The Price for Power: What Drives Energy Costs for Consumers?
In 2020, Oregonians spent more than $12 billion on energy—from electricity and natural gas used in homes and businesses, to the fuels that run our vehicles.
The way energy is produced and delivered varies widely, and multiple factors can affect how much Oregon consumers end up paying for their energy needs. The Oregon Department of Energy’s 2022 Biennial Energy Report included an Energy 101 discussing consumer energy cost drivers, from geography to regulation to market forces – and more.
Energy supply chains and geography play a big role in overall energy costs, which influence how much a consumer ultimately pays. Electricity, for example, tends to be local in nature – with generating sources built close to transmission infrastructure that can deliver quickly to a home or business – and therefore is more likely to be regulated at the local or state level. On the other hand, petroleum products can be transported as a commodity around the world, which creates global markets with unregulated prices.
The price that Oregonians pay for energy varies by type of fuel, by time of day or year, and by location in the state. This variability across time is particularly true with gasoline and diesel, where a significant portion of the consumer end-use cost is driven by those global crude oil commodity markets. Retail prices can be quite volatile – for example, in early March 2022, gas prices jumped 49 cents in just over a week as Russia attacked Ukraine, disrupting global markets.
For electricity and natural gas, wholesale rates are subject to federal regulation while retail rates are subject to state regulation. This allows for some public input on how end-use consumer prices are determined. Investor-owned natural gas and electric utilities are regulated by the Oregon Public Utility Commission, and the utilities participate in retail ratemaking cases that provide insight on utility costs that ultimately lead to setting the retail natural gas and electricity rates paid by Oregonians. Costs of doing business are taken into account, including costs to plan for, build, and maintain utility systems, as are the wholesale rates—which are subject to regulation by the Federal Energy Regulatory Commission—that utilities must pay to acquire bulk quantities of natural gas or electricity. Consumer-owned utilities, like co-ops, municipalities, and people’s utility districts, are regulated by their elected governing boards.
Oversight of the electric and natural gas sectors through the OPUC and COU governing boards has helped keep electricity and natural gas costs relatively stable for Oregon retail ratepayers over the years. Oregon also has some of the lowest retail electricity prices in the country – thanks, in no small part, to the region’s robust hydroelectric system. Those prices have helped make Oregon attractive to businesses that require large amounts of electricity, such as data centers. However, wholesale electricity prices in Oregon are still subject to price fluctuations, primarily from the natural gas that fuels about a fifth of electricity Oregonians use. As Oregon utilities move toward using 100 percent emissions-free resources, including solar, wind, and hydroelectricity, the price fluctuations of fossil fuels like natural gas will have an increasingly smaller effect on electricity prices.
Learn more about consumer energy cost drivers in our Energy 101.