U.S. Electric Utilities Raise Prices to Recover Capital Outlays

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Electric bills are rising by as much as 10% to 20% for residential customers, as U.S. utilities seek to recover hefty capital outlays to make their electric systems more reliable and resilient; build new electric-generation capacity; retire fossil-fuel generators; construct new transmission and distribution infrastructure; install new information-technology and operational-technology systems; and protect customers from wildfires. Some utilities still are trying to recover their outlays for restoring power after severe storms.

Not every U.S. electric utility is raising its prices, but those that are holding fast or even decreasing their prices are the exception to the rule.

Fuel outlays, which have been volatile in recent years, typically are treated differently than capital projects. Many state regulatory panels allow utilities to automatically adjust the fuel component of customers' bills on a regular basis, without hearings. Utility profits do not increase when fuel prices rise; instead, they are passed through to customers without any markup.

Utilities' price increase requests, and decisions by state utility regulators, have drawn the fire of consumers, business groups, advocates for low-income customers and retirees, and, in some cases, environmental advocates.

Here is a selected summary from around the U.S. of recent utility price increases.

Portland General Electric Company (NYSE:POR) (Portland, Oregon): Residential electric prices rose 18%, the highest increase in more than two decades, effective January 1. "The rate increase reflects the need to invest in the reliability and resiliency of PGE's system, advance policy objectives like equity and clean energy, and the reality that PGE faces inflationary pressures and high market power prices," said Megan Decker, chairperson of the Oregon Public Utility Commission (Salem, Oregon), in a statement. "We recognize how significant this rate increase will be for families and businesses."

Pacific Gas & Electric Company (Oakland, California), a unit of PG&E Corporation (NYSE:PCG): California utility regulators approved a 13% average increase for residential customers last November. A large portion of this rate case concerned recovery of capital outlays to bury electric lines in areas that are prone to wildfires. For more on that issue, see August 17, 2023, article - PG&E Increases its Use of Technology to Minimize Wildfire Risks.

On the last business day of 2023, the utility filed another request to increase electricity prices. Carla Peterman, chief sustainability officer and executive vice president of corporate affairs for PG&E, said this in a statement: "The investments we plan in 2024 and beyond focus on three goals: keeping our energy system safe and reliable for our customers, meeting growing energy demand, and adding even more renewables to our energy mix."

Evergy Incorporated (NASDAQ:EVRG) (Topeka, Kansas): Kansans served by this utility will pay about 4% to 5% more for their electricity, depending on their community, to recover outlays for power plant investments and system upgrades.

New York State Electric & Gas Corporation (Binghampton, New York): Residential customers will pay about 22% more for their electricity and 6% more for gas over the next three years, according to an October decision from New York utility regulators.

Rochester Gas & Electric Corporation (Rochester, New York): Electricity prices will rise about 16% for residential customers over the next three years, while natural gas prices will rise 11% for residential customers over that same time, following an October decision by New York's utility regulators. Both NYSE&G and RG&E are units of Avangrid Incorporated (NYSE:AGR) (Orange, Connecticut), which in turn is owned by Iberdrola (Bilbao, Spain). The two New York utilities said they plan to spend about $2.1 billion replacing aging poles, wires and substations, trimming trees that can lead to power outages and upgrading systems to detect outages and restore power after major storms, which are occurring more frequently.

Duke Energy Corporation (NYSE:DUK) (Charlotte, North Carolina): Last October, about 1.5 million customers in eastern and central North Carolina, which is served by the Duke Energy Progress business unit, absorbed the first of three annual electric price increases that will total about $498 million.

Xcel Energy Incorporated (NASDAQ:XEL) (Minneapolis, Minnesota): Last September, the Colorado unit of this holding company filed a $15 billion multi-year clean power investment plan with Colorado regulators. For more on the Xcel proposal, see September 25, 2023, article - Federal Tax Credits to Pay for Most of Xcel Energy's Proposed $15 Billion Clean Power Plan. But in a preliminary ruling last month, the Colorado Public Utilities Commission (Denver, Colorado) sliced about $3 billion off that request.

In Pennsylvania, where customers can choose their suppliers of electricity and natural gas, electric commodity costs for privately held Duquesne Light Company (Pittsburgh, Pennsylvania), fell about 9% last November, while Penn Power (Zelienople, Pennsylvania), a unit of FirstEnergy Corporation (NYSE:FE) (Akron, Ohio), increased about 6%. Twice a year, in November and May, Pennsylvania utility regulators hold an "open season" where customers can switch suppliers.

Changes to base rates, which include capital outlays for infrastructure, still must be approved by Pennsylvania's utility regulators. On December 29, 2023, Peoples Natural Gas (Pittsburgh, Pennsylvania), a unit of Essential Utilities Incorporated (NYSE:WTRG) (Bryn Mawr, Pennsylvania) asked for a $156 million infrastructure-related price increase.

"Over the last decade, we have replaced more than 1,000 miles of pipelines with state-of-the-art infrastructure, creating a safer, more reliable gas delivery system for our customers," said Michael Huwar, the president of Peoples Natural Gas, in a statement. "Modernizing our system also cuts down on greenhouse gas emissions, and the work we've done over just the last few years has reduced Peoples' emissions by 17% from 2019 levels. In 2023 alone, we replaced 181 miles of pipe, with plans to replace roughly 2,000 more miles by 2034."

DTE Electric (Detroit, Michigan), a unit of DTE Energy Company (NYSE:DTE) (Detroit, Michigan): Customers were hit with a $368 million price increase last month, about 6.4%. The utility had initially requested significantly more than that--about $622 million--but regulators sharply lowered the increase. DTE Electric officials said the utility needed the increase to pay for "planned infrastructure investments to boost reliability and speed up deployment of clean-energy generation."

"There's an old saying that everybody wants to go to heaven, but nobody wants to die," said Britt Burt, Industrial Info's vice president of research for the Global Electric Power Industry. "Clean energy investments tend to be very popular with customers--until they are asked to pay for it. Reliable electric service is something customers expect from their utilities, but there is a cost to that: Equipment must be upgraded or replaced after storms. People want their personal data protected, but that means added investments in cybersecurity."

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 trillion (USD).