Utility regulators in the United States are considering increases to electricity rates again this year as electric utilities seek to cover the investments needed to maintain and expand their systems. Utilities requested rate increases in recent years to pay for improvements to transmission and distribution lines to withstand increasingly serious weather and fire events, prepare for increased electrification as state and federal clean energy legislation is implemented, and move more energy reliably, according to S&P Global Market Intelligence Capital IQ Pro.
State utility regulators signed off on $9.7 billion in net rate increases in 2023, more than double the $4.4 billion authorized in 2022. The net increase—increases minus decreases—reflects $10.3 billion in authorized rate increases and only $0.6 billion in rate decreases. More than one-third of the net rate increase supported increases at two California utilities seeking to make their grids less susceptible to wildfire.
From the start of 2023 through August 12, 2024, regulators nationwide have authorized 58% of the net rate increases that were requested by electric utilities, according to S&P Global Market Intelligence Capital IQ Pro. If the same ratio of rate increase requests is allowed for the rest of 2024, rate increases are on track to reach $8.9 billion (adjusted for inflation to 2023 dollars) this year.
In many states, all components of a typical electric bill are approved by the state utility regulator. In states that allow competition for electricity supply, energy suppliers charge competitive rates for the generation component of power bills. All charges for energy delivery over transmission and distribution lines are still regulated by state utility commissions.
When regulated investor-owned utilities (IOUs) expect their future revenues needed to operate their systems will exceed expected revenue from consumers under existing rates, they request a rate case in front of the state regulator to justify raising their rates. IOUs are generally reimbursed on allowed operating and maintenance costs and investments and on a regulator-approved rate of return on their investment as profit. Other utilities, such as cooperatives and government-owned municipal, state, political utility district, and federal utilities, are non-profit and may not be regulated in the same way.
Regional breakdown
More than one-third of total authorized U.S. rate increases in 2023 went to two California utilities, Pacific Gas and Electric ($2.5 billion in rate increases) and Southern California Edison (almost $1 billion in rate increases), mostly for wildfire protection including undergrounding wires, vegetation management, and several other tracked wildfire-related accounts.
The Illinois Commerce Commission authorized a $759 million rate increase to ComEd for grid infrastructure development necessary to comply with the Illinois Climate and Equitable Jobs Act (CEJA), Public Act 102-0662, goal to transition to 100% clean energy by 2050. The law is intended to encourage increased electrification and adoption of electric vehicles, which is expected to double electricity use by 2050.
The New York Public Service Commission authorized a $442 million rate increase to Consolidated Edison for investment to prepare the electric system for more frequent and severe weather events and meet the state’s goals of generating 70% of electricity from renewable sources by 2030 and reaching zero emissions from the statewide electrical demand system in 2040.
Duke Energy Carolinas was granted a $436 million rate increase by the North Carolina Utilities Commission to cover current and planned system investments to enable delivery of progressively cleaner energy to achieve carbon neutrality by 2050. The increase also covers uncollected debts incurred during the COVID-19 pandemic, updates to depreciation rates for sub-critical coal plants, the implementation of customer service programs, storm costs, and costs of compliance with the requirements of the Inflation Reduction Act of 2022
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