Study cites range of factors, no easy solutions

By Joe Kelly

The normally staid, quiescent, if not completely somnolescent subject of electricity rates and their regulation has lately become a hot topic. It figured in this fall’s gubernatorial races in New Jersey and Virginia, including active discussion over the role that AI data centers play in making electricity costs go up. Here in Connecticut, battles over rates and regulation routinely generate heat in Hartford and are almost guaranteed to be a flashpoint in next year’s race for governor.

Is electricity really that expensive and, if so, why?

To find answers, researchers at Lawrence Berkeley National Laboratory tried to tease out and isolate various factors, hoping to identify their relationship to electricity costs. The study, published in The Electricity Journal and garnering attention in major news outlets and the blogosphere, contains surprising findings that will confound commentators of all political stripes, while also highlighting key structural factors that are likely to continue to make cost containment in Connecticut a challenge.

For starters, the study acknowledges that incidents such as major storms, wildfires and the disruption of natural gas flows related to the war in Ukraine have all correlated with higher electricity costs. However, when looked at nationwide, the increases have not been all that great. Yes, the average, actual price of electricity rose by 23 percent from 2019 to 2024, but after adjusting for inflation, the study found it actually fell in 31 of the contiguous 48 states. In the other 17, costs went up by as little as 0.2 percent (New Jersey) to 6.2 percent (California). Connecticut’s nominal increase of 9.8 percent became 2 percent when adjusted for inflation—the fourth highest jump in the country.

While supply and demand are major factors in energy prices—high demand in winter makes natural gas more expensive—so are the cost allocation practices of individual utilities. Critics often accuse utilities of giving overly favorable deals to attract businesses and then overcharging residential consumers to recoup. The study’s evidence supports this assertion: residential electricity prices not only exceed commercial and industrial prices, they have also risen more rapidly in recent years.

The study does throw cold water on a different notion, that higher electricity loads must lead to higher prices. The researchers found that states with the highest load growth experienced reductions in real prices. It’s one of the most statistically significant findings in the report, with the authors calculating that a 10 percent increase in electricity usage was associated with a 0.6 cent/kWh reduction in prices.

Electricity bills go up, in part, due to the charges the utilities pass on to consumers to recoup their investment in distribution and transmission infrastructure. If those fixed infrastructure costs can be distributed over a larger customer base, the prices charged to any individual user go down. But in a smaller customer pool, the cost to each user goes up.

This finding has big implications for Connecticut. Even though it has one of the lowest per-capita energy consumption rates in the country—20 to 25 percent below the national average—since the state has relatively little energy-intensive manufacturing, it will spend more per capita on energy infrastructure than states where load demand is growing.

This finding—arguably the study’s most significant—comes with at least two caveats. First, the high-load/low-price relationship was pronounced when considering overall electricity prices charged to both residential and commercial users, but smaller when considering residential prices alone. This is another instance in which utility cost allocation practices may already be disadvantaging residential users.
Second, the study did find that electrical infrastructure build-outs needed for sudden spikes in load growth (e.g., from data centers) can result in significant price increases. But it was unclear how long those impacts would last.

Several other findings in the study have implications for ongoing debates over green energy policies. Apparently, states with more “behind-the-meter” solar (i.e., people installing solar panels on their roofs) also had higher electricity rates. People with solar panels are consuming less electricity from the utility and are therefore also paying less of the utility’s infrastructure costs. So, the users without solar must pay more.

Investments in large-scale wind and solar farms do not correlate with higher electricity prices. Although this is an argument the Trump administration made when withdrawing its support for the Revolution wind farm off Connecticut and Rhode Island, the analysts at Lawrence Berkeley found no correlation.
However, the opposite is true when those large-scale investments in wind and solar are dictated by government mandates. Regulations requiring a state to achieve specified levels of renewable energy, beyond what the competitive market might have dictated on its own, are in fact correlated with higher electricity bills. This is especially true in states in the Northeast and Mid-Atlantic regions that have comparatively less sun and wind.

While the study did not focus specifically on Connecticut, the implications of its findings do not bode well for bringing electricity costs down here. Connecticut remains highly vulnerable to spikes in natural gas pricing, has an aging electrical grid infrastructure, lacks a growing demand base on which to amortize rising costs and sets goals for increasing the use of wind and solar—all factors that the study found to be correlated with higher costs.

Of course, like all such studies, this one is a snapshot in time. If circumstances change, pricing patterns can change. New technologies could reduce the need for expensive line upgrades. The correlation between rooftop solar and higher electricity bills could change if overall demand increases and those solar panels help reduce the need for more expensive infrastructure.

Realistically, however, there is one thing that won’t change: because no single factor makes electricity costs go up, no one solution all by itself is likely to bring them down.