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Along with mortgage/rent payments and food, energy costs are one of the largest home budget items. With the energy market migrating toward natural gas and renewable energy generation, the question arises as to what is happening to electricity rates. According to data from the U.S. Energy Information Administration (EIA), residential electricity rates increased by an average of 3% per year from 2001-2014. As shown in the table below, the amount of electricity used in U.S. households also increased with an average annual growth rate of 1.2% during this period.
| Year | Average Residential Rate (cents/kWh) | Total Residential Consumption (TWh) |
| 2001 | 8.58 | 1202 |
| 2002 | 8.44 | 1265 |
| 2003 | 8.72 | 1276 |
| 2004 | 8.95 | 1292 |
| 2005 | 9.45 | 1359 |
| 2006 | 10.40 | 1352 |
| 2007 | 10.65 | 1392 |
| 2008 | 11.26 | 1381 |
| 2009 | 11.51 | 1365 |
| 2010 | 11.54 | 1446 |
| 2011 | 11.72 | 1423 |
| 2012 | 11.88 | 1375 |
| 2013 | 12.22 | 1395 |
| 2014 | 12.50 | 1403 |
While the numbers indicate that home electricity bills are on the rise, it is also important to look at electricity rates in the context of overall household spending.
In October 2014, the EIA announced that consumer energy expenditures, as a percentage of disposable income, had fallen below its long-term average. The EIA analyzed data from 1960 through 2013 and found household energy expenditures ranged from 4% to 8% of disposable income for that period. The current level is 5% compared with the average level of 5.5%.
Consumer energy expenditures include home energy fuels primarily consisting of electricity, natural gas, and heating oil. Transportation fuel expenditures are also included in the analysis.
It is always good news to hear that a major household expense is taking less of a bite out of our wallets. However, the EIA also noted that consumer energy prices grew faster than inflation for the 1960-2013 review period. Furthermore, consumer energy prices have been more volatile than the consumer price index.
The energy generation market is in transition. Retiring coal-fired power plants shifts load to alternative fuels. Although solar, wind, and biomass generating capacity is increasing, these fuel sources cannot entirely pick up the slack from coal. This leaves natural gas as the dominant power generation fuel source for at least the next 10-20 years. Shale gas fields have increased domestic natural gas production and driven prices to reasonable levels. However, relying on a single energy resource to this extent is a risky venture and can make electricity prices volatile.
Even with inflation and the uncertainty of the energy market, a few simple steps can lead to a lower electricity bill. First, install a smart thermostat. These thermostats are similar to the programmable thermostats of the past except they program themselves based on the needs of the consumer. These thermostats also work great with time-of-use rates or tiered usage rates. In some cases, heating and cooling costs can be significantly reduced without any noticeable change in comfort level.
Second, switch to more efficient lighting technologies such as compact fluorescent or LED. Over 90% of electricity consumed by incandescent lights is converted into heat, rather than light. Spread the cost out by replacing incandescent bulbs as they burn out and the savings will steadily begin to add up.
Finally, take the time to shop for the best electricity plan. Electricity providers and utilities are coming up with more innovative rate plans and incentives for energy consumers. Consumers in deregulated markets should search for electricity rates that meet their needs and budget. Utility customers should also inquire about demand reduction programs that might offset the costs of home energy improvements. Taking these simple steps will help hold the line on electricity costs.