Reasons Your Electricity Is Becoming More Expensive

Increasing electricity bills have heightened concerns about energy affordability.

getty

Electricity prices are rising again, and this time it does not look temporary.

Through at least 2026, households and businesses in parts of the Pacific Coast, the Mid-Atlantic, and New England are likely to see noticeable increases in their electricity bills. The standard economic explanation is straightforward. Demand is rising faster than supply, and consumers have very little ability to substitute away from electricity. It is a backbone input for modern life and modern production.

That explanation is correct, but incomplete.

A recent study by Lawrence Berkeley National Laboratory, conducted in collaboration with the Brattle Group, shows that today’s price increases reflect a combination of forces. Some are internal to the power sector. Others are external, including supply chain pressures and broader policy choices. For much of the past two decades, electricity prices were flat or falling in real terms. That period is ending, and understanding why requires looking beyond any single culprit.

Demand Growth Has Returned, But It Is Not Uniform

Start with demand. Data centers often get the blame, and they are part of the story. The U.S. is moving from historical electricity load growth of roughly 2 percent per year to forecasts as high as 10 to 15 percent annually in some regions. Data centers, artificial intelligence, electrification, and the reshoring of energy-intensive manufacturing are all contributing.

What gets lost in the national conversation is how uneven this is. Over the past five years, electricity rates in 36 states have risen at or below the rate of inflation. Very little is written about those states. Attention focuses instead on the roughly 14 states facing more acute affordability challenges, many of them in PJM, New England, and the West.

That distinction matters because retail electricity affordability is largely a state-level issue, even though federal policy shapes upstream costs and permitting timelines. A single national narrative obscures meaningful regional differences and leads to policy debates that miss the mark.

PJM illustrates the point. For more than a decade, restructured wholesale markets delivered steadily declining prices. Delivery charges that ensure power is available when needed fell year after year. Consumers benefited from competition and efficiency. That trend only reversed recently, and not because markets suddenly stopped working.

The reason lies in three structural pressures that are now theatening energy affordability.

^{1. Aging Infrastructure and Deferred Investment}

The electric grid is the most important machine in the country, and much of it is old. For decades, electricity demand was flat. Utilities and regulators responded rationally by deferring major investments. That kept rates low, but it also meant infrastructure aged in place. Now those deferred investments are colliding with rapid load growth.

Transmission lines, substations, generation assets, and gas-electric coordination systems all require large capital outlays at the same time. Natural gas supplies roughly 40 percent of U.S. electricity generation, yet the infrastructure needed to move gas reliably to power plants has not expanded at the same pace as dependence on it.

On top of that, utilities are being asked to harden systems against extreme weather, cold snaps, heat waves, hurricanes, and wildfire risks. These investments improve reliability and resilience, but they are capital-intensive and they show up in rates. We postponed investment during decades of flat demand and is now paying the bill when demand is rising again.

2. Permitting Delays That Turn Time Into Cost

Biden-era Congress has passed two major bills to fund energy infrastructure, the Infrastructure Investment and Jobs Act and the Inflation Reduction Act. Together they represent the largest federal investment in energy infrastructure in U.S. history.

What they largely did not address is permitting. Transmission lines, pipelines, and electricity generation projects routinely face permitting timelines that stretch beyond a decade, even when projects are largely confined within a single state. Multi-year delays routinely add 15 to 35 percent to total project costs. For large projects, that can mean hundreds of millions of dollars per year in additional expense. Those costs are ultimately borne by ratepayers and consumers.

Moreover, fragmented authority across multiple agencies makes accountability unclear and decision-making slow. Capital sits idle, the electric supply is fixed, while demand continues to grow. The result is tighter supply and higher prices.

This is especially important for natural gas infrastructure. Abundant domestic gas has supported affordable electricity and a resurgence of U.S. manufacturing. But abundance alone is not enough, as molecules need to move to perform useful work. Power generators, utilities, and industrial customers all depend on infrastructure that has become increasingly difficult to permit and build.

Building projects without permitting reform first inflates the costs to project developers and it is, in turn, passed over to the ratepayers.

3. Competition for Scarce Resources

The power sector is also running into a broader economic constraint. Everyone is trying to build at the same time.

Whether you are a vertically integrated utility or a competitive power supplier, building new facilities today is a multi-year proposition. Developers are competing for the same equipment, transformers, turbines, steel, engineering expertise, and skilled labor. Supply chain constraints translate directly into higher power costs.

Large energy buyers have been explicit about this link. The issue is not simply trade policy or tariffs. It is scale, timing, and predictability. Durable policy signals matter because they allow manufacturers to expand capacity with confidence. Without that, scarcity persists.

In this environment, even well-designed markets struggle to deliver low prices quickly. The competition is not just between firms, but between projects and regions.

A Structural Shift in What We Pay For

One final point is often overlooked. Over the past 10 to 15 years, the cost of generating electricity fell steadily. Wholesale markets became more efficient and that trend may likely continue.

What is changing is everything around generation. Delivery, capacity, reliability, and infrastructure costs are growing faster than the cost of producing power itself. In the future, the electricity you consume may be relatively cheap, while the systems that make it available account for a growing share of your bill.

Rising electricity prices are not a sign of sudden failure. They reflect a system being asked to do more, faster, and under harsher conditions, after decades of underinvestment. The real question is not whether prices will rise, but whether we address the structural drivers now or allow them to compound.