Bloomberg

Alfredo De Avila grows increasingly frustrated when his electricity bill arrives each month. Price gains for groceries and other household essentials have eased in the past year, but the rising cost of power is still eating into his budget.

“Food has been a worry, but now electricity is the worry,” says the 75-year-old retiree. “Unless you want to go to candles and firewood, we have no other choice but to bite the bullet and pay.”

For the Oakland, California, resident, that bullet is coming from the state’s biggest electricity provider, PG&E Corp., which hiked bills for residential customers 13% in January. And it says more increases may be coming this year.

It’s not just California. Nationwide, residential electricity inflation is outpacing the wider consumer price index. Prices were up 3.6% in February from a year earlier, compared with declines for staples such as eggs and milk, US Bureau of Labor Statistics data show. More than three out of every four major metropolitan areas the BLS tracks in the continental US saw power prices rise in the latest month of data—which voters may factor into their assessment of President Joe Biden’s performance when they head to the polls in November. (March inflation data will be released on Wednesday.)

Behind the runup are several massive expenditures that utilities are having to fund at the same time—they planned for some, but others caught them by surprise. Grids coast to coast were already undergoing multibillion-dollar overhauls to replace aging fossil fuel plants with greener alternatives and to make existing systems more resilient to wildfires, hurricanes and flooding. Now grids are also scrambling to increase generation capacity to accommodate a surge in demand that the utilities themselves weren’t even forecasting a year or two ago, fueled in part by the explosion of artificial intelligence.

Demand by 2028 will be almost 5% more than 2023 consumption levels, nearly double the increase companies were expecting only a year ago, says Rob Gramlich, president of Grid Strategies LLC in Washington, DC—and that’s likely an underestimate. “A lot of people’s eyes just popped out in the past six months,” he says. “It’s been 20 to 25 years of flat power demand, but now we’re in a new mode.”

Funding that tremendous expansion on top of the critical grid work already underway—including burying power lines underground, fireproofing poles and replacing old fossil fuel plants with solar panels and wind turbines—will ultimately fall to existing electricity ratepayers, who are almost always asked to foot the bill for new infrastructure. It’s a real one-two punch for households, who’d been hoping for some relief after runaway natural gas prices in 2021 and 2022 inflated bills.

Utility customers will feel some respite as power providers’ outlays start to moderate—some sooner than others. Florida Power & Light Co. said it was able to cut rates in April after a temporary surcharge to pay for past hurricane restorations came to an end. And once a grid finishes building new capacity, expenses may be spread among a larger group of customers, potentially lowering everyone’s bills over the long term. Much of that added capacity will also be renewables, which run on free wind and sunshine. Spending to fortify lines against wildfires and other worsening weather patterns will help prevent bigger expenses later. PG&E, which serves Northern and Central California, is predicting its bills will decrease by 2.8% in 2026.

“It’s not going to be cheap, but it’s going to be even more expensive later down the line if we ignore the problem,” Tammy Johnson, a leadership coach in the Bay Area, says of the investments to protect the grid. She’s still reeling from the jump in the electricity bill for her two-bedroom apartment to $330 in February from $240 a year prior—a 38% hike—but she says she understands it serves society better to address climate change now, especially having lived through the cycles of extreme weather that have battered the West Coast and elsewhere in recent years.

For De Avila, the Oakland resident, the smoke from wildfires in Northern California four years ago that turned the skies orange is still a fresh reminder of the dire impacts of climate change. So he’s gone further than many US homeowners and taken steps to go green, including installing solar panels at his three-bedroom house. But the panels only partially offset the costly power needed to run his new heat pump.

“We wanted to do the right thing for the environment,” De Avila says of the decision to add the electric heat pump, “but ended up doing wrong for our finances.”

In some parts of the country, regulators are pushing back on the higher prices. In December, Illinois rejected Exelon Corp.’s ambitious grid spending plans, saying the utility wasn’t doing enough to keep customer bills low. The unexpected setback sent shares plunging 16% over a three-day period. The California Public Utilities Commission recently proposed a new structure for utility bills that it says will cut the price of residential electricity, though not everyone agrees it will actually lower costs. Attorney General Dana Nessel, a Democrat, in critical swing state Michigan called a proposed rate hike there that follows close on the heels of another “absurd in both the astounding dollars and obnoxious timing.”

Utilities, though, say these costs simply can’t be avoided. “A lot is happening all at once,” says Emily Fisher, executive vice president for clean energy at the Edison Electric Institute, a trade group for the utility industry. “We are not unaware of the potential implications for customers, but we have to make these investments to have a reliable and affordable system.”