POWER October 2014 - 6

SPEAKING OF POWER
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 inflationadjusted
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 lowcarbohydrate
diet). The price of a fourstar
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.
6
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
www.powermag.com
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).
POWER | October 2014
http://www.powermag.com
POWER October 2014

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