One View of Primary Drivers of Price Changes
Branko Terzic
In an earlier commentary, I explained how various electric utility costs were eventually included in electric utility rates. All costs approved by the regulator, capital and operating, are included in the electric utility’s new annual revenue requirement request in a rate case. That’s the “how.” As to the question of “what” cost increases have influenced electric rates recently a Lawrence Berkeley National Laboratory recent report posted on LinkedIn by Dr. Ryan Wiser, one of the authors, provides some answers.
The Berkeley Lab report “Factors Influencing Recent Trends in Retail Electricity Prices in the United States” reviews electric utility rate cases 2024-2025 and lists the most common rate increase drivers.
Primary Drivers of Price Changes 2024-2025
(Numbers indicate instances)
Three of these “primary” drivers (wholesale power, capacity prices and transmission costs) are mostly related to actions of the Federal Energy Regulatory Commission (FERC) supervised Independent System Operators (ISOs). The other drivers are costs subject to review by state regulators. In my experience there are multiple drivers in each rate case beyond the “primary driver” and it takes a detailed look at the rate case filing to identify the individual factors affecting the revenue requirement.
The current electric policy issues being discussed include, among others: 1) why electricity rates are increasing in many parts of the country and 2) whether the increases are “affordable.” This study provides some answers for the first question. However, it will be critiqued based on methodology and on the fact that some observers won’t like the conclusion. That’s OK as I am sure more studies are on the way.
https://emp.lbl.gov/publications/factors-influencing-recent-trends
The Honorable Branko Terzic is a former Commissioner on the U.S. Federal Energy Regulatory Commission and State of Wisconsin Public Service Commission, in addition to energy industry experience was a US Army Reserve Foreign Area Officer ( FAO) for Eastern Europe (1979-1990). He hold a BS Engineering and honorary Doctor of Sciences in Engineering (h.c.) both from the University of Wisconsin- Milwaukee.
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