Electricity inflation, the forgotten affordability burden
Three, seemingly unconnected, events in recent weeks have served as an important reminder that, electricity inflation is, all too often, the forgotten burden on affordability. At least largely forgotten in the past several months, due to skyrocketing oil and gasoline prices in the wake of this year’s Iran War.
Two of those events occurred last week. One was the latest release of the Consumer Price Index (CPI) by the Bureau of Labor Statistics (BLS) on June 10th. The other was a rate case hearing by the MN Public Utilities Commission (PUC) on June 11th. The third event was on May 24th, that being the 20th anniversary of the opening of Al Gore’s documentary film of An Inconvenient Truth in 2006.
These all have played a role in the inflation of electricity prices. The movie inspired the rapid growth in renewable electricity generation. The PUC facilitated the resulting increase in consumer electricity rates. The BLS measured the inflationary impact on consumer electricity bills.
Twin Cities inflation, electricity versus the rest
CPI is akin to a typical bill, in that it measures both prices and quantities of goods and services, like electricity. BLS does not publish CPI at state level, but does at the metro, regional and national levels. The first chart below shows electricity CPI (in gold) versus overall CPI (in green) for the Minneapolis and St Paul (MSP) area. The former has outpaced the latter, between 2006 and 2024, by inflating 84.3% compared to 52.8%. That is almost a third more inflation.
BLS not only makes available CPI as an index (I), with a base period set to 100, but also as a percentage (%) change, in this case from year to year. The chart for the latter (created but not shown here) is not quite as revealing as the first table of statistics below. Electricity CPI for MSP is unsurprisingly worse than overall CPI in terms of average, maximum, median and standard deviation (or volatility). The former was better than the latter on minimum.
| MSP (%) | AVE | MAX | MED | MIN | STD |
| CPI All | 2.3 | 7.5 | 2.2 | -0.6 | 1.9 |
| CPI Elec | 3.3 | 11.0 | 3.2 | -2.9 | 3.7 |
Electricity inflation, Twin Cities versus the rest
The second chart below compares MSP’s electricity CPI (in blue) to that of both the Midwest region (MW in purple) and the whole nation (US in red). From 2006 to 2024, electricity CPI rose by 64.9% and 68.8%, for the US and MW respectively, as compared to 84.3% for MSP. That is almost a fifth more inflation. {By the way, the BLS’s definition of the Midwest is: Illinois; Indiana; Iowa; Michigan; Minnesota; Nebraska; North Dakota; Ohio; South Dakota; and Wisconsin.}
The related chart of annual percentage changes (created but not shown here) is once again not quite as revealing as the second table of statistics below. MSP’s electricity CPI is higher than the MW and US in terms of average, median and volatility. It is in between MW and US regarding maximum, but does have a larger minimum than both.
| CPI Elec (%) | AVE | MAX | MED | MIN | STD |
| MSP | 3.3 | 11.0 | 3.2 | -2.9 | 3.7 |
| MW | 2.8 | 8.8 | 2.6 | -0.9 | 2.7 |
| US | 2.7 | 13.1 | 2.1 | -1.1 | 3.3 |
Supplying hope and demanding (real) affordability
So what can be done about electricity inflation, both in MSP specifically and across MN more generally? The Center of the American Experiment has provided the practical policy answers to this question on June 8th, in the chapter “Lowering monthly utility bills” of the report Supplying Hope and Demanding (Real) Affordability – An agenda for Minnesota’s future.
“To improve electricity affordability, Minnesota’s state government should:
14. Repeal the mandates for 100 percent renewable energy.
15. Repeal costly subsidy programs for energy conservation, small-scale renewable energy, electric vehicles and vehicle chargers, and similar wasteful programs.
16. Reduce state-authorized taxes on electricity, natural gas, propane, gasoline and diesel fuel.
17. Repeal the state’s ban on building new nuclear power plants.”
In addition, the PUC system should be reviewed and reformed. This is because, like the Federal Reserve system does in monetary policy, the electricity utilities and PUC “don’t fight inflation, they manufacture and maintain it.” Thus, reforms should be considered, such as Australian-style CPI Minus X (CPI-X) incentive regulation, as well as exposing electricity markets to (real) competition, as Australia successfully once did, between 1995 to 2005 under National Competition Policy (NCP).
In conclusion, MN ratepayers and voters demanding (real) reforms like these, will not just result in supplying hope, but in finally delivering (actual) electricity affordability.