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The price of electricity across metro areas

The Bureau of Labor Statistics collects a lot of data, some of which is available in FRED. For example, there is the cost of household fuels in various parts of the country. The FRED graph above shows the price of electricity in three major metropolitan areas.

What do we learn from this graph? First, there are significant differences across regions. While there are large electricity markets that allow for some arbitrage, they do not appear to be perfect. Obviously, sending electricity across the country to take advantage of a higher price is not free. Second, these differences are persistent and vary little, likely a reflection of these transmission costs that are relatively stable. Third, the cost of electricity has increased quite a bit, lately in particular.

But did the cost really increase? What matters in the end is whether the cost of electricity increased relative to the costs of other goods. To measure this, we modify the first graph to obtain the graph below, by dividing each series by the consumer price index (CPI). (Note: There are CPI series for several major metro areas, but unfortunately they were discontinued in 2017; so, we have to make do with a national series.) Now we see that price of electricity has bounced around, but in the end it has not changed much.

How these graphs were created: Search FRED for “average price electricity” and select the Dallas series. Then click on “Edit Graph,” open the “Add Line” tab, search again, and select Boston. Repeat with Los Angeles. You have the first graph. For the second, within each line, search for series “CPI,” add it, and then apply the formula a/b. Repeat for the other lines.

Suggested by Christian Zimmermann.

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