Shocked by Your Electric Bill? 3 Reasons Costs Are Rising

Electricity prices have been on a roller coaster for the past few years, and right now they’re climbing — just in time for the start of winter.

But the national average hides a lot of regional variation. While three states actually saw electricity prices drop over that nine-month period, nine saw increases of more than 20 percent—Missouri saw a 37.4 percent increase and North Dakota a 30.3 percent increase. Another 19 states saw increases between 10% and 20%.

Prices are unlikely to go down anytime soon, even as energy affordability becomes a hot-button political issue.

U.S. electric utilities are for-profit companies that are strictly regulated by state public utility commissions. In the first nine months of this year, utilities proposed and received $34 billion in rate hikes — more than double the $16 billion during the same period last year, according to PowerLines, a nonprofit that focuses on regulatory and other issues affecting the U.S. power grid.

In an interview with NerdWallet, Charles Hua, founder and executive director of PowerLines, listed some of the main reasons for electricity inflation.

“Our poles and wires are getting older. It costs a lot of money to replace that infrastructure,” Hawa says. “And some of that is simply because the poles and wires in your backyard are just reaching the end of their useful life.”

At the same time, energy demand is increasing thanks to the AI ​​boom and other factors. Wind notes that there are proven ways to make our current energy grid more efficient without building volatility — but that doesn’t encourage efficiency.

“The thing to know about utilities is that they make a profit only on capital expenditures and not on operational expenditures,” says Hua. “So they have a structural incentive to build a bunch of new power plants and build a bunch of new infrastructure.”

“The other big factor is extreme weather events — hurricanes, wildfires, winter cold snaps, hurricanes — that have overwhelmed our energy and grid infrastructure in so many ways,” Wind says.

And it’s not just in place of damaged infrastructure, but upgrading it to make it more resilient because incidents like this are more common, he added. Extreme weather events also increase insurance and other costs for utility companies.

Natural gas is the largest single source of electricity in the U.S., accounting for about 43 percent of the electricity generated in 2023. Gas prices skyrocketed after Russia invaded Ukraine, and while they fell back after that spike, they’ve been rising again in recent months. Hawa notes that in many states, utilities can pass these increases directly to consumers.

Electricity costs are a relatively small part of the average household income – around 2% – although this percentage has been increasing since 2019.

What this means in dollar terms: From 2021 to 2025, the average monthly residential electric bill will increase from $121 to an estimated $156, according to Nida. That’s enough to throw households that are already struggling financially into further turmoil.

Even for consumers who can absorb the increase, sticker shock on monthly electricity bills is turning energy affordability into a political issue — the way egg prices were in the 2024 presidential election.

For example, in New Jersey’s aggressive November election both candidates made energy affordability a central issue in their campaigns, with Democrat Mickey Sherrill declaring a “state of emergency on energy spending” in his winning campaign.

According to the U.S. Energy Information Administration, wind is expected to increase exposure to the problem as winter approaches, especially as a growing percentage of Americans heat their homes with electricity.

“I think it’s just going to be a huge issue over the next three months, because it’s not only a huge issue, it’s an issue politically now, and so the marriage of the two is going to create a really unexpected storm about utility bill costs and affordability,” Hua says.

Hua described himself as “optimistic” that the increased focus on energy affordability will help pressure regulators to acquire more of the infrastructure already in place.

Wind says the grid we have is only 40% to 50% efficient. “Grid augmentation” technologies are available, including the addition of battery storage—what Hawa has collectively described as “Ibuprofen for the grid”—that would increase the cost by 60 percent to 70 percent at a much lower cost than building equivalent new capacity.

Such measures “make the grid more efficient and can lower costs and provide immediate relief to the system,” Hawa says. “It’s not going to solve every single challenge on the grid, but it will provide some relief.”

(Photo by Sean Gallup/Getty Images)