The impacts of depopulation and climate change on the cost of rural electric services

Abstract

Rural populations in the U.S. bear disproportionate energy expenses, with the median energy burden exceeding 9 % of household income in some regions. Two significant current trends, depopulation and climate change, could exacerbate this issue. Depopulation may lead to a significant decline in the customer base for electricity utilities, potentially driving up electricity bills as the non-power costs of maintaining and operating distribution networks are spread across fewer customers. Furthermore, climate change could increase household electric bills by elevating the rural utilities’ operations and maintenance (O&M) costs due to the accelerated depreciation of capital assets and reduced transmission efficiency under high temperatures. This paper examines the impact of changing populations and climate on electricity utilities, leveraging a novel dataset that characterizes the operations of rural electricity cooperatives. We find that increasing temperatures drive up O&M costs in the short-run. Moreover, we find asymmetrical effects of population increases and decreases on revenues collected from residential electric customers in the short term. When a utility’s customer base shrinks, the remaining customers face higher electricity bills as the utility passes on non-power purchasing costs to them. However, in the long-run, utilities adjust their O&M costs, reducing the burden on the remaining customers.