How Affordable is Your Electricity? Comparing Electric Rates, Bills, and Burden

Nearly 1 in 3 US residential household struggles to pay their electric bill. With so many folks struggling, it raises a question: What makes electricity “affordable?”

Do you know what you pay for electricity?

It’s okay if you don’t. A lot of folks probably don’t.

The most commonly used data source for calculating the average retail electricity rate* is from the Energy Information Agency (EIA), part of the US Department of Energy. EIA reports data on electricity price ($/kWh). This value takes your average monthly bill ($), divided by the average energy consumption in terms of kilowatt-hours (kWh).

Straightforward enough.

Using this average makes Southern and Western states look like they have affordable energy (Map 1). I often hear utilities and government offiicals in the South bragging how low their rates are. They’ll point to the high rates of Massachusetts, California, New York, or Hawaii for comparison.

Map 1: Average residential retail electric rates. Higher rates tend to be concentrated in the northeast, California, Alaska, and Hawaii. (EIA, 2017)

Looking at this map, California, and Northeastern states do look expensive…

But such conclusions aren’t as cut and dry as you might think.

At best, rates tell you very little. At worst, fixating on rates could mislead people into thinking electricity in some regions is more affordable than it really is.

Why?

Rates don’t reflect how much energy the average customer consumes. Bills, on the other hand, are what households pay every month.

Bills, bills, bills

Bills are a better metric on how affordable electricity is because that’s what you have to pay each month. For many struggling households, the total electricity bill plays a determining factor in how much money you’ll have to spend on other things.

And, somewhat unintuitively, bills are comparatively lower in many of the “high rates” states (Map 2). Meanwhile, the “low rates” southeastern states begin to look expensive.

When we were only looking at rates, Mississippi, Georgia, Alabama, and South Carolina all looked like they had affordable electricity. However, residential customers in those states have some of the highest bills in the country.

Why?

Low bill states tend to have policies that enable customers to lower their bills. Rooftop solar, market competition, and even rate structure can translate into savings for customers. But mostly, the credit belongs to energy efficiency.

Map 2: Average residential electric bills. Looking at bills, rather than rates, helps illuminate where customers are paying more for electricity. (EIA, 2017)

Massachusetts which had the 4^th highest rates but the 36^th lowest bills. Massachusetts is ranked 1st in energy efficiency by ACEEE.

California, which had the 7^th highest rates but the 15^th lowest bills. California is ranked 2^nd in energy efficiency by ACEEE.

Louisiana has the 2^nd lowest rates but only the 34^th lowest bills. Louisiana is ranked 47^th by ACEEE in terms of energy efficiency.

Mississippi has the 15^th lowest rates but has the 10^th highest bills. It was ranked 44^th by ACEEE in terms of energy efficiency.

Other “low rates” states, like Alabama, Kentucky, Arkansas, Georgia, and South Carolina, all have lower than average rates but higher than average bills. These states also rank low in energy efficiency.

But even bills only tell part of the story.

Electricity burden

While the average bill in Hawaii or Connecticut is higher than the national average (Hawaii has the highest average bill, Connecticut has the 3^rd highest), average household income in those states is also higher than the national average. In both Connecticut and Hawaii, the average household spends 2.3% of their annual income on electricity. The national average is also 2.3%.

Energy burden is the percent of one’s income you spend on all energy (electricity, heating, gasoline, etc.…). Electricity is one part of the energy burden (Map 3).

Map 3: Percent of pre-tax income that goes to electricity bill (Electricity Burden). Alabama, Mississippi, and South Carolina all have below-average rates—but residential consumers in those states suffer the highest electricity burden. (Pre-tax income data: US Census Bureau, 2017.)

The analysis presented here is limited to averages. The average income. The average consumption of electricity.

This analysis doesn’t account for intrastate variances in household incomes. Nor does it account for differences in electricity consumption. It is a simple comparison of the average bill as a percent of average income. Far from a perfect measure, but it’s still the next step in looking at electricity affordability.

Looking at averages isn’t to say that folks in states with lower than average electricity burden don’t also struggle to pay their bills. Yes, lower income folks do consume less but they do typically spend a higher percentage of their income on energy overall. The energy burden on low-income households is real and substantial. It is real in all 50 states and in the District of Columbia, regardless of averages.

So what good is this analysis?

The analysis does illustrate how misleading the focus on rates is.

Bills—what people actually pay—can look very different from rates. Focusing on rates distracts from the important policy question: How can we ensure that energy is affordable?

This analysis highlights that the low rates of the South are a poor indication of electric affordability in those states.

Next month I’ll be presenting at an annual conference of consumer advocates. Consumer advocates have long been focused on electricity affordability. Energy efficiency is a great step in making electricity more affordable. Energy efficiency helps avoid or defer expensive investments that utilities would otherwise have to make, which means it helps all customers save money. Energy efficiency helps consumers lower their bills. And, energy efficiency policies and programs can target efforts to make sure that all consumer groups can benefit and participate in efficiency programs.

What follows is a list of states and ranks for their rates, bills, ACEEE energy efficiency score, and percent of income spent on electricity (burden). The number in each cell reflects that state’s rank, from low to high. So, for example, Alabama is the 28^th cheapest state for rates, but the worst state in terms of electricity burden.

* This “rate” isn’t the same as the variable rate of your electric bill—the amount you pay for each kWh you use or the amount of money you save for each kWh you conserve. For this analysis, I’ve only looked at the retail rates and bills of residential customers.