I don't have to tell you that energy prices have been skyrocketing since 2020 -- you've probably seen that for yourself on your monthly utility bill.
You might think that the slowing pace of inflation could bring some relief, but that might not be the case, either. Electricity prices were flat from April to May, according to the Consumer Price Index, but in the past 12 months, they're up 5.9%. The rapid rise in energy bills outpaced inflation to begin with, and they're not likely to come down any time soon, according to experts.
"We're seeing the average price … just continue to increase year over year," said Mark Spalinger, director of utilities intelligence at J.D. Power.
It doesn't take an expert to know that: In a recent CNET survey, 41% of respondents reported utilities among the biggest "sticker shock" they've seen, trailing only groceries, gas and dining out.
So what's behind the rise in energy bills? Here's what experts say you should know -- and what you can expect going forward.
What's happening with energy prices?
The amount you pay for gas and electricity services at home have been on a rapid rise since 2020. "They have jumped up rather dramatically in the last few years," said Chris Lafakis, an energy economist at Moody's Analytics.
Over the past four years, the consumer price index for energy has risen by 32%, according to Lafakis. This is in contrast to a decade of relatively slow growth preceding it. Lafakis said that the same measure rose only 8% from 2010 to 2020.
"Over the last few years, it's been kind of crazy with gas specifically," Spalinger said. This matters not only for consumers who rely on gas services at home, but also for the power plants that rely on gas to generate electricity. "That's translating to very high bill amounts," Spalinger said.
J.D. Power reports that average, customer-reported monthly electricity bills are $178, while average monthly residential gas bills are $115, according to Spalinger.
This has in turn left consumers feeling more unsatisfied with the value they get from utility services. "This is just another thorn in the side of the consumer," Spalinger said.
Why are energy prices going up so much?
This rise in energy prices has far exceeded the inflation rate the country has seen in the post-pandemic years.
Why is that? Well, there are a few reasons. The energy bills you get from your utility factor in a lot more than just the underlying cost of generating power. In addition to the raw materials that go into power generation, utilities also have high labor costs, and are investing heavily in capital projects like new renewable energy plants. All of that contributes to higher rates.
"It's a service, it's not an energy good," Lafakis said. It's not like the price you pay for gasoline, which pretty much tracks with the underlying price of oil. "That's a commodity. If it's a service, service prices are stickier," Lafakis said.
Plus, consumer energy rates are highly regulated by state governments, Lafakis notes. Many utility companies were not permitted to raise rates dramatically during the 2010s, causing a bit of pent-up price pressure. "This is almost like catch-up," Lafakis said.
Spalinger also points out that climate change, and the more frequent storms that come with it, are increasing costs for utility companies and making it harder to keep the lights on.
Will energy prices drop when inflation comes down?
Probably not by much.
Both Spalinger and Lafakis expect rate increases to slow down, and maybe even stabilize, but don't predict a drop in prices.
The reason is the same as why prices are so high in the first place: They're not closely correlated with commodity prices or inflation rates.
"There's not a lot of price declines that come as a result of fuel prices getting cheaper," Lafakis said.
How to deal with rising energy costs
Okay, so energy prices probably won't drop anytime soon. But there are still things you can do to deal with high bills.
Start with the simple, obvious tricks: Tell your thermostat to make your heating and cooling system work less, or invest in a smart thermostat. You can also upgrade your old appliances for models that are more energy efficient. And if you really want to reduce your reliance on the utility company, consider putting solar panels on your roof.
Ironically, you can also turn to your utility company for help. Most energy companies have programs for low-income residents, especially. That might look like budget billing, or even payment assistance.
"There is help out there," Spalinger said. Reach out to your utility and ask what type of assistance might be available.
