Electric Rates – Past, Present and Future

Published on June 20, 2024

The electricity commodity rate (cost per kilowatt-hour) for retail Los Alamos customers was increased 9% last October. It will increase another 9% this July. These hikes seem steep, but are the first since February 2015.

In that time, the most familiar measure of inflation, the consumer price index (CPI), has increased about 34%. Adjusted for inflation, our electric rate will have gone DOWN 16% in that time.

Looking even further back, our electric rates have increased less than inflation at least since 1998.

Electric bills also include a service charge covering some fixed costs. That charge did not increase last fall but will also go up 9% in July, its first increase in nine years. Meanwhile, costs for personnel, wire, transformers, switchgear, regulatory compliance, and all the other items that go into supplying power have been increasing, generally faster than the CPI.

Even after July, our electricity costs will be slightly lower than the average for surrounding communities or nationwide. No “Los Alamos factor” applies.

Los Alamos Utilities probably made a mistake holding the line too long and then having to raise rates 18% in nine months. More frequent smaller increases would be easier to absorb. Lesson learned. No further increases are formally approved, but annual hikes in the range of 3-5% are projected. Three big factors will drive them: inflation, the cost of electricity itself and the cost of providing the service.

CPI will likely keep increasing by several percent each year. That’s a Washington-driven problem we don’t control. Unfortunately, since the pandemic, the cost of utility electrical hardware has skyrocketed far more – by 100s of percent in some cases! The many disasters across the country have driven up demand.  

“Conventional wisdom” holds that carbon-free electricity, to which we are transitioning, costs more than carbon-based power. That may not be true! The cost of carbon-based power has increased substantially while the cost of utility-scale solar power has steadily declined to “dirt cheap.” Power from the new Foxtail Flats solar field will cost about half as much as today’s carbon-based power. That price is fixed until 2046. Inflation will not affect it.

Of course, solar cells only produce when the sun shines. The big technical and economic challenge with intermittent sources, like solar and wind, is storing or backing it up (“firming,” in utility parlance). The battery storage bank at Foxtail Flats costs as much as the solar field, yet will provide only one-fourth the energy – largely after sundown. Battery storage is expensive, but also declining in price. Other technologies have potential, too.

My crystal ball is cloudy regarding how far and how fast other generating and storage technologies can become economical parts of our supply mix. The Board and Department of Public Utilities watch constantly.

The other big factor in future electric rates is the cost of upgrading our electric distribution system (poles, wire, transformers, etc.). It will need to handle the increased load from electric vehicle charging and conversion of natural gas appliances to electric. Detailed studies of those upgrades will begin soon. Serious plans and cost estimates should be available in another year.

The cost of upgrading our distribution system will be high but will be spread over decades. Eventually, (privately-owned) gas stations and the (community-owned) natural gas delivery infrastructure, and their costs, will go the way of blacksmith shops and coal delivery wagons. Future generations will likely pay attention to electricity costs as ours watches gas pump prices.

Even with current increases, our electricity is less expensive when adjusted for inflation than in recent decades. It may – or may not – be possible to continue that trend.