While the overall cost of energy has been on a downward trend, electricity prices have remained stubbornly sticky.
The latest inflation reading showed the electricity index rose 3.8% over the past twelve months while other components within the energy index fell.
That's largely because infrastructure costs have kept utilities from cutting prices. The industry is estimated to spend more than $100 billion annually to maintain aging grids and invest in renewable technologies.
A large amount of residential electricity in the US is generated from natural gas (NG=F), which has plummeted more than 30% year to date. However, households won't see those declines in their utility bills anytime soon.
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"When you are generating electricity, then you have no choice but to have absolutely enormous facilities, big factories, lots expensive equipment, lots of land, which is expensive — and then there are transmission wires which need to be maintained," Mike Kraten, director of accounting program initiatives at C.T. Bauer College of Business, told Yahoo Finance. Transmission wires are the cables or other lines that conduct electromagnetic waves.
A push toward renewables has also prompted investment in components compatible with green energy sources. Those costs are offsetting any price declines in fossil fuels used to generate electricity.
"Indeed, transmission lines may be the most significant bottleneck in the transition to carbon-free energy sources," said University of Pennsylvania professor of engineering Benjamin Lee.
"These utility companies are passing these costs to individual consumers," he added.
While the price of fossil fuels can fluctuate wildly, electricity prices tend to rise over time, despite the level of regulation in the industry. Energy costs reflected on a customer's bill can lag as utility companies often need to receive approval to change rates.
"With residential rates, a lot of times they have to have those rates approved through a government administration so that can obviously take time — up to a year or more to be approved," Tyler Hodge, senior economist at the Energy Information Administration, told Yahoo Finance.
Last year PG&E (PCG) in California received permission to hike rates by 13% on its 16 million customers. The company promised to invest more than half of the requested revenue requirement for its wildfire risk management plans.
Once rates go up, they are unlikely to come down.
The last time households saw an average decline in their utility costs was in 2016, when low natural gas prices encouraged the industry to use more of the fuel to generate power.
For 2024, the EIA forecast rates will decrease in some states by as much as 4% and increase in others by as much as 3% for an average decline of 1% this year.
However, some industry watchers warn that any price decline is likely an aberration.
"Even if it goes down by 1%, if the next year it goes up by 8%, you really can't even begin [to] feel good about the 1% because it is probably an anomaly in what is overall a steep climb," said Kraten.
Read more about the latest inflation data and what it means for markets:
Inflation: Consumer prices rise 3.1% in January, defying forecasts for a faster slowdown
Hot inflation reading reinforces the Fed's cautious approach to rate cuts in 2024
Cost of eating out continues to rise, a potential hit to restaurant chains
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.
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