That surge is a major problem for the economy \u2014 and for President Trump. On the campaign trail, Trump vowed to cut Americans\u2019 electricity bills in half within his first year in office. \u201cYour electric bill \u2014 including cars, air conditioning, heating, everything, your total electric bill \u2014 will be 50% less. We\u2019re going to cut it in half,\u201d he said.<\/p>\n
Now Trump has mysteriously stopped talking about that pledge, and on Tuesday he blamed renewables for rising electricity rates. Even Trump\u2019s Secretary of Energy Chris Wright has acknowledged that costs are doing the opposite<\/a> of what the president has promised.<\/p>\n Trump\u2019s promise to cut electricity rates in half was always ridiculous. But while his administration is likely making the electricity crisis worse, the roots of our current power shock did not begin in January. <\/p>\n Why has electricity gotten so much more expensive over the past five years? The answer, despite what the president might say, isn\u2019t renewables. It has far more to do with the part of the power grid you\u2019re most familiar with: the poles and wires outside your window. <\/p>\n How electricity costs are set<\/p>\n Before we begin, a warning: Electricity prices are weird. <\/p>\n In most of the U.S. economy, markets set prices for goods and services in response to supply and demand. But electricity prices emerge from a complicated mix of regulation, fuel costs, and wholesale auction. In general, electricity rates need to cover the costs of running the electricity system \u2014 and that turns out to be a complicated task. <\/p>\n You can split costs associated with the electricity system into three broad segments. The biggest and traditionally the most expensive part of the grid is generation \u2014 the power plants and the fuels needed to run them. The second category is transmission, which moves electricity across long distances and delivers it to local substations. The final category is distribution, the poles and wires that get electricity the \u201cthe last mile\u201d to homes and businesses. (You can think of transmission as the highways for electricity and distribution as the local roads.)<\/p>\n In some states, especially those in the Southeast and Mountain West, monopoly electricity companies run the entire power grid \u2014 generation, transmission, and distribution. A quasi-judicial body of state officials regulates what this monopoly can do and what it can charge consumers. These monopoly utilities are supposed to make long-term decisions in partnership with these state commissions, and they must get their permission before they can raise electricity rates. But when fuel costs go up for their power plants \u2014 such as when natural gas or oil prices spike \u2014 they can often \u201cpass through\u201d those costs directly to consumers. <\/p>\n In other states, such as California or those in the Mid-Atlantic, electricity bills are split in two. The \u201cgeneration\u201d part of the bill is set through regulated electricity auctions that feature many different power plants and power companies. The market, in other words, sets generation costs. But the local power grid \u2014 the infrastructure that delivers electricity to customers \u2014 cannot be handled by a market, so it is managed by utilities that cover a particular service area. These local \u201ctransmission and distribution\u201d utilities must get state regulators\u2019 approval when they raise rates for their part of the bill.<\/p>\n The biggest driver of higher costs: poles and wires<\/p>\n The biggest driver of the power grid\u2019s rising costs is \u2026 the power grid itself. <\/p>\n Historically, generation \u2014 building new power plants, and buying the fuel to run them \u2014 has driven the lion\u2019s share of electricity rates. But since the pandemic, the cost of building the distribution system has ballooned. <\/p>\n Electricity costs are \u201cnow becoming a wires story and less of an electrons story,\u201d Madalsa Singh<\/a>, an economist at the University of California Santa Barbara, told me. In 2023, distribution made up nearly half of all utility spending, up from 37% in 2019, according to a recent Lawrence Berkeley National Laboratory report<\/a>.<\/p>\n Where are these higher costs coming from? When you look under the hood, the possibly surprising answer is: the poles and wires themselves. Utilities spent roughly $6 billion more on \u201coverhead poles, towers, and conductors\u201d in 2023 than in 2019, according to the Lawrence Berkeley report. Spending on underground power lines \u2014 which are especially important out West to avoid sparking a wildfire \u2014 increased by about $4 billion over the same period. <\/p>\n Spending on transformers also surged. Transformers, which connect different circuits on the grid and keep the flow of electricity constant, are a crucial piece of transmission and distribution infrastructure. But they\u2019ve been in critically short supply more or less since the supply chain crunch of the pandemic. Utility spending on transformers has more than doubled<\/a> since 2019, according to Wood Mackenzie. <\/p>\n At least some of the costs are hitting because the grid is just old, Singh said. As equipment reaches the end of its life, it needs to be upgraded and hardened. But it\u2019s not completely clear why that spike in distribution costs is happening now as opposed to in the 2010s, when the grid was almost as old and in need of repair as it was now. <\/p>\n Some observers have argued that for-profit utilities are \u201cgoldplating\u201d distribution infrastructure, spending more on poles and wires because they know that customers will ultimately foot the bill for them. But when Singh studied California power companies, she found that even government-run utilities \u2014 i.e. utilities without private investors to satisfy \u2014 are now spending more on distribution than they used to, too. Distribution costs, in other words, seem to be going up for everyone. <\/p>\n Sprawling suburbs in some states may be driving some of those costs, she added. In California, people have pushed farther out into semi-developed or rural land in order to find cheaper housing. Because investor-owned utilities have a legal obligation to get wires and electricity to everyone in their service area, these new and more distant housing developments might be more expensive to connect to the grid than older ones. <\/p>\n These higher costs will usually appear on the \u201ctransmission and distribution\u201d part of your power bill \u2014 the \u201cwires\u201d part, if it is broken out. What\u2019s interesting is that as a share of total utility investment, virtually all of the cost inflation is happening on the distribution side of that ledger. While transmission costs have fluctuated year to year, they have hovered around 20% of total utility investment since 2019, according to the Lawrence Berkeley Labs report.<\/p>\n Higher transmission spending might eventually bring down electricity rates because it could allow utilities to access cheaper power in neighboring service areas \u2014 or connect to distant solar or wind projects. (If renewables were driving up power prices as the president claims, you might see it here, in the \u201ctransmission\u201d part of the bill.) But Charles Hua, the founder and executive director of the think tank PowerLines, said that even now, most utilities are building out their local grids, not connecting to power projects that are farther away.<\/p>\n The rising cost of natural disasters<\/p>\n The second biggest driver of higher electricity costs is disasters \u2014 natural and otherwise.<\/p>\n In California, ratepayers are now partially footing the bill for higher insurance costs associated with the risk of a grid-initiated wildfire, Sam Kozell<\/a>, a researcher at the E9 Insight, told me. Utilities also face higher costs whenever they rebuild the grid after a wildfire because they install sensors and software in their infrastructure that might help avoid the next blaze.<\/p>\n Similar stories are playing out elsewhere. Although the exact hazards vary region by region, some utilities and power grids have had to pay steep costs to rebuild from disasters or prevent the likelihood of the next one occurring.<\/p>\n In the Southeast, for instance, severe storms and hurricanes have knocked out huge swaths of the distribution grid, requiring emergency line crews to come in and rebuild. Those one-time, storm-induced costs then get recovered through higher utility rates over time. <\/p>\n Why have costs gone up so much this decade? Wildfires seem to grow faster now<\/a> because of climate change \u2014 but wildfires in California are also primed to burn by a century of built-up fuel in forests. The increased disaster costs may also be partially the result of the bad luck of where storms happen to hit. Relatively few hurricanes made landfall in the U.S. during the 2010s \u2014 just 13<\/a>, most of which happened in the second half of the decade. Eleven hurricanes have already come ashore in the 2020s. <\/p>\n A long-delayed electricity shock from Ukraine<\/p>\n Because fuel costs are broadly seen as outside a utility\u2019s control, regulators generally give utilities more leeway to pass those costs directly through to customers. So when fuel prices go up, so do rates in many cases.<\/p>\n The most important fuel for the American power grid is natural gas, which produces more than 40% of American electricity. In 2022, surging demand and rising European imports caused American natural gas prices to increase more than 140%. But it can take time for a rise of that magnitude to work its way to consumers, and it can take even longer for electricity prices to come back down.<\/p>\n Although natural gas prices returned to pre-pandemic levels by 2023, utilities paid 30% more for fuel and energy that year than they did in 2019, according to Lawrence Berkeley National Lab. That\u2019s because higher fuel costs do not immediately get processed in power bills.<\/p>\n The ultimate impact of these price shocks can be profound. North Carolina\u2019s electricity rates rose from 2017 to 2024, for instance, largely because of natural gas price hikes, according to an Environmental Defense Fund analysis<\/a>.<\/p>\n The very beginning of data center-induced power growth <\/p>\n The final contributor to higher power costs is the one that has attracted the most worry in the mainstream press: There is already more demand for electricity than there used to be.<\/p>\n