A Look Back at Electricity Rates

A recent encounter with a newspaper from 1901 got me thinking about the price of electricity over time and how it compares with price changes for other goods and services.

Price Changes Over a Century

The incident that prompted these comparisons was a replica of a page from The Honolulu Tribune for April 1, 1901, that was being used to hold French fries. I thought it might be a fake, but an article in a Barbados paper online claims the newspaper was discovered on that island in an old container in December last year. The 1901 paper cost a penny (roughly 28¢ today in inflation-adjusted dollars) and ran a story about the opening of the Moana Hotel, where a room was going for $1.50 a night. Rooms at the Moana now cost between $355 and $4,400 a night (I searched for April 1, 2015, availability to compare prices at the same time of year). The Hawaii Herald-Tribune, as the paper is now known, costs an average of 44¢ per day if you subscribe for a year, so the average daily cover cost is probably closer to 50¢.

The Economist made some similar comparisons at the end of 2000 when it looked at U.S. prices for an array of goods and services over the previous decade and century. It all started with the discovery of a 1900 expense report filed by a UK journalist who had made a trip to America. Prices for such things as refrigerators, eggs, salt, clothing, cars, and housing dropped over the century while those for beer, bread, and potatoes increased (perhaps as good a reason as any to adopt a low-carbohydrate diet). The price of a four-star New York hotel—where that lucky journalist stayed—increased the most: nearly 300% in real (inflation-adjusted) terms.

An important difference is that a room in a four-star hotel is usually a discretionary purchase, whereas food, rent, and utility bills for water, electricity, and gas are not.

How Much Have Electricity Costs Risen?

The Economist article noted that U.S. electricity prices fell by an average of 6% per year in real terms between 1890 and 1920—a pattern common to technological revolutions in their early years; more recently, computing power is the familiar example. In real terms, the price of electricity between 1900 and 2000 dropped nearly 100%, the magazine found. But what about more recently?

“Residential electricity prices are rising” was the Today in Energy headline from the U.S. Energy Information Administration (EIA) on Sept. 2. The story noted that “U.S. retail residential prices for the first half of 2014 averaged 12.3 cents per kilowatthour, an increase of 3.2% from the same period last year. This is the highest year-over-year growth in residential prices for the first half of the year since 2009.”

However, the headline should have read, “Residential electricity prices have risen,” as the report was retrospective. That said, earlier this year, the EIA’s Annual Energy Outlook 2014 (Reference Case A8, p. A-19) did project that retail residential electricity rates would increase—from 11.7¢/kWh in 2011 to 22¢/kWh in 2040 (nominal); or, calculated in 2012 dollars, from 11.9¢/kWh in 2011 to 13.3¢/kWh in 2040.

I don’t put much stock in projections, but even the recent actual price increase reported by the EIA doesn’t tell the whole story. The Bureau of Labor Statistics Consumer Price Index (CPI) report for July 2014 noted that the electricity index fell 0.3% in July; “it has now risen three times and fallen three times over the last 6 months.”

CPI reports differ from EIA reports in two important ways: The CPI is an inflation-adjusted number and considers only average prices in a number of urban areas. However, the data underlying both reports is in close agreement. CPI data behind the index numbers show that the average urban nominal price of electricity rose from 9.9¢/kWh in June 2004 to 14.3¢/kWh in June 2014—a 44% nominal increase over 10 years; the EIA found the nationwide average annual residential rate was 8.95¢ in 2004 and 12.97¢ in June 2014—a 45% nominal increase. Adjusted for inflation, that 8.95¢ in 2004 would be worth 11.29¢ in 2014, which yields a 14.9% increase in real terms.

Over the same decade, according to CPI data, urban consumers saw the following increases in nominal prices: regular unleaded gasoline, 81%; eggs, 49%; ground beef, 57.2%; frozen concentrated orange juice, 31.3%; and piped natural gas for household use, 6.1% (though comparing just those two years’ prices hides a steep increase for gas in 2008).

As for water, another necessity, in September 2012, USA TODAY cited a survey by Black & Veatch of 100 U.S. municipalities that found residential water bills had doubled over the previous 12 years in at least one in four places and had tripled in some. The paper noted that water prices are expected to climb even higher, as many water systems are due (or overdue) for major infrastructure upgrades—not unlike much of the electricity grid.

Electricity Is Still a Deal

All of which proves very little other than that pricing changes look different depending on whether you’re looking at indexed or un-indexed prices and depending on your chosen timeframe. Both shorter and longer timeframes will emphasize some trends while hiding others. Another complication: Prices are tracked in different ways by different groups, making fair comparisons and confirmations across sectors challenging.

One thing we can see from the past decade and past century or so of pricing history is that electricity cost increases (when they actually have been increases) have not been as large as those for many other essentials.

As for the cost of the magazine you’re holding in your hands, it’s still free for qualified industry subscribers. ■

Gail Reitenbach, PhD, Editor (@POWERmagazine, @GailReit).