Electricity Rate Increase Drivers

 
 

Forecasted Power Costs

The Pacific Northwest Utilities Conference Committee’s Northwest Regional Forecast for 2024 estimates that electricity demand will grow by over 30% in the next 10 years.

This rising demand, coupled with coal plant closures around the country and delays to new resource development, has contributed to higher costs for market purchases.

What’s Happening in other States?

Oregonians are not alone in seeing rate increases. The 26% increase in Oregon’s average retail price is only slightly more than a nearly 24% increase nationwide.

Oregon residential customers’ nearly 30% increase is notably higher than the nationwide increase of 21%. Even so, Oregon residential customers have seen a smaller percentage increase than customers nine other states, including in the District of Columbia (36%), Ohio (34%), Nevada (37%), and California (48%).

Wildfires and Extreme Weather

With increasing numbers of wildfires and extreme weather events in recent years, utility expenditures to mitigate against and respond to these events have also increased.

Pursuant to Senate Bill 762 (2021), electric utilities across Oregon must develop and file wildfire mitigation plans with the OPUC. Utilities also need to describe how they determined which risk reduction strategies to pursue.

Are Electricity Rates Increasing Statewide?  

For many Oregonians, electricity prices have increased in the past few years. According to the U.S. Energy Information Administration, the average retail price of electricity in Oregon increased from 9.03 cents per kilowatt hour in January 2020 to 11.40 cents/kWh in January 2024, a 26% increase over four years.

For residential consumers, the EIA estimates Oregon’s average retail price increased from 10.69 cents/kWh in January 2020 to 13.84 cents/kWh in January 2024, a 30% increase. This is lower than prices in many other states – for comparison, the estimated average retail rate for residential customers nationwide in January 2024 was 15.45 cents/kWh.  

Read full “Electricity Rate Increase Drivers” section

Factors Driving Costs

Rising power costs are a common cost driver for Oregon’s utilities. The term power costs generally includes, among other things, the costs a utility pays to procure electricity through either contracts or market purchases, as well as the costs to fuel any fuel-powered plants the utility may have (such as coal or natural gas burning plants). In all, the top factors driving costs are as follows:

  • Rising power costs

  • Ongoing infrastructure needs, compounded with inflationary pressures

  • Costs to mitigate the increasing prevalence and risks of wildfires and extreme weather

These cost drivers are not mutually exclusive and often intersect with one another. For example, wildfires can damage existing infrastructure, such as utility poles, and a utility may face high costs to replace the damaged equipment due to market forces such as inflation. However, each of these cost drivers can also operate independently of the other two.

Delivering power requires infrastructure, and maintaining safe and reliable infrastructure requires making regular, routine investments. As more equipment ages, reaches the end of its useful life, and requires replacement, the cost of grid investments has and will likely continue to go up.

Consumer-Owned Utilities

Many of Oregon’s consumer-owned utilities receive all or nearly all of their power pursuant to long-term contracts with the Bonneville Power Administration. While BPA’s rates for Oregon consumer-owned utilities generally declined from 2022-2023, BPA is proposing higher rates in 2024 and beyond.

When BPA raises the wholesale cost of power for Oregon’s consumer-owned utilities, that affects each utility’s need to adjust retail rates that customers pay. Even with the cost increases, however, power that BPA sells from federal generating resources costs less than power from other wholesale sources.

Investor-Owned Utilities

Long-term contracts with BPA provide a smaller share of the portfolio of resources that investor-owned utilities rely upon. Instead, investor-owned utilities rely more on long-term contracts with other providers, short-term market purchases, or fuel purchases for their own generating resources, where applicable.

PGE and PacifiCorp’s forecasted power costs increased from 2020-2024 by roughly double the amount or more. Some of these increases are due to load growth. However, load growth alone does not explain the entirety of the increases in power costs that Oregon’s large investor-owned utilities have encountered. To some extent, for both PGE and PacifiCorp, these power cost increases reflect a rising cost for them to generate and deliver electricity.

Are Oregon’s Clean Energy Policies Driving Rate Increases?

In 2021, the Oregon State Legislature enacted House Bill 2021 that requires PGE, PacifiCorp, and certain providers to, among other things, “eliminate greenhouse gas emissions associated with serving Oregon retail electricity consumers by 2040.”

Some have questioned whether HB 2021 is to blame for the recent electricity price increases. For many Oregonians, the answer is simple: no. HB 2021 does not apply to any consumer-owned utilities nor to Idaho Power Company, and HB 2021 is not a primary driver of their cost increases.

Further, many of Oregon’s consumer-owned utilities have lower emissions intensities, as they get most or all of their electricity from Bonneville Power Administration. While these utilities do face costs associated with complying with environmental policies generally, with lower emissions intensities, Oregon’s consumer-owned utilities have historically faced less cost pressure from federal and state clean energy policies.

Reducing Emissions

At the same time Oregonians have faced rising electricity prices, the electricity sector’s greenhouse gas emissions in Oregon have fallen. According to data gathered by the Oregon Department of Environmental Quality, emissions fell from 18.8 million metric tons of carbon dioxide equivalent in 2019 to 17.6 million MTCO2E in 2022, even as overall electricity consumption increased.

Numerous state and federal clean energy policies have contributed to these emissions reductions and have added cost pressures on emitting generation sources. For example, PGE agreed to close the Boardman Coal Plant, the last coal power plant located in Oregon, as part of a federal Clean Air Act lawsuit settlement; the plant closed in 2020.

As renewable technologies have become increasingly cost competitive, the competition has put pressure on older and less efficient generation sources, particularly coal plants.