Electric rates rise with weather risks, the energy transition, and growing load growth
Energize Weekly, September 25, 2024
After a decade of relatively flat rates, electricity prices surged in 2022 and have continued to rise to pay for the country’s energy transition, upgrading an aging grid, and meeting an increasing demand for power, according to two new analyses.
“As power supply ramps up to meet rising load forecasts, the potential for higher electricity prices may leave U.S. regulated utilities with greater credit exposure to social risk,” Moody’s Investors Service said.
Moody’s said that some utilities are already seeing some pushback from regulators on their requests for rate increases.
The average charge per kilowatt-hour has risen to 18 cents in 2024 from 13 cents in 2017, with three-quarters of the increase coming since 2020, Moody’s said, citing U.S. Bureau of Labor Statistics data.
There will be further “upward pressure on rates,” Moody’s said, as the demands for more and more electricity comes from the growth in data centers, industrial needs, and the electrification of the economy.
In 2023, state regulators approved $10.37 billion in rate increases, more than twice the $4.4 billion okayed in 2022, according to the U.S. Energy Information Administration (EIA).
From the start of 2023 through Aug. 12, 2024, regulators across the country have authorized 58 percent of the net rate increases that were requested by electric utilities, according to S&P Global Market Intelligence Capital IQ Pro.
“If the same ratio of rate increase requests is allowed for the rest of 2024, rate increases are on track to reach $8.9 billion (adjusted for inflation to 2023 dollars) this year,” the EIA said.
Two California utilities accounted for a third of the rate hike dollars in 2023. Pacific Gas & Electric was awarded a $2.5 billion increase, and Southern California Edison received a rate increase of nearly $1 billion.
Most of the money will go to wildfire mitigation and protection, including undergrounding wires, vegetation management, and several other wildfire-related initiatives.
California, however, is not alone in facing climate-driven risks. “Electricity prices will continue to rise in some regions to pay for elevated utility investments to upgrade aging infrastructure and harden networks to withstand extreme weather events,” Moody’s said.
The New York Public Service Commission, for example, authorized a $442 million rate increase for Consolidated Edison so that the utility can prepare the system for more frequent and severe weather events.
Another driver of increases has been the mandate for an energy transition to clean, carbon-free generation – which has often come through state legislation and policies.
“Some utilities are also investing in new renewable generation capacity like wind, solar and battery storage to meet demand for more carbon-free generation resources,” Moody’s said.
Part of the Con Edison rate increase is to help the utility meet New York state’s goals of generating 70 percent of electricity from renewable sources by 2030 and having zero emissions from the statewide electrical demand system in 2040.
ComEd was given a $759 million rate increase by the Illinois Commerce Commission for grid infrastructure development to comply with the Illinois Climate and Equitable Jobs Act, which has a goal to transition to 100 percent clean energy by 2050.
Moody’s expressed concern about whether this trend can continue. “As power supply ramps up to meet rising load forecasts, the potential for higher electricity prices may leave U.S. regulated utilities with greater credit exposure to social risk,” the bond rating agency said.
“Affordability is a key credit consideration and social risk for regulated electric and gas utilities because their rates are subject to a public regulatory process that can sometimes lead to adverse outcomes if regulators feel that customers have become too burdened,” Moody’s said.
In August 2023, the Connecticut Public Utilities Regulatory Authority awarded the United Illuminating Company a rate increase of $23 million for one year – less than one-fifth of the $131 million increase over three years that the utility had requested.
The authority citied customer affordability as a contributing factor behind its decision.
In June 2023, the Minnesota Public Utilities Commission granted Xcel Energy a 9.6 percent increase in rates – less than half the 21 percent the company was seeking.
“Demographic and societal trends are a common risk for all utilities because of public concerns about service affordability and environmental issues that could lead to adverse regulatory or political intervention,” Moody’s said.
