Ensuring Accuracy of Electricity Prices in the Consumer Price Index

Friday, April 28, 2023

The Consumer Price Index (CPI) represents all goods and services purchased for consumption by urban consumers. To produce the CPI, BLS collects price information on more than 1 million goods, services, and rents over the course of a year. We classify the goods and services in the CPI into more than 200 categories, such as coffee, women’s dresses, televisions, and airline fares. For each category, we use scientific procedures to choose samples of several hundred specific items to represent the thousands of varieties available in the marketplace. We then use a series of checklists to capture each item’s price-determining characteristics.

The 200 categories and their checklists run the gamut from simple to complex, encompassing everything consumers buy. At the more straightforward end, BLS may choose a plastic bag of golden delicious apples, U.S. extra fancy grade, weighing 4.4 pounds, to represent the "apples" category in a supermarket. At the most complex end of categories, we have items like hospital procedures and electricity.

Electricity may seem straightforward. After all, nearly everyone uses it, and it doesn’t come in any flavors, colors, or sizes. But the core principle of the CPI is that we price the exact same good or service over time. To ensure we are pricing the exact same electricity from a provider month over month, we scour websites and contact officials at local electric utility companies and Public Utility Commissions to identify the following attributes:

• How many kilowatt hours of usage should the price be based on?
• Are we pricing a general residential schedule (also called a tariff) or something else? Other options include space heating only or “general residential with a special fee for customers who own electric vehicles and charge them in their homes.”
• Does the price apply to a state, county, city, or zip code?
• Is there a contract in place?
• Is the customer new or existing? Or does that not make a difference in the pricing for the selected utility company?
• How long is the contract for: 12 months, 24 months, or some other duration?
• Are the rates year-round, or seasonal?
• If seasonal, how many seasons are there? Summer and winter only? Or summer, winter, and “shoulder” (when energy usage is lowest)?
• What months do each of the seasons begin and end?
• What is the “base” rate charged?
• Is there an extra or tiered charge for different amounts of usage?
• If so, what are the rates?
• At what amounts do they kick in?
• What other charges are included? (for example, “Purchased Power Adjustment”)
• Does the price of electricity vary between off- and on-peak hours of the day?
• Are the extra charges based on usage or a flat fee?
• Is the electricity supplied by third-party providers but delivered by the local utility? Or supplied and delivered by the same company?
• Are there any credits?
• An example is the California Climate Credit, which is applied semi-annually for electricity and annually for gas.
• Does the customer supply their own solar panels and “sell back” electricity?
• What taxes apply?
• In some cases, there are separate taxes for state, county, and city that must be captured to fully describe the price. Each of these taxes may be a flat charge, a rate based on kilowatt hours, or even a combination of the two.

Our data collectors are very persistent at getting the data right, but it is important to remember the CPI is a voluntary survey. Data collectors must navigate a fine line between being persistent and maintaining good relationships to ensure future cooperation. We are grateful for the cooperation of those providing information; we couldn’t report economic conditions accurately without them.

Because electricity is such a complicated and important item, BLS has implemented many quality checks on the data collection. Each month a second data collector independently verifies the information collected by the first data collector. After the data have been transmitted securely to our national office, there is still more review and verification. Despite these steps, the collected data still may turn out to be incomplete or inaccurate, as we recently discovered with some CPI electricity data.

Whenever we discover an error in our data or analysis, we post a notice describing the error on our errata page. We then remove the incorrect data from the online databases. Sometimes we may have to remove more than just the item with the incorrect data because the error may affect broader indexes. So, for recently discovered errors in electricity data, we had to correct items such as fuels and utilities, household energy, energy services, and even housing. Likewise, an error in one city can affect a division or regional index. In rare cases we may even have to delay publication of later data as we evaluate and correct errors that are especially complex.

We don’t like that errors and corrections happen, and we know that data users don’t like it either. But we correct the data and explain the corrections because we know it’s more important to get the data right. We believe correcting our mistakes and being transparent about the corrections is the best way to earn your trust in the data and our methods so that we can uphold the gold standard we strive for.