Electricity's Price, Really, Redux

Posted April 17, 2017:

The Consumer Price Index for electricity increased 1.6 percent from March 2016 to March 2017, per Friday’s Labor Department release. The overall CPI, for all goods and services, increased 2.4 percent.

This means the real price of electricity paid by U.S. households is significantly lower than it was a year ago.

But what’s been happening to the price of electricity longer term?

Since the Labor Department’s base period of 1982 – 1984, the CPI for electricity has increased 84.4 percent as much as the overall CPI.

This means the real price of electricity has significantly fallen in recent decades.

Let’s take the ratio of the CPI for electricity to the overall CPI for every March in the Labor Department’s data. The data for both CPIs goes back to 1937. That’s eighty-one Marches, through March 2017.

In March 1937, the ratio was 2.105. In March 1983, during the base period, the ratio was down to 0.982. Electricity’s real price had fallen a lot. In March 2017, the ratio was down to 0.844. Electricity’s real price had fallen further.

The ratio in March 2017 of 0.844 was low but not the lowest historically. It was below 0.800 for the only time for eight years, March 1998 – March 2005. This was the period of wholesale power deregulation, and prior to the increases in natural gas costs from Gulf Coast storms. A kilowatt-hour was cheapest during these years.

If you think of electricity as a per unit commodity, then you might say that was when the product was cheapest.

If you think of electricity as an essential comprehensive service whose total bill matters more to consumers than unit costs, then you might say that now is when the service is cheapest. As measured by electric bills as a percentage of consumers’ expenditures, which also accounts for consumers’ wealth.

Number-crunching and insights by the magazine for commentary, opinion and debate on utility regulation and policy since 1928, Public Utilities Fortnightly.

Steve Mitnick, Editor-in-Chief, Public Utilities Fortnightly
E-mail me: mitnick@fortnightly.com
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