Power generation costs have stayed in line with inflation while utility spending, policy, and transmission costs soar.
- Transmission costs have increased nearly 350% per MWh since 2001 according to the Maryland Office of People’s Counsel.
- Utilities plan to spend an additional $1.1 trillion by 2029 to be passed onto ratepayer bills, following a 2024 record spend of $178.2 billion, according to EEI.
The trend over the last 24 years is clear: competitive power generation keeps supply costs down for consumers in PJM.
A recent report by Energy Tariff Experts analyzed utility bills in PJM over the last decade and found that recent electricity bill increases are largely caused by transmission and distribution upgrades as well as the impact of state policy mandates, which have gown at rates exceeding inflation.
Meanwhile, over that time period, ETE found that generation costs as a percentage of residential customer bills averaged only 45% and are consistent with historical averages when adjusted for inflation – and in some cases even lower than previous years.
This finding was affirmed by a new study conducted by Lawrence Berkeley National Laboratory and The Brattle Group, which found that spending by investor-owned utilities on distribution and transmission grew between 2019 and 2024 while generation costs declined.
Why the apparently conflicting data?
While it’s clear that electricity generation costs have remained in line with historical averages, some sources continue to selectively choose data and deflect attention away from what’s really causing prices to rise.
At the recent PJM Technical Conference hosted by governors, state officials looked only at the increase in electricity supply costs over the last year and a half, ignoring the state policies and actions that caused increased prices in the first place.
When data is selectively provided to fit a narrative, it hides the fact that transmission spending continues to be one of the fastest-growing components of utility bills. Since 2001, the average transmission cost per MWh has increased nearly 350% whereas generation costs have remained flat. While that spending may have been warranted, to simply ignore those costs fails to accurately tell the whole story.
In the last decade, Edison Electric Institute reports that its members have invested over $1 trillion in grid upgrades, and they expect to spend another $1.1 trillion before 2029. Utilities will now be looking to recover those costs from consumers.
Unlike America’s independent power producers whose investors bear the risk of building new generating infrastructure, utilities pass that risk onto consumers. As part of the regulatory compact, utilities provide a public service in exchange for a guaranteed rate of return to compensate them for prudently incurred costs. The more they spend on capital investments like transmission, distribution, or generation, the more they can recover from customers.
Independent Power Producers Are Ready to Build
Instead of guaranteed rates of return on investment, independent power producers, or competitive power suppliers, rely on competitive power markets to signal when more generation is needed and their investors look to the market to provide the capital to do so.
America’s competitive power producers remain committed to supplying reliable and cost-effective power for millions of Americans but a range of issues outside the control of power generators will limit how quickly new supply can come online.
It’s a fallacy that utilities are better equipped to build generation faster or more affordably than competitive generators because they face those same external challenges. As Michael Hogan, a consultant with the Regulatory Assistance Project explained in his testimony before Maryland regulators:
“I fail to see how one could expect an organization that hasn’t built a new power plant of any kind in 25 years is going to do it faster and cheaper or have more success getting it through the interconnection queue than someone who does it all over the country, all over the world every day.”
Market stability remains the best way to ensure that new capacity is brought online and that existing generation is retained while managing costs over the long run. In response to PJM’s “Reliability Resource Initiative,” Alpha Generation and LS Power announced 1,150 MW of new dispatchable generation across PJM states.
Bottom Line: Market signals must be allowed to work so investments are made and new generation gets built. It’s time to focus on encouraging investment instead of increasing political intervention and selectively presenting data to fit biased narratives.
