U.S. Electricity Prices Expected to Drop

U.S. wholesale electricity prices should fall substantially this year, the U.S. Energy Information Administration's latest monthly report predicts, providing at least some relief for consumers who saw their electric bills surge in 2022.

The EIA foresees the wholesale prices it tracks at 11 selected U.S. hubs averaging $51.36 per megawatthour (MWh) in 2023, down 37% from their collective 2022 averages.

Electricity prices increased nationwide last year as prices for natural gas, accounting for about 40% of the fuel used for U.S. electric power generation, rose worldwide after Russia's invasion of Ukraine. Economic sanctions against Russia, a leading global natural gas supplier, fed the increase.

Residential retail prices across the U.S. increased 9% last year, with consumption rising 2.6% even as rising costs to generate power strained utilities.

However, the EIA projects natural gas prices delivered to U.S. electric generators will fall by about half this year. Moreover, it foresees U.S. electricity consumption receding by 1.2%, helping further alleviate the 2022's upward price pressure.

A Complex Market

Consumers might not see the impact of falling wholesale prices in their bills immediately, though.

For one thing, the majority of plants nationwide rely on fuel other than natural gas -- coal, nuclear and, increasingly, renewables such as solar and wind -- for power generation, affecting plant costs to varying degrees.

Coal prices, for instance, have risen 41% since May 2021 and U.S. production is expected to decline 7% this year. Plants' reliance on coal is declining but still accounts for almost a fifth of the nation's power generation.

The vagaries of an increasingly aging U.S. power grid and transmission lines available to transport power from plants to homes present another complicating retail price factor.

In addition, unforeseen demand changes related to weather can have dramatic, volatile impacts on electricity markets for short periods in localized areas.

Likewise, widely differing state regulations significantly affect rates utilities charge their customers.

Regional Variances

Still, the EIA's latest forecast offers some hope for consumers encountering inflation for myriad products and conveniences other than turning on their lights.

Regional differences could determine where prices fall the most:

• In Texas, close to abundant supplies of natural gas and wind power, the EIA sees wholesale prices falling 61% to an average of $30 Mwh this year.
• In the Northeast, where pipeline constraints pushed average wholesale prices above $90 Mwh in 2022, the EIA predicts prices dropping to the mid-$50 Mwh range this year.
• In the Northwest and California, though, the EIA expects more moderate wholesale price declines of 18-22%. Regional natural gas prices in the West surged late last year, pushing month whole prices as high as $250 Mwh; the EIA expects average wholesale prices of $80 Mwh in the Northwest and $69 Mwh in California.