3.5% Per Year: The Compound Math of Utility Rate Creep

The monopoly doesn’t rob you all at once. They take a little bit, every single year.

Three to four percent doesn’t sound like much. Compounded over 25 years, it doubles your electric bill.

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The EIA’s Documented Rate History

The U.S. Energy Information Administration tracks average retail electricity prices going back decades. The numbers are publicly available and unambiguous:

• 2000: Average US retail electricity price — approximately $0.092/kWh
• 2023: Average US retail electricity price — approximately $0.163/kWh

That’s a 77% increase in 23 years — an average compound annual growth rate of approximately 2.5–3.5% per year, depending on the state and period measured.

Some states have seen faster increases. Some have seen slower. But no state has seen their average electricity price decrease meaningfully over 25 years.

Source: EIA Electric Power Annual, Table 5.3 — Average Retail Price of Electricity.

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The 25-Year Bill Math

Here’s what 3.5% compounding does to a $150/month electric bill:

Year	Monthly Bill	Annual Total	Cumulative Paid
0 (today)	$150	$1,800	—
5	$178	$2,136	$10,068
10	$211	$2,532	$21,984
15	$250	$3,000	$35,964
20	$296	$3,552	$53,040
25	$351	$4,212	$73,500

Total paid to the monopoly over 25 years: approximately $73,500.

Assumptions: $150/month starting bill, 3.5% annual escalation compounded. Consistent with EIA’s documented historical average. Individual utility rates vary.

That’s for electricity you use once and have nothing to show for it. No equity. No asset. Nothing.

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Why Rates Keep Rising

This isn’t random. The utility rate structure guarantees it.

The rate base model: Utilities are allowed to earn a guaranteed rate of return (set by state public utility commissions, typically 9–11%) on their capital assets — their “rate base.” The larger the rate base, the larger the allowed profit.

This creates a permanent incentive to invest capital — in new power plants, grid upgrades, storm hardening, smart meters, and anything else they can put on the rate base. Every capital project is a revenue opportunity. Customers pay through rate increases.

The rate case process: Utilities file for rate increases with their PUC. Ratepayers technically have standing to oppose increases, but few do — and utilities have full-time regulatory teams while ratepayers don’t know the hearing is happening. Rate increases are routinely approved.

Fuel costs: When natural gas prices spike, utilities pass the cost through to customers immediately. When gas prices fall, utilities may or may not pass savings through — and any savings can be offset by a simultaneous rate case.

The result: One-way ratchet. Rates go up. Rates don’t come down.

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The Solar Alternative

A solar system locks in your energy cost for 25–30 years — not at $0, but at whatever you paid for the system. You’re trading a recurring variable expense (your electric bill, guaranteed to rise) for a fixed capital cost (the system, paid once, often partially financed).

The math only works in one direction over 25 years. Every year the monopoly raises rates, solar looks better.

At today’s rates and incentives:

• A $24,000 system (before ITC) with 30% credit costs you $16,800
• The same electricity over 25 years at 3.5% escalation costs $73,500+
• You save approximately $56,700 — on top of owning an asset that adds $15,000+ to your home’s value

Assumptions: $24K system, $150/month current bill, 30% ITC, 3.5% escalation. State your own assumptions when running your numbers. Verify at Rate Calculator.

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Run It Yourself

EIA publishes its historical rate data at eia.gov. Enter your state, look at the 25-year price history, and compute your own compound annual growth rate. The data is free and public.

Then run your solar numbers at our Rate Calculator.

The monopoly is counting on you never doing this math.