Higher Residential Consumption Generates a Bright Spot for Electric Utilities

Close-up of an electricity usage meter
Published On
Nov 12, 2020

According to a new report by Steve Cicala, an assistant professor and Neubauer faculty fellow at Tufts University, Medford, Mass., while utilities have multiple challenges and unexpected additional expenses as a result of the pandemic, there is one area where there is a bit of “light”—higher utility rates for more of their customer base.

Cicala’s report, “Powering Work from Home,” written for the National Bureau of Economic Research, Cambridge, Mass., noted that, to reduce the risk of exposure to the SARS-CoV-2 virus, roughly one-third of the American labor force has been working from home.

“Whether under government order to shelter-in-place, working remotely, or out of work and school, people are spending an inordinate amount of time at home,” Cicala said. This additional time and consumption of resources at home requires significant increases in electricity consumption.

Using data from the U.S. Department of Energy’s Energy Information Administration, Washington, D.C., which reports monthly electricity consumption by customer class (residential, commercial and industrial), Cicala found that residential consumption rose by 10% on average during the second quarter of 2020, while commercial usage fell by 12% and industrial usage fell by 14%.

So how have utilities benefited from this shift? Generally speaking, according to Cicala, residential utility rates are higher than commercial and industrial rates, so the increased bills for residential customers more than offset the decreased bills for commercial and industrial customers.

From April to July 2020, American households spent nearly $6 billion in excess residential electricity consumption. Cicala found that electricity bills were over $20 a month higher on average for utilities that served one-fifth of U.S. households.

“It requires more energy to heat and cool entire homes than the offices and schools in which people usually congregate during the day,” the report noted.

He cited some specific examples: Pacific Gas & Electric Co., based in San Francisco and serving northern and central California, led the nation, with residential consumption estimated to have been over 40% above weather-adjusted normal levels. The report added that New England, Illinois and California are states that have seen some of the largest residential increases overall.

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