CPI + Xcel: The new electricity Misery Index
An idea popped into my head last week to create a new simple index of electricity prices for Minnesota’s Twin Cities of Minneapolis St Paul (MSP). Which I then did. I am calling it the MSP Electricity Misery Index. Or MEMI for short. But provocatively pronounced ME-oh-MI.
CPI index
In recent weeks, I have been gathering and analysing official data on electricity prices, in the form of the Consumer Price Index (CPI), sourced from the Bureau of Labor Statistics (BLS). I have presented some of my findings to date in two articles on this website.
The first of these on June 15 was “Electricity inflation: the forgotten affordability burden.” One of the comparisons in this article was electricity CPI versus overall CPI, for the MSP metro area, between 2006 and 2024. The former’s total growth outpaced the latter by 31.5%.
The second piece on June 24 was “The PUC: the ‘black box’ of electricity inflation.” One of the observations there was that, in terms of annual growth in MSP electricity CPI, “there are three years above eight percent: 8.3% in 2006; 11.0% in 2013; and 10.3% in 2022.”
Index numbers
Like CPI, MEMI is a statistical index number. An index number is a pure measure of change over time. Any time series of data can be turned into an index. It is particularly useful for observing, not just change from period-to-period, but sustained trends in growth or decline.
To create an index, a time period is selected and set to 100. The formula to be applied to any period, usually a subsequent one, but sometimes before, is: ( Next Period / Base Period ) x 100. An index uses 100, instead of 0, as any number multiplied by zero is zero. Percentage changes can easily be seen as Future Period minus Base Period, say 110 less 100 is 10%.
CPI is usually quoted in the news as a percentage change from a previous period, such as a month, quarter or year, rather than as a change in the index itself. However, that approach can make inflation appear to be ‘not too bad’ in any one period of change. The index proper better captures that inflation can grow like compound interest over time.
Misery index
MEMI is a simple addition of two numbers, as is the famous Misery Index. MI was created by economist Arthur Okun in the 1960s. It was later adopted by President Jimmy Carter in the 1970s. It was popularised by President Ronald Reagan in the 1980s, to Carter’s detriment.
MI is easily calculated as the inflation rate (usually CPI) plus the unemployment rate, but expressed as a percentage change not as an index number. Given that inflation and unemployment are each bad in themselves, large and increasing MI is even worse. That being stagflation.
The first chart below presents a nationwide MI, from 1948 to 2026. It shows that some of the most miserable times were under the following presidents: 19.90% in January 1975 under Gerald Ford; 21.98% in June 1980 under Jimmy Carter; 12.47% in November 1990 under George H.W. Bush; 12.87% in August 2011 under Barack Obama; 15.03% in April 2020 under Donald Trump; and 12.66% in June 2022 under Joe Biden.
CPI – X index
MEMI is a variation on CPI minus X. CPI – X is an approach to electricity and public utilities regulation used in Australia and elsewhere. The X is an efficiency factor which has at times, when larger than CPI, decreased actual prices and not just slowed down the increase.
CPI – X is a form of incentive regulation, and is quite different to American cost-plus or rate-of-return regulation. It was created by UK Professor Stephen Littlechild, as RPI -X in the early 1980s, in the context of the privatisation reforms of Prime Minister Margaret Thatcher.
In an Aussie version of a rate case, CPI – X is applied to the revenue requirement. The latter is derived there, like here, from operating and capital costs, including depreciation and a return. When X is larger than CPI, prices will be declining, and vice versa. I was the first in the world to apply CPI -X to a state budget in 2022-23, and then to the federal budget in 2023-24.
CPI + X index
MEMI can also be stated as CPI + Xcel or CPI + X. This is inspired by CPI – X, but CPI + X is calculated as the reverse i.e. X – CPI. This means, MSP electricity CPI minus MSP overall CPI. When MEMI is positive and growing, electricity inflation in the Twin Cities is worse than, and to some extent even pulling up, overall inflation in MSP. Thus, the title CPI plus Xcel.
MEMI formula: Xcel – CPI = MSP Electricity CPI – MSP Overall CPI
The second chart below shows MEMI from 2006 to 2024, noting that renewables really started to take off in Minnesota in the 2000s onwards. The green index line better shows, than the gold percentage line, how electricity prices have inflated bills over time to MSP households: by 25.3 points in 2013; 31.1 in 2018; and 31.5 in 2024.
If 2006 to 2024 is important context, and it is, then 1978 to 2024 provides yet greater context. As can be seen in the third chart below, MEMI drops 10.0 index points between 1978 to 1981 and a further 10.9 from 1990 to 1991. It then, from 1995 to 2002, plunges 29.2 points. From 2002 to 2018, MEMI ‘sky rockets’ 67.2 index points, which is a 165% turnaround for the worse.
Conclusion
MEMI shows the difference between electricity inflation and overall inflation, using official CPI data for metro MSP. Xcel Energy is the PUC-regulated franchise monopoly for the area, which is why MEMI is also called CPI + Xcel. This new index clearly shows how electricity inflation has increasingly delivered affordability misery in the 21st century to residents of Minnesota’s Twin Cities. ME-oh-MI.