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TRENDS IN ELECTRICITY PRICES DURING THE TRANSITION AWAY FROM COAL

Source: 
States News Service

The following information was released by the U.S. Bureau of Labor Statistics:

The electric power sector of the United States has undergone several major shifts since the deregulation of wholesale electricity markets began in the 1990s. One interesting shift is the transition away from coal-powered plants toward a greater mix of natural gas and renewable sources. This transition has been spurred by three major factors: rising costs of prepared coal for use in power generation, a significant expansion of economical domestic natural gas production coupled with a corresponding decline in prices, and rapid advances in technology for renewable power generation.1 The transition from coal, which included the early retirement of coal plants, has affected major price-determining factors within the electric power sector such as operation and maintenance costs, capital investment, and fuel costs. Through these effects, the decline of coal as the primary fuel source in American electricity production has affected both wholesale and retail electricity prices.

Identifying specific price effects from the transition away from coal is challenging; however the producer price indexes (PPIs) for electric power can be used to compare general trends in price development across generator types and regions, and can be used to learn valuable insights into the early effects of fuel switching in the electric power sector from coal to natural gas and renewable sources. The PPI program measures the average change in prices for industries based on the North American Industry Classification System (NAICS). This article uses industry indexes for NAICS 221110, electric power generation, and NAICS 221122, electric power distribution.2 For tracking changes in prices for power generation, the PPI distinguishes between prices received by power distribution utilities that also generate electric power and non-utility electric power generators. Utility and non-utility generators differ in scale, integration with electric transmission and distribution networks, and fuel mix. For distribution to end-users, the PPI publishes indexes by end-user and census region.3

This Beyond the Numbers article looks at both generation and distribution prices for electricity, from 2004 to 2019. To examine price trends for electricity generation, this article compares utility and non-utility generation price movements. To analyze price trends for electricity distribution, this article compares price movements for different aggregations of regional residential electric power distribution. The article also discusses how prices have varied during the decline of coal, rise of natural gas, and early growth of renewable power as a share of electricity production.

How are electricity prices set?

As with many sectors, it is useful to consider price changes in both wholesale and retail markets. Wholesale prices are received by generators of electric power (e.g., power plants), which may be owned by large utilities that also distribute power or may be independent power producers at stand-alone power plants. Retail prices are received by utilities, cooperatives, and municipalities that purchase the wholesale power for distribution to residential, commercial, and industrial end-users.

Price setting differs significantly across markets, although wholesale price movements typically will pass through to retail prices.4 The majority of wholesale transactions in the United States take place in deregulated markets. Prices are set by frequent and active auctions designed to balance supply and demand subject to the physical constraints of power transmission. Generators of electric power submit selling bids equal to their marginal cost to produce a specific quantity of energy, and distributors (chiefly utilities) submit demand levels. Generator bids are then ordered from lowest to highest until energy supplied is equal to demand.5 Prices are then set by the marginal producerthe generator with the lowest bid that equilibrates supply and demand at a specific pricing node or physical location where bulk power is transformed for distribution to end-users. All suppliers will receive this price, even if they submitted a lower bid. Wholesale prices not set in competitive auctions are taken from long-term bilateral contracts or internal transfer pricing. Most retail prices are set through regulatory proceedings that evaluate a utilitys total asset base and operating costs in order to determine the rates that earn the utility a target rate of return on generation and distribution assets. Rates are frequently set for a year or longer and are a combination of fixed and variable per-unit charges.

For both wholesale and retail markets, frequent drivers of short- and medium-term price changes include demand shifters (e.g., variation in temperature or economic activity), fuel price changes, and unexpected supply shocks (e.g., unplanned maintenance on a power plant or downed power lines). Long-term price changes are primarily driven by long-term trends in demand (e.g., population growth, economic development, or shifting energy conservation preferences), shifts in fuel mix and the corresponding capital investment in generating capacity, and shifts in the policy environment (e.g., introducing or removing subsidies for a particular fuel source).

Changes in electricity prices

Prices used for PPIs in the generation sector reflect the full range of wholesale prices, including prices set by competitive auctions in deregulated wholesale markets, prices from bilateral contracts, and internal transfer prices. As seen in chart 1, wholesale prices for electric power generation first experienced larger annual increases through the mid- and late-2000s, before increasing at slower rates (with significant volatility) since 2010. From 2004 to 2010, generation prices rose 31.7 percent, with 5 of 6 years exhibiting annual increases. Between 2010 and 2019, prices only rose 5.8 percent. (The index also exhibits seasonal volatility, as prices spike in the summer due to high demand for cooling purposes.) During heatwaves, demand can surge to such a point that it strains generation capacity, causing significant price spikes. Smaller peaks occur in the winter, as some regions also use electric power for heating purposes. Prices are typically lowest in spring and fall, when cooling and heating demand are low. Month-over-month volatility is not only a result of shifts in demand; but can also reflect plant retirements or the introduction of new capacity, planned and unplanned shutdowns that reduce capacity, and changes in fuel prices.

View Chart Data

Chart 1. Producer Price Index (PPI) for NAICS 221110, electric power generation, January 2004December 2019, not seasonally adjustedDateElectric power generation (primary product)

January 2004100.0

February 2004102.4

March 2004100.4

April 2004102.3

May 2004104.1

June 2004108.0

July 2004109.6

August 2004110.3

September 2004105.1

October 2004102.5

November 2004107.2

December 2004107.1

January 2005106.1

February 2005105.2

March 2005112.2

April 2005108.8

May 2005112.0

June 2005113.9

July 2005124.8

August 2005140.4

September 2005139.6

October 2005134.8

November 2005122.9

December 2005136.7

January 2006129.1

February 2006128.0

March 2006124.9

April 2006121.6

May 2006121.6

June 2006124.2

July 2006131.2

August 2006149.1

September 2006128.8

October 2006121.4

November 2006128.5

December 2006126.7

January 2007121.2

February 2007135.0

March 2007128.1

April 2007128.0

May 2007125.8

June 2007131.1

July 2007137.3

August 2007141.1

September 2007133.1

October 2007134.0

November 2007132.3

December 2007133.9

January 2008133.1

February 2008140.5

March 2008138.7

April 2008147.2

May 2008145.7

June 2008152.1

July 2008157.1

August 2008162.8

September 2008149.5

October 2008142.7

November 2008137.2

December 2008135.1

January 2009136.0

February 2009136.2

March 2009132.5

April 2009128.0

May 2009128.0

June 2009128.6

July 2009131.0

August 2009136.6

September 2009129.5

October 2009132.2

November 2009133.4

December 2009135.5

January 2010141.8

February 2010144.2

March 2010139.6

April 2010135.6

May 2010133.7

June 2010133.8

July 2010139.2

August 2010146.6

September 2010137.6

October 2010132.2

November 2010133.8

December 2010139.3

January 2011144.9

February 2011145.0

March 2011137.4

April 2011138.4

May 2011140.6

June 2011148.7

July 2011151.6

August 2011156.5

September 2011147.4

October 2011130.7

November 2011127.5

December 2011127.4

January 2012125.3

February 2012123.3

March 2012119.1

April 2012118.2

May 2012123.8

June 2012128.1

July 2012134.4

August 2012134.0

September 2012128.9

October 2012126.1

November 2012127.6

December 2012128.5

January 2013129.0

February 2013130.0

March 2013129.5

April 2013131.9

May 2013138.0

June 2013133.7

July 2013141.9

August 2013134.9

September 2013140.0

October 2013130.4

November 2013131.7

December 2013158.2

January 2014184.1

February 2014189.9

March 2014166.4

April 2014160.9

May 2014141.3

June 2014141.3

July 2014143.8

August 2014140.9

September 2014141.2

October 2014134.3

November 2014134.7

December 2014136.6

January 2015146.4

February 2015131.1

March 2015156.9

April 2015130.1

May 2015127.3

June 2015130.5

July 2015139.3

August 2015135.7

September 2015131.4

October 2015122.8

November 2015119.6

December 2015117.8

January 2016117.5

February 2016116.2

March 2016111.5

April 2016113.2

May 2016114.1

June 2016122.3

July 2016125.0

August 2016130.2

September 2016126.4

October 2016120.9

November 2016116.6

December 2016124.4

January 2017128.9

February 2017122.8

March 2017122.6

April 2017124.4

May 2017119.8

June 2017124.1

July 2017129.5

August 2017130.3

September 2017131.2

October 2017125.9

November 2017125.8

December 2017124.7

January 2018155.0

February 2018131.5

March 2018126.1

April 2018131.1

May 2018125.3

June 2018133.4

July 2018143.5

August 2018166.4

September 2018138.4

October 2018141.0

November 2018144.6

December 2018158.3

January 2019136.7

February 2019154.1

March 2019156.3

April 2019134.2

May 2019131.2

June 2019137.7

July 2019139.1

August 2019173.3

September 2019172.4

October 2019142.6

November 2019142.2

December 2019133.3

Note: Data is not seasonally adjusted.

Source: U.S. Bureau of Labor Statistics.

BLS calculates the set of industry PPIs for electric power distribution using sample bills that replicate the monthly charges end-users pay for power. The rates in these bills are overwhelmingly set by regulatory price-setting cases filed with state-level utility commissions. Often at least half of a bill is determined by charges that remain the same for 6 months or longer. Chart 2 shows the monthly industry PPI for electric power distribution from 2004 to 2019.6 In general, there has been a significant upward trend in the prices approved by regulators for distribution companies through this period; although, as with prices for electric power generation, the trend flattened out beginning in 2010. Annual average prices for electric power distribution increased 27.3 percent from 2004 to 2010. Between 2010 and 2019, prices only increased by 17.5 percent. Compared to generation prices, distribution prices demonstrate stronger seasonality. This is due to many distributors having different rates for winter and summer, causing the regular cyclical jump from May to October. This approach to rate-setting has been in place for some time, but the index for electric power distribution suggests that the regularity and magnitude of seasonal pricing has increased over time. There are several possible explanations for this dynamic, such as more distributors introducing seasonal rates over time, regulators being more willing to approve higher seasonal costs, and shifts in the fuel mix in effect during periods of high demand affecting peak prices.

View Chart Data

Chart 2. Producer Price Index for NAICS 221122, electric power distribution, January 2004December 2019, not seasonally adjustedDateElectric power distribution

January 2004100.0

February 2004100.0

March 2004100.1

April 2004100.3

May 2004101.1

June 2004104.5

July 2004104.8

August 2004105.7

September 2004105.8

October 2004102.9

November 2004101.8

December 2004102.3

January 2005103.2

February 2005103.0

March 2005103.3

April 2005103.4

May 2005104.5

June 2005108.7

July 2005109.8

August 2005110.2

September 2005110.4

October 2005109.2

November 2005109.0

December 2005109.3

January 2006112.6

February 2006113.1

March 2006112.6

April 2006113.3

May 2006114.0

June 2006118.0

July 2006118.6

August 2006118.3

September 2006118.8

October 2006114.9

November 2006112.6

December 2006112.8

January 2007114.5

February 2007115.6

March 2007114.8

April 2007115.4

May 2007117.7

June 2007122.2

July 2007122.8

August 2007122.8

September 2007123.1

October 2007119.7

November 2007118.1

December 2007118.3

January 2008119.5

February 2008118.9

March 2008120.0

April 2008121.2

May 2008123.3

June 2008126.9

July 2008129.6

August 2008129.9

September 2008129.5

October 2008127.3

November 2008125.0

December 2008125.3

January 2009126.6

February 2009126.9

March 2009125.9

April 2009125.7

May 2009127.4

June 2009129.4

July 2009130.9

August 2009130.3

September 2009130.4

October 2009127.1

November 2009125.3

December 2009125.4

January 2010125.9

February 2010126.3

March 2010127.6

April 2010128.2

May 2010129.5

June 2010134.3

July 2010135.4

August 2010135.5

September 2010135.4

October 2010130.8

November 2010128.2

December 2010128.8

January 2011129.9

February 2011130.7

March 2011131.0

April 2011131.0

May 2011132.9

June 2011136.1

July 2011137.8

August 2011138.3

September 2011137.9

October 2011134.8

November 2011132.4

December 2011132.8

January 2012132.3

February 2012132.4

March 2012132.0

April 2012131.9

May 2012133.9

June 2012136.5

July 2012139.1

August 2012139.1

September 2012139.5

October 2012135.8

November 2012134.4

December 2012135.4

January 2013134.5

February 2013134.2

March 2013134.3

April 2013134.1

May 2013136.3

June 2013140.1

July 2013140.8

August 2013140.6

September 2013140.7

October 2013137.0

November 2013135.2

December 2013135.8

January 2014138.6

February 2014137.6

March 2014139.6

April 2014138.9

May 2014141.1

June 2014145.5

July 2014146.6

August 2014147.0

September 2014146.5

October 2014143.1

November 2014139.8

December 2014140.4

January 2015142.7

February 2015142.3

March 2015142.1

April 2015141.0

May 2015142.5

June 2015149.2

July 2015149.9

August 2015149.7

September 2015148.8

October 2015143.1

November 2015140.5

December 2015140.9

January 2016139.8

February 2016138.8

March 2016140.2

April 2016138.7

May 2016140.5

June 2016145.9

July 2016147.3

August 2016147.8

September 2016148.2

October 2016143.0

November 2016141.2

December 2016141.2

January 2017144.3

February 2017145.7

March 2017146.1

April 2017144.9

May 2017148.0

June 2017152.7

July 2017153.8

August 2017153.6

September 2017152.6

October 2017148.6

November 2017146.1

December 2017146.3

January 2018148.3

February 2018149.6

March 2018147.8

April 2018146.6

May 2018149.1

June 2018155.0

July 2018155.5

August 2018154.8

September 2018153.8

October 2018149.8

November 2018146.8

December 2018148.4

January 2019149.1

February 2019148.1

March 2019148.6

April 2019147.8

May 2019149.7

June 2019155.5

July 2019155.6

August 2019155.6

September 2019154.9

October 2019147.3

November 2019145.9

December 2019145.6

Note: Data is not seasonally adjusted.

Source: U.S. Bureau of Labor Statistics.

The upward trend of regular rate increases for electric power distribution reflects several dynamics.7 Distribution rates typically depend on the value of a utilitys return-generating assets, annual operating and maintenance expenses, and a desired rate of return. These price trends therefore reflect: (1) capital investment intended to maintain, replace, and expand generation capacity, and (2) overall changes in operating and maintenance costs. Variation in distribution prices also reflect changes in generation power prices, which pass through to distribution prices in the form of variable fuel cost adjustments that measure average prices paid for power.

Shifts in fuel mix over time

In the United States, the generation of baseload electricity, defined by the Energy Information Administration as the minimum amount of electric power required to maintain mechanical and thermal efficiency of the grid system, historically was met through large coal-powered plants. Starting in the early 2000s, there was rapid growth in domestically produced natural gas from shale formations and other nonconventional sources.8 As a result, natural gas prices declined 60.1 percent between 2003 and 2019. This, combined with rapid advances in technology for renewable generation, supported a shift away from coal. In addition to being a source of baseload power itself, natural gas has the ability to quickly ramp up, which helps handle intermittency from renewable power sources like the sun or wind. Chart 3 illustrates the share of total U.S. electric power generation from 1990 to 2019, by fuel source. The chart shows the stark decline of coal and the growth in natural gas and renewable power. Relative fuel-mix contributions from nuclear and hydroelectric power sources have both remained relatively flat over the period.

View Chart Data

Chart 3. U.S. fuel mix for electric power generation, 19902019YearCoalOtherPetroleumHydroelectricRenewablesNatural gasNuclear

199052.50.34.29.62.112.319.0

199151.70.43.99.42.212.419.9

199252.60.43.28.22.413.120.1

199352.90.43.58.82.413.019.1

199452.10.43.38.02.414.219.7

199551.00.52.29.32.214.820.1

199652.10.42.410.12.213.219.6

199752.80.42.710.22.213.718.0

199851.80.33.68.92.114.718.6

199950.90.33.28.62.115.119.7

200051.70.32.97.22.115.819.8

200151.00.33.35.81.917.120.6

200250.10.42.56.92.117.920.2

200350.80.53.17.12.016.719.7

200449.80.53.16.82.117.919.9

200549.60.53.06.72.218.819.3

200649.00.51.67.12.420.119.4

200748.50.51.66.02.521.619.4

200848.20.41.16.23.121.419.6

200944.40.51.06.93.723.320.2

201044.80.50.96.34.123.919.6

201142.30.50.77.84.724.719.3

201237.40.50.66.85.430.319.0

201338.90.50.76.66.227.719.4

201438.60.50.76.36.827.519.5

201533.20.50.76.17.232.719.6

201630.40.50.66.68.433.819.8

201729.90.50.57.49.632.120.0

201827.50.50.67.09.935.219.3

201923.40.50.47.010.738.419.6

Note: Data is not seasonllay adjusted.

Source: U.S. Energy Information Administration.

Changes in fuel types used to generate electricity are only one of several forces shaping price trends in wholesale and retail electric power prices. Shifts in demand, technological development, changes to market structure, and policy are all relevant drivers of power prices. Comparing medium- and long-term trends across generator types and regions with different fuel mixes helps demonstrate how price development has varied during the transition away from coal.

Price development by generator type

As described earlier, within the industry PPI for NAICS 221110 there exist two detailed indexes that independently track changes in prices for electric power generationone for power generation by utilities and the other for power generation by non-utilities. These two PPIs for electric power generation reflect differences in prices by generator type. Utility generators represent legacy firms that operate as vertically integrated utilities that generate, transmit, and distribute electricity. Utilities remain major players in the market, owning many of the large coal, nuclear, and hydroelectric power plants and are still primarily responsible for electric power distribution. That said, expansion of open access to transmission in 1996, which required utilities to charge fair-market rates to competing generators seeking to move energy over the utilities' high voltage transmission networks, has led to growth in the share of energy produced by non-utility generators. Many non-utility generators are independent power producers, which are usually smaller and are more likely to produce power using natural gas and non-hydroelectric renewable energy sources. Both utilities and non-utilities have experienced significant declines in their use of coal to generate electric power, with usage by utilities dropping from 60.4 percent in 2004 to 32.1 percent in 2019; while coal usage by independent power producers declined from 34.0 percent in 2004 to 13.9 percent in 2019. As discussed earlier, coal has been replaced with natural gas and renewable energy, with independent power producers more likely to switch towards renewable energy sources. Independent power producers produced 61.7 percent of their power in 2019 from natural gas and non-hydroelectric renewable energy; compared to 37.3 percent for utilities. In the same year, non-hydroelectric renewable energy sources accounted for 20.1 percent of net generation for independent power producers, compared with 2.5 percent for utilities.9

Chart 4 plots the two detailed indexes for electric power generation from 2004 to 2019. Over this period, non-utility generators did not raise prices as much as utility generatorsalthough they exhibited greater price volatility. Using annual average index data, the non-utility index rose 17.2 percent from 2004 to 2019, while the utility index rose 41.8 percent. Over this period, the utility index never fell below its January 2004 index value, while the non-utility index declined below its January 2004 index value in more than a fifth of the months between January 2004 and December 2019. This difference points to the impact that large quantities of existing coal plants have had on utility-based power generation, while independent power producers with fuel mixes that combine natural gas and renewable energy have been able to take advantage of falling gas prices and improving renewable technology.

View Chart Data

Chart 4. Producer Price Index (PPI) for electric power generation, by generator type, January 2004December 2019DateUtilitiesNon-utilities

January 2004100.0100.0

February 2004103.198.0

March 2004101.792.4

April 2004101.9104.5

May 2004102.6113.1

June 2004107.1113.2

July 2004108.0119.1

August 2004109.1117.3

September 2004106.298.2

October 2004102.7101.2

November 2004107.2106.9

December 2004104.8120.7

January 2005105.1111.7

February 2005105.9100.8

March 2005113.2105.9

April 2005109.8103.3

May 2005111.2117.1

June 2005113.1118.9

July 2005126.6114.2

August 2005142.5128.3

September 2005140.2135.7

October 2005133.0145.2

November 2005122.1127.5

December 2005134.1151.9

January 2006129.2128.5

February 2006129.2121.3

March 2006127.6109.6

April 2006124.7103.2

May 2006126.096.0

June 2006128.1101.8

July 2006134.7111.2

August 2006153.8121.8

September 2006131.6112.6

October 2006124.4104.2

November 2006130.7115.4

December 2006128.0119.2

January 2007123.7111.6

February 2007135.9127.9

March 2007132.1115.6

April 2007131.1117.0

May 2007131.5110.3

June 2007137.4114.2

July 2007140.0126.7

August 2007150.1118.7

September 2007139.2116.4

October 2007141.9114.0

November 2007136.3119.6

December 2007136.6123.4

January 2008136.5121.2

February 2008141.3133.2

March 2008143.3124.5

April 2008149.2137.5

May 2008149.5132.8

June 2008165.8120.3

July 2008170.7125.6

August 2008172.1139.0

September 2008159.2125.5

October 2008149.9123.5

November 2008142.4122.0

December 2008140.4120.0

January 2009141.0121.3

February 2009145.4113.6

March 2009142.2109.3

April 2009138.8103.0

May 2009140.599.5

June 2009139.9102.4

July 2009141.0107.3

August 2009150.2105.9

September 2009141.6101.7

October 2009142.9107.0

November 2009140.5114.9

December 2009144.0114.3

January 2010151.2118.6

February 2010150.7126.2

March 2010146.7120.8

April 2010144.4113.6

May 2010145.4106.6

June 2010147.4103.2

July 2010153.6106.9

August 2010163.2110.0

September 2010151.7105.9

October 2010144.9103.3

November 2010145.5106.7

December 2010149.9114.0

January 2011150.7126.1

February 2011150.4126.9

March 2011145.9115.5

April 2011145.7118.1

May 2011148.8118.8

June 2011159.1123.0

July 2011162.2125.4

August 2011166.0131.5

September 2011157.1122.7

October 2011143.1103.3

November 2011139.6100.8

December 2011142.097.2

January 2012136.2100.1

February 2012138.892.3

March 2012130.394.0

April 2012129.393.4

May 2012131.5102.9

June 2012135.5107.3

July 2012147.1106.1

August 2012151.299.9

September 2012142.2100.3

October 2012138.798.6

November 2012140.899.2

December 2012139.9102.5

January 2013141.1101.7

February 2013143.5101.0

March 2013144.099.3

April 2013144.8103.3

May 2013147.3113.6

June 2013148.7102.4

July 2013154.6112.9

August 2013153.998.3

September 2013151.6112.5

October 2013145.998.7

November 2013143.2104.9

December 2013149.6155.5

January 2014159.6199.8

February 2014181.9183.7

March 2014166.4151.7

April 2014156.2152.9

May 2014154.4111.7

June 2014159.4105.2

July 2014161.8107.5

August 2014161.8101.3

September 2014159.8104.6

October 2014152.099.3

November 2014151.4101.0

December 2014150.3106.8

January 2015144.8135.7

February 2015140.2107.8

March 2015143.1160.9

April 2015138.4107.9

May 2015137.5102.7

June 2015143.8101.6

July 2015150.9111.9

August 2015153.0101.3

September 2015149.895.8

October 2015139.690.2

November 2015134.889.1

December 2015133.886.5

January 2016131.988.4

February 2016130.887.0

March 2016123.985.5

April 2016128.982.8

May 2016128.185.9

June 2016134.895.3

July 2016140.593.9

August 2016146.098.2

September 2016142.794.0

October 2016138.487.5

November 2016132.286.1

December 2016138.694.9

January 2017142.0100.3

February 2017136.394.4

March 2017140.288.9

April 2017141.391.4

May 2017134.490.2

June 2017141.890.1

July 2017144.198.9

August 2017144.6100.0

September 2017147.099.1

October 2017141.394.6

November 2017138.997.7

December 2017137.896.8

January 2018153.7137.6

February 2018138.2109.0

March 2018134.4102.5

April 2018137.1109.2

May 2018136.699.0

June 2018146.1104.6

July 2018151.8118.0

August 2018169.6143.1

September 2018148.6111.6

October 2018150.5114.5

November 2018150.6121.2

December 2018158.1139.4

January 2019143.1113.8

February 2019150.6138.9

March 2019161.2132.4

April 2019143.3109.0

May 2019137.9108.7

June 2019148.2110.8

July 2019152.0109.6

August 2019154.9170.5

September 2019151.7172.0

October 2019149.8118.2

November 2019152.0115.3

December 2019144.1106.5

Note: Data is not seasonally adjusted.

Source: U.S. Bureau of Labor Statistics.

Price development by regional fuel mix

The electric power system remains regionalized. State-based utilities generally approve rates, while most power consumed in a region comes from the generating capacity in that region. Using Energy Information Administration (EIA) data and aggregating states into their census regions, the PPI program can compare price trends across the regions, by fuel mix.10 The figures in this section compare average price changes in residential electric power between regions with high or low capacity shares of the specific fuel types: coal, natural gas, renewables (excluding hydropower), and total renewables (including hydropower).11 In contrast, within the main PPI structure for NAICS 221122, regional PPIs for residential electric power are combined to create and aggregate indexes for overall residential electric power.

Exhibit 1 categorizes each Census regions sources of electric power by type of power source, assigning a descriptor of either low or high. Regions are grouped as low or high based on whether they are in the upper or lower half of all regions for share of each fuel type, using the average share from 2004 to 2019.

Exhibit 1. Use of electric power generation sources, by region, 200419RegionCoalNatural gasTotal renewablesRenewables (excluding hydropower)

New EnglandLowHighHighHigh

Middle AtlanticLowHighHighLow

South AtlanticHighHighLowLow

East North CentralHighLowLowLow

East South CentralHighLowLowLow

West North CentralHighLowHighHigh

West South CentralLowHighLowHigh

MountainHighHighHighHigh

PacificLowLowHighHigh

Source: U.S. Energy Information Administration.

As shown in chart 5, regions with high and low shares of capacity in coal plants have seen prices diverge significantly since 2010. Prices have risen at a faster rate and remained at higher levels in regions with higher shares of coal. This is not surprising given the 93.4 percent increase in the price for prepared bituminous coal from 2004 to 2019.12 Most of that increase happened between 2004 and 2010, when prices rose 79.8 percent.

View Chart Data

Chart 5. Producer Price Index (PPI) for residential electric power based on degree of coal utilization by region, January 2004December 2019DateHigh coal utilizationLow coal utilization

January 2004100.0100.0

February 2004100.199.8

March 2004100.2100.1

April 2004100.3100.8

May 2004102.0101.2

June 2004106.099.1

July 2004107.699.3

August 2004107.7100.1

September 2004107.8100.3

October 2004103.5103.9

November 2004101.4102.3

December 2004101.5102.6

January 2005102.5102.8

February 2005102.7103.1

March 2005102.8103.7

April 2005103.1103.2

May 2005104.1103.5

June 2005108.4105.0

July 2005110.4105.2

August 2005111.0105.4

September 2005110.8106.0

October 2005108.4109.8

November 2005107.8109.7

December 2005108.3109.9

January 2006111.3112.3

February 2006111.8112.7

March 2006110.9112.2

April 2006111.4112.6

May 2006112.0113.4

June 2006115.8113.1

July 2006117.0113.3

August 2006117.8114.2

September 2006118.1114.7

October 2006113.9113.5

November 2006111.9110.8

December 2006112.1110.8

January 2007114.1112.0

February 2007115.2112.1

March 2007114.6112.1

April 2007115.7111.6

May 2007117.1112.5

June 2007122.1116.2

July 2007124.1115.8

August 2007123.7115.7

September 2007123.3116.6

October 2007120.1113.7

November 2007118.3113.0

December 2007119.0113.5

January 2008121.0114.2

February 2008121.5112.5

March 2008121.6114.1

April 2008122.3115.7

May 2008123.4117.3

June 2008130.4118.9

July 2008132.9121.1

August 2008132.8121.0

September 2008132.7120.8

October 2008129.7119.3

November 2008129.4117.0

December 2008129.7117.2

January 2009132.4117.7

February 2009132.7118.5

March 2009132.2117.0

April 2009131.6116.9

May 2009131.9118.0

June 2009137.1116.9

July 2009138.2117.8

August 2009138.4116.6

September 2009138.5116.6

October 2009131.7117.6

November 2009131.3116.4

December 2009131.0117.2

January 2010131.2115.6

February 2010131.4116.9

March 2010131.9119.5

April 2010132.8120.7

May 2010133.2121.8

June 2010142.8122.5

July 2010145.0122.5

August 2010144.7122.9

September 2010145.0123.1

October 2010136.3122.9

November 2010135.2119.6

December 2010135.3120.8

January 2011136.4122.6

February 2011136.5123.7

March 2011136.8124.2

April 2011136.7124.3

May 2011137.7126.3

June 2011142.4127.4

July 2011144.5126.6

August 2011144.5127.1

September 2011144.2126.5

October 2011139.4126.3

November 2011138.2124.3

December 2011139.2124.5

January 2012139.0123.5

February 2012139.3123.7

March 2012139.2123.1

April 2012139.8122.8

May 2012141.9123.3

June 2012146.4122.4

July 2012147.2123.2

August 2012146.7123.9

September 2012146.8125.1

October 2012141.4124.3

November 2012141.3123.3

December 2012141.8124.7

January 2013142.0127.4

February 2013142.0126.6

March 2013142.1126.6

April 2013142.1126.6

May 2013143.2127.9

June 2013148.4128.7

July 2013149.9129.1

August 2013149.3129.2

September 2013148.9130.1

October 2013144.8128.5

November 2013143.8127.5

December 2013143.6129.0

January 2014145.7129.1

February 2014145.4127.3

March 2014145.7131.7

April 2014145.9132.7

May 2014146.4133.9

June 2014153.4135.2

July 2014154.3135.6

August 2014154.5136.1

September 2014155.8134.6

October 2014149.6135.2

November 2014148.2132.7

December 2014148.7133.0

January 2015150.3135.4

February 2015150.0134.6

March 2015150.0133.5

April 2015149.6133.3

May 2015150.0133.7

June 2015157.2135.1

July 2015158.9135.2

August 2015158.7134.9

September 2015157.5135.1

October 2015150.9134.0

November 2015149.3132.8

December 2015149.8132.4

January 2016149.3133.2

February 2016148.9131.7

March 2016148.9135.5

April 2016148.2133.0

May 2016148.8134.2

June 2016156.0134.9

July 2016157.3135.9

August 2016157.8136.8

September 2016157.6137.8

October 2016150.3136.7

November 2016148.9136.7

December 2016148.4137.5

January 2017150.9136.7

February 2017151.9139.2

March 2017152.6140.1

April 2017153.5137.2

May 2017153.9139.8

June 2017160.9139.9

July 2017163.0140.0

August 2017162.5140.4

September 2017161.3140.6

October 2017154.0140.8

November 2017153.4139.8

December 2017153.5139.0

January 2018154.8141.9

February 2018154.6142.8

March 2018154.7142.1

April 2018154.1140.3

May 2018154.2142.9

June 2018162.3145.1

July 2018162.2144.9

August 2018161.2145.0

September 2018160.9143.1

October 2018152.9144.0

November 2018152.6142.1

December 2018152.9141.2

January 2019154.2143.7

February 2019153.7143.6

March 2019153.3146.2

April 2019153.5145.5

May 2019154.0146.8

June 2019159.4152.9

July 2019163.1152.7

August 2019162.8152.8

September 2019162.5150.6

October 2019155.0148.0

November 2019151.7146.9

December 2019151.5147.3

Note: Low coal utilization regions are New England, Middle Atlantic, West South Central, and Pacific.

High coal utilization regions are South Atlantic, East North Central, East South Central, West North Central, and Mountain.

Source: U.S. Bureau of Labor Statistics.

Chart 6 compares the high and low groups by share of natural gas utilization for electric power generation, and indicates that regions with high penetration of natural gas saw prices rise at a slower rate since 2008. Regions with a low share of natural gas saw steeper price increases and exhibited sharper seasonal differences. This coincides with the overall downward trend in prices for natural gas, and its rise as an input to generation as compared to nuclear power and coal.13

View Chart Data

Chart 6. Producer Price Index (PPI) for residential electric power based on degree of natural gas utilization, January 2004December 2019DateHigh natural gas utilizationLow natural gas utilization

January 2004100.0100.0

February 200499.9100.2

March 2004100.1100.1

April 2004100.3100.8

May 2004101.6101.7

June 2004104.8100.6

July 2004105.7101.8

August 2004106.1102.0

September 2004106.3102.0

October 2004104.2102.8

November 2004101.4102.2

December 2004101.8102.2

January 2005102.5102.9

February 2005102.7103.2

March 2005103.2103.1

April 2005103.0103.4

May 2005104.0103.5

June 2005109.5103.1

July 2005110.4104.9

August 2005110.7105.5

September 2005111.2105.3

October 2005111.2105.8

November 2005110.9105.2

December 2005111.4105.3

January 2006113.7108.9

February 2006113.7110.0

March 2006112.7109.5

April 2006112.9110.5

May 2006113.6111.1

June 2006116.5112.0

July 2006117.0113.2

August 2006117.3114.8

September 2006117.6115.1

October 2006116.0110.3

November 2006113.7108.1

December 2006113.4108.7

January 2007114.0111.9

February 2007114.2113.4

March 2007114.5112.0

April 2007114.2113.6

May 2007115.0115.5

June 2007119.1120.3

July 2007119.8121.6

August 2007119.9121.0

September 2007120.3120.7

October 2007117.6117.1

November 2007116.4115.6

December 2007116.9116.3

January 2008118.0118.2

February 2008116.9118.9

March 2008118.1118.9

April 2008119.6119.4

May 2008120.9120.6

June 2008123.7128.2

July 2008126.5130.0

August 2008126.5129.7

September 2008126.4129.6

October 2008124.6126.4

November 2008122.7126.4

December 2008123.1126.3

January 2009125.0127.9

February 2009125.5128.4

March 2009124.2128.0

April 2009123.2128.7

May 2009123.8129.3

June 2009124.3134.8

July 2009125.6135.4

August 2009125.1135.3

September 2009124.8135.9

October 2009124.1128.3

November 2009123.0127.9

December 2009123.4127.7

January 2010122.2128.3

February 2010122.7129.1

March 2010124.4129.9

April 2010125.9130.3

May 2010126.4131.4

June 2010128.9142.1

July 2010129.5144.5

August 2010129.9143.8

September 2010129.7144.7

October 2010128.2134.3

November 2010125.0133.9

December 2010125.6134.6

January 2011127.2135.5

February 2011127.9135.7

March 2011128.3136.2

April 2011128.4136.0

May 2011130.4136.5

June 2011133.1140.4

July 2011133.4142.2

August 2011133.5142.5

September 2011133.2142.1

October 2011131.5137.2

November 2011128.3138.3

December 2011128.6139.3

January 2012127.9139.2

February 2012128.6138.8

March 2012128.1138.8

April 2012127.8139.8

May 2012129.5140.6

June 2012130.9144.1

July 2012131.4145.4

August 2012131.4145.6

September 2012131.7146.3

October 2012129.1141.7

November 2012127.9142.3

December 2012129.3142.4

January 2013129.9144.6

February 2013129.4144.5

March 2013129.6144.4

April 2013129.5144.5

May 2013131.2144.9

June 2013133.9149.3

July 2013135.2149.8

August 2013135.6148.5

September 2013135.8148.7

October 2013133.0145.3

November 2013131.1145.5

December 2013131.6145.9

January 2014132.6147.8

February 2014131.2147.5

March 2014134.2148.1

April 2014134.5148.9

May 2014136.4148.2

June 2014140.4153.5

July 2014141.4153.7

August 2014141.2155.1

September 2014139.9157.1

October 2014137.9152.0

November 2014135.1151.4

December 2014136.0151.0

January 2015137.5153.6

February 2015137.3152.7

March 2015136.6152.6

April 2015135.6153.2

May 2015136.3153.2

June 2015140.2159.2

July 2015140.6161.1

August 2015140.4161.0

September 2015140.3159.5

October 2015136.8154.0

November 2015134.6153.9

December 2015134.4154.4

January 2016133.0156.6

February 2016132.0156.0

March 2016134.5156.2

April 2016132.2155.9

May 2016134.0155.5

June 2016136.7162.4

July 2016138.2163.2

August 2016138.9163.8

September 2016139.2164.2

October 2016135.9157.5

November 2016134.1158.0

December 2016134.3157.9

January 2017134.7160.1

February 2017137.0160.6

March 2017137.1162.6

April 2017135.7162.9

May 2017138.3162.2

June 2017141.9167.1

July 2017142.3169.7

August 2017142.7168.7

September 2017142.3167.9

October 2017139.0162.4

November 2017138.0161.9

December 2017137.2162.6

January 2018138.5165.4

February 2018139.3165.0

March 2018138.1166.1

April 2018136.7165.5

May 2018139.0164.9

June 2018143.5172.2

July 2018143.5171.8

August 2018143.1171.0

September 2018143.0168.9

October 2018139.2163.9

November 2018137.3164.4

December 2018136.8164.7

January 2019138.4166.7

February 2019138.3166.0

March 2019139.2166.8

April 2019138.7167.2

May 2019139.6167.9

June 2019143.1176.8

July 2019145.4178.5

August 2019145.9177.4

September 2019144.8176.2

October 2019142.2166.8

November 2019138.0167.0

December 2019137.9167.3

Source: U.S. Bureau of Labor Statistics.

Reflected in chart 7, regions with higher penetration of renewable fuel (excluding hydroelectric power) saw slower price increases from 2004 to 2019. Electric power prices in regions with high shares of renewable fuel (excluding hydropower) experienced slower price growth and lower overall price levels from 2005 to 2015. Since 2015, the gap has closed and all regions have seen more similar price levels. For total renewable fuel, including hydropower, electric power prices in regions with high consumption of total renewable fuel did not rise as much from 2005 to 2019. (See chart 8.)

View Chart Data

Chart 7. Producer Price Index (PPI) for residential electric power based on degree of non-hydroelectric renewable utilization, by region, January 2004December 2019DateHigh renewables utilizationLow renewables utilization

January 2004100.0100.0

February 200499.9100.1

March 2004100.2100.0

April 2004101.1100.1

May 2004103.4100.3

June 2004103.1103.2

July 2004103.8104.3

August 2004104.7104.2

September 2004104.8104.4

October 2004106.8101.3

November 2004103.0100.8

December 2004103.3100.9

January 2005103.1102.3

February 2005103.6102.3

March 2005103.9102.6

April 2005103.8102.7

May 2005105.1102.8

June 2005107.6106.5

July 2005108.3108.1

August 2005108.7108.6

September 2005108.9108.7

October 2005110.6107.8

November 2005110.6107.1

December 2005111.1107.4

January 2006113.3110.5

February 2006113.8111.1

March 2006112.5110.7

April 2006112.6111.4

May 2006113.8111.6

June 2006115.1114.4

July 2006115.3115.5

August 2006116.5116.1

September 2006117.1116.3

October 2006114.3113.2

November 2006111.0111.7

December 2006111.0111.9

January 2007111.4114.5

February 2007111.4115.8

March 2007111.4115.1

April 2007111.4115.9

May 2007112.6117.1

June 2007117.4121.2

July 2007118.0122.5

August 2007117.2122.6

September 2007117.6122.6

October 2007114.6119.5

November 2007113.4118.2

December 2007114.3118.5

January 2008114.8120.5

February 2008113.2121.1

March 2008114.9121.0

April 2008116.6121.7

May 2008119.2122.0

June 2008123.1127.3

July 2008126.6128.9

August 2008126.0129.2

September 2008125.7129.1

October 2008122.7127.3

November 2008120.1127.2

December 2008120.0127.7

January 2009120.5130.5

February 2009121.3130.7

March 2009119.9130.1

April 2009119.6129.8

May 2009120.5130.1

June 2009122.0133.5

July 2009122.9134.6

August 2009122.2134.4

September 2009121.5135.0

October 2009119.0130.9

November 2009118.0130.3

December 2009118.6130.1

January 2010119.1128.8

February 2010120.1129.2

March 2010122.6129.6

April 2010123.8130.6

May 2010125.1130.8

June 2010128.5138.5

July 2010129.0140.3

August 2010129.7139.8

September 2010129.8140.2

October 2010126.2134.0

November 2010122.9132.9

December 2010124.4132.8

January 2011125.0134.8

February 2011126.6134.4

March 2011127.9134.2

April 2011128.2133.9

May 2011130.1134.9

June 2011133.3138.0

July 2011133.9139.2

August 2011134.6139.0

September 2011133.6139.1

October 2011130.7136.2

November 2011128.1135.5

December 2011128.7136.2

January 2012128.0135.7

February 2012127.8136.4

March 2012127.9135.8

April 2012128.1136.0

May 2012129.9137.0

June 2012131.4139.9

July 2012132.2140.6

August 2012132.8140.2

September 2012132.9141.1

October 2012130.1137.2

November 2012129.3137.0

December 2012129.6138.4

January 2013132.7138.1

February 2013132.8137.5

March 2013132.4137.9

April 2013132.1138.1

May 2013134.8138.2

June 2013139.0140.8

July 2013139.7142.1

August 2013139.9141.5

September 2013139.9141.8

October 2013136.1139.3

November 2013134.7138.5

December 2013135.3139.0

January 2014135.9140.8

February 2014136.5138.7

March 2014137.0141.8

April 2014139.0141.3

May 2014139.9142.1

June 2014145.6145.7

July 2014146.3146.4

August 2014147.3146.3

September 2014146.2147.3

October 2014142.3144.4

November 2014139.1143.6

December 2014139.1144.3

January 2015141.4146.0

February 2015140.9145.4

March 2015140.4145.0

April 2015140.4144.4

May 2015142.6143.4

June 2015146.0149.2

July 2015146.4150.7

August 2015146.6150.2

September 2015146.1149.5

October 2015142.0145.0

November 2015139.2144.7

December 2015138.7145.2

January 2016140.0144.4

February 2016139.2143.4

March 2016140.2145.5

April 2016139.8143.2

May 2016141.6143.4

June 2016145.6148.1

July 2016146.4149.6

August 2016147.5150.0

September 2016147.6150.5

October 2016143.3145.5

November 2016142.2144.8

December 2016143.0144.4

January 2017141.5147.4

February 2017143.5148.7

March 2017145.8148.4

April 2017143.4149.0

May 2017144.6150.5

June 2017148.3154.8

July 2017148.8156.6

August 2017149.1156.2

September 2017149.2155.1

October 2017146.5149.8

November 2017145.1149.5

December 2017144.1149.8

January 2018146.8151.2

February 2018146.8151.8

March 2018147.1151.0

April 2018146.6149.6

May 2018148.9149.8

June 2018154.3155.5

July 2018154.6155.1

August 2018154.5154.2

September 2018152.1154.3

October 2018149.1149.2

November 2018147.4148.8

December 2018147.2148.6

January 2019149.1150.3

February 2019148.5150.1

March 2019151.2149.6

April 2019151.1149.5

May 2019152.2150.1

June 2019161.2153.2

July 2019161.7156.4

August 2019161.2156.6

September 2019158.8156.4

October 2019153.5151.0

November 2019150.7148.9

December 2019150.4149.2

Source: U.S. Bureau of Labor Statistics.

View Chart Data

Chart 8. Producer Price Index (PPI) for residential electric power based on degree of total renewable utilization, by region, January 2004December2019DateHigh renewables and hydro utilizationLow renewables and hydro utilization

January 2004100.0100.0

February 2004100.1100.0

March 2004100.2100.1

April 2004101.1100.1

May 2004103.3100.4

June 2004101.2104.5

July 2004101.8105.8

August 2004102.1106.2

September 2004102.2106.3

October 2004104.1103.4

November 2004101.5102.0

December 2004101.5102.3

January 2005102.0103.0

February 2005102.2103.4

March 2005102.5103.6

April 2005102.6103.6

May 2005103.5104.1

June 2005103.4109.6

July 2005104.1111.2

August 2005104.4111.7

September 2005104.0112.3

October 2005105.9111.3

November 2005105.7110.8

December 2005106.1111.1

January 2006107.6114.7

February 2006107.9115.4

March 2006107.1114.6

April 2006107.3115.3

May 2006107.9116.0

June 2006107.9119.7

July 2006108.3120.7

August 2006109.7121.1

September 2006109.7121.7

October 2006106.6118.9

November 2006105.2115.9

December 2006106.1115.5

January 2007106.9117.8

February 2007106.9119.0

March 2007107.0118.3

April 2007107.8118.5

May 2007108.7119.9

June 2007113.9123.8

July 2007115.3124.4

August 2007114.7124.4

September 2007114.2125.0

October 2007110.0122.8

November 2007109.3121.1

December 2007109.8121.7

January 2008110.9123.3

February 2008110.9122.6

March 2008110.9123.9

April 2008110.8125.9

May 2008112.4126.9

June 2008115.1133.1

July 2008115.4137.0

August 2008115.1137.1

September 2008114.9137.0

October 2008112.5134.8

November 2008112.0133.0

December 2008111.9133.6

January 2009113.6135.4

February 2009113.8136.1

March 2009113.7134.5

April 2009114.1133.7

May 2009114.7134.3

June 2009116.8137.1

July 2009117.6138.3

August 2009118.3137.2

September 2009117.9137.5

October 2009115.7133.1

November 2009115.1132.2

December 2009115.3132.3

January 2010115.7131.1

February 2010116.7131.5

March 2010118.0132.9

April 2010118.3134.5

May 2010119.0135.2

June 2010121.5143.5

July 2010123.1144.6

August 2010123.2144.5

September 2010122.6145.3

October 2010119.7138.7

November 2010119.0135.6

December 2010119.4136.3

January 2011121.4137.3

February 2011121.5138.1

March 2011121.0139.1

April 2011121.7138.6

May 2011123.8139.5

June 2011126.2143.1

July 2011126.6144.5

August 2011126.8144.7

September 2011126.8144.0

October 2011124.4140.7

November 2011123.0139.1

December 2011123.8139.6

January 2012123.3139.1

February 2012123.6139.4

March 2012123.2139.1

April 2012123.1139.6

May 2012124.4141.0

June 2012127.1142.9

July 2012127.1144.3

August 2012127.7143.9

September 2012128.4144.3

October 2012124.7141.1

November 2012124.3140.5

December 2012125.5141.2

January 2013127.7141.7

February 2013127.3141.5

March 2013127.6141.3

April 2013127.7141.2

May 2013128.6142.7

June 2013131.9146.0

July 2013132.4147.4

August 2013132.3147.0

September 2013133.2146.7

October 2013128.6144.7

November 2013128.3143.2

December 2013129.4143.2

January 2014130.4144.8

February 2014128.2144.7

March 2014131.8145.6

April 2014131.8146.5

May 2014133.2146.9

June 2014136.0152.8

July 2014135.9154.0

August 2014136.7154.1

September 2014136.0154.7

October 2014133.4151.0

November 2014132.8148.1

December 2014132.2149.2

January 2015134.5150.9

February 2015134.0150.4

March 2015134.0149.7

April 2015134.3148.8

May 2015133.7150.0

June 2015138.4154.8

July 2015138.2156.6

August 2015137.5156.8

September 2015137.7155.6

October 2015134.8150.3

November 2015134.7147.9

December 2015135.4147.5

January 2016136.7146.7

February 2016135.4146.1

March 2016138.5146.6

April 2016136.5145.5

May 2016137.2146.6

June 2016140.8151.6

July 2016140.9153.6

August 2016141.2154.5

September 2016141.5154.9

October 2016138.1149.3

November 2016138.6147.4

December 2016138.7147.5

January 2017139.2149.0

February 2017140.5150.9

March 2017140.3152.4

April 2017140.2151.3

May 2017143.0151.6

June 2017144.9157.2

July 2017144.8159.4

August 2017145.5158.8

September 2017145.5157.7

October 2017143.0152.4

November 2017142.0151.7

December 2017141.7151.5

January 2018144.5152.8

February 2018145.5152.6

March 2018145.2152.4

April 2018144.0151.4

May 2018145.3152.4

June 2018151.2157.8

July 2018150.8157.9

August 2018150.8156.9

September 2018149.5156.2

October 2018146.9150.7

November 2018145.3150.3

December 2018144.4150.6

January 2019146.7152.0

February 2019145.8152.1

March 2019147.0152.7

April 2019146.6152.8

May 2019148.0153.1

June 2019154.7158.1

July 2019154.4161.8

August 2019154.6161.4

September 2019154.6159.5

October 2019149.0154.3

November 2019147.5151.3

December 2019147.1151.6

Source: U.S. Bureau of Labor Statistics.

It is worth noting that the regions defined as high renewable fuel areas also are areas with substantial populations and high demand for electric power. Intermittency and location-specific availability of renewable fuel for electric power generation means that as the share of generating capacity from sources such as solar and wind rise, the degree of price volatility more heavily depends on the ability of transmission systems to cope with swings in availability. Given that marginal producers determine prices in deregulated energy auctions, a grid ill-prepared for a sudden drop in renewable fuel power generating capacity could see generators with the highest fuel costs (e.g., peaking oil generators) driving price changes. Prices for residential electric power in regions with high utilization of renewable power depend on non-renewable power-generating capacity to a higher degree than do regions with low usage of renewables fuel. The greater price stability linked to hydropower generation, and the smaller spikes during peak demand seasons, help demonstrate how intermittency can combine with existing grid characteristics to push prices higher in periods of high demand and low excess capacity.

Conclusion

In general, prices received by the electric power generation industry have seen only modest increases since the PPI for this industry was introduced in late 2003. Price increases for power generation have moderated in large part due to increasing competition, including growth in smaller-scale independent power producers that use more natural gas and renewable fuel, rather than coal, to generate electricity. The wholesale electricity market has benefited from low natural gas prices, as well as, falling capital costs for renewable energy from wind and solar sources (which have zero fuel cost and often only modest operating and maintenance costs). Over the same period, coal prices surged 93.4 percent from 2004 to 2019, while wholesale electricity prices increased 39.2 percent and retail electricity prices advanced 49.4 percent. Most of the increase in wholesale electricity prices occurred from 2004 to 2010, when coal was still the dominant fuel in the U.S. electricity sector.

Wholesale and retail power prices have been buffered from the effect of higher prices for coal by fuel-switching to natural gas and renewable fuel. Identifying the different price trends for residential electric power by regional fuel mix shows broad differences in how price trends by fuel source have varied between 2004 and 2019. Regions with higher use of natural gas and renewable fuel for electric power generation, in particular hydroelectric power, have seen prices rise more slowly than prices in regions that have predominantly used coal. Although it is not possible to attribute the differences in the retail price development solely to fuel mix, the significant role that capacity investment and fuel costs play in determining distribution rates suggests that at least part of the variation between these regions is explained by capacity shifts in the industry.

This Beyond the Numbers article was prepared by William B. McClain, an economist in the Office of Prices and Living Conditions, U.S. Bureau of Labor Statistics. Email: mcclain.william@bls.gov. Telephone: (202) 691-7893.

Information in this article will be made available upon request to individuals with sensory impairments. Voice phone: (202) 691-5200. Federal Relay Service: 1-800-877-8339. This article is in the public domain and may be reproduced without permission.

Suggested citation:

William B. McClain, Trends in electricity prices during the transition away from coal, Beyond the Numbers: Prices and Spending, vol. 10, no. 10 (U.S. Bureau of Labor Statistics, May 2021), https://www.bls.gov/opub/btn/volume-10/trends-in-electricity-prices-during-the-transition-away-from-coal.htm

Notes

1 U.S. coal consumption continues to decline across all sectors, Today in Energy (U.S. Energy Information Administration, June 2020), https://www.eia.gov/todayinenergy/detail.php?id=44115; U.S. coal-fired electricity generation in 2019 falls to 42-year low, Today in Energy (U.S. Energy Information Administration, May 2020), https://www.eia.gov/todayinenergy/detail.php?id=43675; and Fred Pearce, As Investors and Insurers Back Away, the Economics of Coal Turn Toxic, Yale Environment 360 (March 10, 2020), https://e360.yale.edu/features/as-investors-and-insurers-back-away-the-economics-of-coal-turn-toxic.

2 For more information about the structure and introduction of the PPI for NAICS 221110 (Electric power generation) and NAICS 221121 (Electric bulk power transmission and control), see New Producer Price Indexes for Electric Power Generation, NAICS 221110, and Electric Bulk Power Transmission and Control, NAICS 221121 (U.S. Bureau of Labor Statistics, October 2005), https://www.bls.gov/ppi/ppipower.htm.

3 The United States Census Bureau designates nine census regions: New England, Middle Atlantic, South Atlantic, East North Central, East South Central, West North Central, West South Central, Mountain, and Pacific. For a map and more information, see Census Regions and Divisions of the United States (U.S. Census Bureau), https://www2.census.gov/geo/pdfs/maps-data/maps/reference/us_regdiv.pdf.

4 For more information on U.S. electricity markets, see U.S. Electricity Grid and Markets (U.S. Environmental Protection Agency), https://www.epa.gov/greenpower/us-electricity-grid-markets; and Electric Power Markets, (Federal Energy Regulatory Commission, October 2020), https://www.ferc.gov/industries-data/market-assessments/overview/electric-power-markets.

5 The two primary energy auctions are the day-ahead futures market that ensures enough capacity is available to meet expected future demand and a real-time market that balances supply to address deviations of demand from the day-ahead schedule. A large quantity of energy in deregulated markets is sold on the day-ahead market. For more detailed information on the structure of wholesale auctions, see Lesson 8: Day-ahead and Real-time Energy Markets from EBF 483: introduction to electricity markets, Penn State College of Earth and Mineral Sciences, https://www.e-education.psu.edu/ebf483/node/527.

6 The PPI program also publishes a commodity index for electric power (PPI 054) using the same microdata employed to calculate the PPI for NAICS 221122, electric power distribution. This commodity index is available unadjusted (WPU054) and seasonally adjusted (WPS054). The seasonally adjusted version of this index accounts for identifiable, historical seasonal variations in the index. Long-term trends (12-month and annual rates of change) are comparable between the not-seasonally-adjusted and seasonally-adjusted commodity indexes, as well as to the industry index.

7 Distribution prices are the result of complicated regulatory proceedings that require a full accounting of a utilitys rate base and expenses. A utilitys rate base includes the full set of assets that will earn a return, meaning changes in rate bases will reflect capital investment and plant retirement. Inclusion of operating and maintenance costs results in a pass-through of general inflation, as well as fuel- and plant-specific inflation. In addition to long-term trend components that drive prices up, short-term fluctuations in fuel costs will also pass through to distribution prices.

8 Stephen York, Drilling deep into PPI indexes to understand regional variations in natural gas price movements, Beyond the Numbers: Prices and Spending, vol. 7, no 1 (U.S. Bureau of Labor Statistics, February 2018), https://www.bls.gov/opub/btn/volume-7/drilling-deep-into-ppi-indexes-to-understand-regional-variations-in-natural-gas-price-movements.htm?view_full.

9 For more information, see tables 3.2 and 3.3 from the U.S. Energy Information Administration, Electricity: Electric Power Annual, https://www.eia.gov/electricity/annual/.

10 The Energy Information Administration collects detailed generator data at the state-level on Form EIA-860 and makes these data publicly available; see Form EIA-860 detailed data with previous form data (EIA-860A/860B) (U.S. Energy Information Administration, September 2020), https://www.eia.gov/electricity/data/eia860/.

11 Residential prices are used because the PPI disaggregates by region and end-user at the same time. Residential end-users typically account for a plurality of electricity sales. From 2008 to 2018, they were responsible for 37.6 percent of total sales of electricity in the United States, compared with 35.9 percent for commercial users and 26.3 percent for industrial users. (See table 2.5 in the EIAs Electric Power Annual.) Residential consumers had the largest share of sales in each year in that time period. In general, the price trends for residential consumers presented in this article are similar for commercial and industrial end-users. One notable difference is that commercial and industrial users, due to higher average usage levels and lighter regulation, often display greater month-over-month variability in rates.

12 To obtain PPI data for prepared bituminous coal and lignite, not seasonally adjusted, see https://data.bls.gov/timeseries/WPU051209?from_year=2001.

13 To obtain PPI data for natural gas, not seasonally adjusted, see https://data.bls.gov/timeseries/WPU0531?from_year=2001.

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