Electricity prices are becoming an outsize issue in American politics because they themselves are legitimately outsize. Compared with the cost of consumer goods, which have been rising rapidly over the past few years, electricity prices are climbing even faster, an estimated 13 percent nationwide since 2022. This year, roughly half of households making less than $50,000 struggled to pay their electricity bills. In California, where the rise has been particularly steep, rates have essentially doubled over the past decade.
When electricity was first commercialized, utilities were allowed to operate as monopolies for one main reason: to deliver lower costs. For a century, it worked. Companies spread the fixed costs of growing the system across their locked-in customers, and prices dropped precipitously. In 1890, a kilowatt-hour was $9.48 on average nationwide in today’s dollars; by 1950, it had dropped to 41 cents and, by 1990, to 21 cents. But recently, this century-long trend has reversed in many states; utilities are failing to keep prices low.
Prices are rising for many reasons, not all of which apply in every state. In some states, data centers are pushing up rates. In others, wildfire costs are showing up on bills. Despite what President Donald Trump has argued, higher prices have little to do with the country’s move toward clean energy. If anything, Trump’s One Big Beautiful Bill Act has made it harder to invest in the cheapest ways of building new solar, wind, and batteries.
Ignoring those technologies will make electricity only more expensive in the years to come. If regulators, policy makers, and utility executives actually want to lower prices, they will have to deal strategically with both the clean-energy boom and climate change’s strain on the electricity system.
Clean energy is cheap energy. Building a large-scale solar or wind project costs less than a new gas plant, and solar and wind require no fuel to operate, making each additional kilowatt-hour essentially free. When combined with batteries, these projects can now operate like traditional power plants, providing power on demand.
In places with a lot of solar, including California, some installations are producing more energy than is being consumed, so some power is being wasted. If people shifted more of their electricity use toward the middle of the day, the grid’s overall costs would go down, because demand would decrease in later hours, when prices are the highest. And the easiest way to nudge people toward using that midday power is to make it cheaper—or even free.
Like California, Australia has an enormous amount of solar. The country’s climate-change-and-energy minister just announced that, starting in July, electricity suppliers will be required to offer at least three free hours of midday power in some regions. This will give people a reason to charge their electric vehicles, use heat pumps to precool or preheat their homes and water, and store more clean electricity in batteries when cheap energy is abundant. Later in the day, when the system relies on dirtier and more expensive energy sources, people will likely demand less power, reducing costs for everyone.
Plenty of places in the U.S. could try this, too. The states with the most solar, including California and Texas, are already wasting about 10 percent of their solar energy. But utilities and regulators have done little to set electricity prices lower during the day. The closest anyone has come is in California, where, as part of a regulatory proceeding, San Diego Gas & Electric agreed in September to create a lower-cost period from 10 a.m. to 2 p.m. In the long run, as solar and wind supply more and more of Americans’ power, aligning electricity rates with clean energy’s availability could allow the grid to operate more cheaply.
If the first clear way to cut electricity bills is strategically lowering prices for customers, the second is strategically cutting back profits for utilities. Even as consumers’ bills rose, California’s Pacific Gas and Electric, for example, reported record profits—$2.47 billion last year. North Carolina’s Duke Energy had profits north of $4 billion.
Legislators could trim these profits directly by more closely aligning utilities’ guaranteed rates of return with their actual costs. Such adjustments could also limit utilities’ endless quest for more infrastructure. Right now, a utility could make tens of millions of dollars on, say, putting a transmission line underground, because those that operate as monopolies (that is, most of them) can charge customers for almost every dollar spent expanding the transmission-and-distribution system—plus a profit. So more spending equals more profits, a perverse incentive called “gold-plating.”
One solution is to have states build the transmission system instead. A new law in California will pilot this idea, using a fund to publicly finance transmission. This will not only reduce utility profits, lowering electricity bills; it will also make electricity costs less regressive by shifting the burden from lower-income people onto the wider tax base.
A third way to lower prices is to take the costs of climate impacts out of electricity bills. As wildfires rip across the West, their damages are being borne by utility customers. This is a major reason that costs in California are so high. To take one example, the 2017 Thomas Fire created $2.4 billion in liabilities for Southern California Edison, which sparked the fire; its customers (myself included) are now on the hook for two-thirds of those costs. (The company, like PG&E, posted record profits last year.) If companies aren’t charging ratepayers for fire damage, then they might be charging them for the anticipated costs of fires. In Utah, the legislature passed a law that allows Rocky Mountain Power to proactively collect revenue from customers for a “fire fund.” In Colorado, regulators approved a $1.9 billion plan to harden against future wildfires, jacking up bills by 10 percent.
Other climate impacts are increasing electricity rates, too. Hurricane-prone places such as Florida are also hardening their grids, driving rate increases. The climate scientist Andrew Dessler has estimated that Texas’s electricity prices were 16 percent higher in 2023 because of the demand driven by climate-change-induced heat waves. FEMA’s recent decision not to cover the utilities’ damages from a brutal ice storm in Michigan—which may have been more likely because of climate change—could mean that rural customers will be paying $4,500 each to cover the bill.
Passing on these climate costs to ratepayers is not the only way of dealing with them. Hawaii’s legislature decided to limit the local utility’s liability for the deadly Maui fires and to use state funds to compensate survivors. Policy makers can also keep utilities from making a profit on wildfire mitigation and other grid-hardening costs, as California has recently done.
Alternatively, fossil-fuel companies could pay. Climate-attribution science is now able to quickly say how much more likely climate change made a given weather event and then, using data on historic emissions, apportion blame to individual fossil-fuel companies. In other contexts, lawyers are trying to use this type of information to hold companies legally liable for climate damages. Similarly, insurers could try to recoup their costs from these companies as one California bill proposed.
If regulators don’t take action, electricity bills will continue to rise. And that failure will have rippling effects. Ultimately, the way out of burning fossil fuels is by electrifying our homes, cars and businesses, running them instead on clean power. If as a country we cannot keep electricity bills low, then we won’t be able to electrify fast enough to avoid still-worse impacts of climate change. This is why putting climate damages on electricity bills is so problematic. If climate change makes electricity less affordable, then addressing climate change with electrification becomes harder, and we get stuck in a vicious cycle of paying more to live in an ever-hotter world.
The post Three Ideas for Lowering Electricity Costs appeared first on The Atlantic.
