U.S. Energy Information Administration, an average homeowner’s electricity bill climbed 4.3% last year to 13.72 cents per kilowatt-hour – the largest jump since 2008. Electricity prices reflect the cost to build, finance, maintain, and operate power plants and the electricity grid as well as the cost to deliver electricity to your home. If you are using a for-profit utility company, your prices may also include a financial return for owners and shareholders.

Here are some other factors that now, or in the future, could also contribute to higher utility bills:

Inflation

The supply and demand balance and the uncertainty of what is occurring globally contribute to higher prices across the board.

Fuel costs.

Higher fuel prices result in higher costs to generate electricity.

Transmission and distribution system costs

associated with construction, operation, and maintenance of power lines (including damage repair from accidents or weather events.

Weather extremes

can increase demand for heating and cooling, and the resulting increases in electricity demand can push up fuel and electricity prices. In Sep. 2022, Hurricane Ian disrupted oil production as companies were forced to evacuate oil rigs in the Gulf of Mexico.

State regulations

Some states fully regulate prices, while others use a combination of unregulated prices (for generators) and regulated prices (for transmission and distribution).

Costs associated with building, maintaining and operating power plants

Even with rising costs, there are things you can do to help lower your energy bills:

• Use a smart or programmable thermostat. You can save as much as 10% a year on heating and cooling by simply turning your thermostat back 7°-10°F for 8 hours a day (for example, when you are at work or sleeping).
• Seal leaks around windows and doors. Consider adding insulation to attics and crawl spaces and other drafty areas in your home.
• Use energy-efficient LED light bulbs.
• Run large appliances during evening hours.
• Clean your air conditioner and furnace filters regularly.
• Wash clothes in cold water.
• Use low-flow showerheads and don’t take long hot showers.
• If your community is a member of an energy aggregation service, consider joining it to save money via their group buying power.

To learn more about how you can lower your utility bills, sign up for NOPEC’s Energy Savings Center to receive energy saving tips, home maintenance reminders, and chances to win smart home technology.