Michelle Bloodworth: High capacity prices are bad news for electricity consumers
With Election Day looming, Pennsylvania voters have many pressing issues to consider when they cast their ballots. One area of concern is the commonwealth’s looming electricity shortage, and what steps policymakers might take to address it.
A study released earlier this year found that the EPA’s efforts to shutdown baseload power plants could place Pennsylvania at risk of electricity blackouts by 2028. Even if these blackouts can be mitigated, our state will almost certainly see dramatic increases in electricity prices. This is already starting to happen.
Recently, the electricity grid operator PJM held an auction to make sure its thirteen-state region has enough power plants – technically speaking, enough electric generating capacity − to ensure that ratepayers have a reliable supply of electricity in the near future. Pennsylvania is one of the PJM states. Power plant owners submit a competitive bid based on the price the owner is willing to accept to guarantee that their power plant will be available to generate electricity.
The auction grabbed everyone’s attention because of the sky-high prices that electricity consumers in the thirteen-state region will have to pay to guarantee power plants are available to keep the lights on. Prices were 830 percent higher than the previous capacity auction. The total cost increased from $2.2 billion in the previous auction to $14.7 billion in this auction, a cost that will be borne by ratepayers. Many experts think high capacity prices will continue.
The increase in electricity rates caused by these high capacity prices varies from state to state. Pennsylvania’s residential ratepayers are estimated to pay an additional $278 per year as a result of the auction.
Several factors drove these record-setting capacity prices. One is an increase in electricity demand. Another is a higher reserve margin, which means that more power plants need to be available in case electricity demand turns out to be greater than expected. Both factors increase the demand for capacity.
If more power plants bid into the auction, there is less upward pressure on capacity prices. However, there are fewer power plants to submit bids because fossil-fired power plants are retiring at an alarming rate, helping to drive up capacity prices. Over the past five years, 54 coal-fired generating units retired in PJM and another 22 units, roughly a third of PJM’s remaining coal-fired power plants, have announced plans to retire by 2030. If this is not bad enough, PJM’s entire coal fleet could be forced to shut down because of EPA rules. Fortunately, a new president will have a chance to rewrite the EPA rules, and the courts are already taking a dim view of some of them.
In one case, twenty-seven states have filed a lawsuit challenging the EPA’s Carbon Rule, which seeks to force the premature retirement of most of the nation’s coal-fired power plants. These states recognize that this rule is an example of EPA overreach that would threaten grid reliability and lead to massive increases in electricity prices.
In Congress, the House Energy and Commerce Committee recently approved a resolution that would block the EPA from implementing the Carbon Rule. This bipartisan resolution already has attracted 157 co-sponsors in the House and 45 co-sponsors in the Senate.
For Pennsylvanians, this is an issue to consider closely as they head to the polls. Will their elected leaders stand-up against EPA’s overzealous regulations, or will they step aside and put Pennsylvania’s economy at risk?
Michelle Bloodworth is President and Chief Executive Officer of America’s Power, the only national trade association whose sole mission is to advocate at the federal and state level on behalf of coal-fueled electricity and the coal fleet.
The only two buildings I have never been able to access without permission: PJM in Valley Forge (two stories underground, two stories above ground) and the FBI office in Newtown Square.
Al Boscov owned the sister building, to PJM in Valley Forge, which was located near the Reading airport, and he let Gene London warehouse his ridiculous collection for pennies on the dollar. Facts.
These people we let run things these days… we receive the fate we deserve.