Significant Rate Increases and Reliability Risks Predicted For America’s Electricity Future Thanks to Obama EPA

May 24, 2012

New information released this month provides us with a glimpse of what the future of electricity in America will look like as a result of President Obama’s regulatory reign: higher prices and threatened reliability.

Power grid operator PJM Interconnection held its annual capacity price auction last week, which revealed Americans in 13 states across the Mid-Atlantic and Midwest can expect higher electricity bills in 2015 and beyond. As explained by PJM, the increase is largely attributable to the retirement of an “unprecedented” amount of coal-fired generation driven by EPA’s new and forthcoming power sector rules. In the past six months, generation owners in the PJM footprint have announced plans to retire nearly 14,000 megawatts (MW) of generating capacity by 2015, with more regulatory-driven retirements expected. To help offset this loss, PJM recently announced that an initial $2 billion worth of transmission upgrades are required by 2015 to maintain grid reliability. PJM customers will foot the bill for these transmission upgrades, sending their electricity bills even higher.

Meanwhile, a new study commissioned by the Midwest Independent Transmission System Operator (MISO), the grid operator for 11 Midwest states, shows EPA’s recently issued Utility MACT rule, or MATS, poses a significant threat to the region’s electric reliability. The report, authored by economists from the Brattle Group, warns EPA’s new rule will result in significant operational challenges as the coal-dependent region attempts to retire, retrofit, and replace a significant portion of its coal-fired generation by 2015. The authors wrote, “In evaluating the feasibility of the entire coal feet to meet MATS by the compliance deadline, we found that it is very likely that the industry will run into delays and bottlenecks, while MISO may face an operational challenge in managing outage scheduling.” 

”Overall, it will be a major challenge for the industry, states, and MISO to comply with MATS for a number of reasons,” said Dr. Metin Celebi, one of the authors of the Brattle report. “The industry will need to install retrofits at a pace and scale that exceeds the historical demonstrated capability, while the [MISO] is likely to experience a substantial operational challenge in the transition to schedule the outages to install and test the required environmental retrofits on coal units.”

Other recent assessments completed by MISO predict an expensive future for Midwest electricity customers. MISO anticipates at least 12 gigawatts (GW) of generation is at immediate risk of retirement in the Midwest, while 61 GW of the region’s 71 GW of baseload coal-fired generation will require some action to comply with the EPA regulations. MISO estimates retrofitting and replacing this generation will cost the region $33 billion. MISO also recently determined that an additional $3 billion worth of new natural gas pipeline infrastructure will be necessary to supply new natural gas-fired power plants.

EPA’s new regulations such as the Utility MACT rule, the Cross-State Air Pollution Rule, and its proposed greenhouse gas standards for new coal plants are expected to be some of the most costly rules ever to be imposed on our nation’s electric grid. While EPA refuses to provide an estimate of what the total cost and consequences of these regulations will be, the outlook from others doesn’t look good and consumers will truly pay the price. President Obama’s war on affordable electricity must be reversed.

In Case You Missed It…

Obama’s war on coal hits your electric bill
Fox News
By Phil Kerpen
May 22, 2012

Obama’s War on Coal has already taken a remarkable toll on coal-fired power plants in America.

Last week the U.S. Energy Information Administration reported a shocking drop in power sector coal consumption in the first quarter of 2012. Coal-fired power plants are now generating just 36 percent of U.S. electricity, versus 44.6 percent just one year ago.
It’s the result of an unprecedented regulatory assault on coal that will leave us all much poorer.

Last week PJM Interconnection, the company that operates the electric grid for 13 states (Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia) held its 2015 capacity auction. These are the first real, market prices that take Obama’s most recent anti-coal regulations into account, and they prove that he is keeping his 2008 campaign promise to make electricity prices “necessarily skyrocket.”

The market-clearing price for new 2015 capacity - almost all natural gas - was $136 per megawatt. That’s eight times higher than the price for 2012, which was just $16 per megawatt. In the mid-Atlantic area covering New Jersey, Delaware, Pennsylvania, and DC the new price is $167 per megawatt. For the northern Ohio territory served by FirstEnergy, the price is a shocking $357 per megawatt.

Why the massive price increases? Andy Ott from PJM stated the obvious: “Capacity prices were higher than last year's because of retirements of existing coal-fired generation resulting largely from environmental regulations which go into effect in 2015.” Northern Ohio is suffering from more forced coal-plant retirements than the rest of the region, hence the even higher price.

These are not computer models or projections or estimates. These are the actual prices that electric distributors have agreed to pay for new capacity. The costs will be passed on to consumers at the retail level.

House Energy and Power Subcommittee Chairman Ed Whitfield (R-Ky.) aptly explained: “The PJM auction forecasts a dim future where Americans will be paying more to keep the lights on. We are seeing more and more coal plants fall victim to EPA’s destructive regulatory agenda, and as a result, we are seeing more job losses and higher electricity prices.”

The only thing that can stop this massive price hike now is an all-out effort to end Obama’s War on Coal and repeal this destructive regulatory agenda….

EPA’s Mercury and Air Toxics Standards ‘Costly’ and ‘Time-Consuming’ for Coal Plants
Environmental Leader
May 14, 2012

Compliance with the EPA’s Mercury and Air Toxics Standards (MATS) poses “significant challenges” for coal plants, forcing many to retire rather than make the required retrofits, according to a study commissioned by the Midwest Independent Transmission System Operator (MISO).

Economists at the Brattle Group evaluated the MATS, which requires the US coal and oil fleet to meet certain emissions standards—or close—by April 2015, with a potential one-year extension. The projected retrofits and new construction will require as many as 7,590 boilermakers, which is more than four times the number of boilermakers currently employed in the utility system construction industry, the Brattle Group says.

The study says the projected amount of retrofits on coal units, and the amount of new generation required to replace retiring coal units in the MISO region, will exceed the historical maximum achieved for simultaneous deployments of retrofits and new builds by 51 to 162 percent, based on MISO’s current projections of retrofit requirements and announced projects. …

Complying with MATS will ramp up labor, engineering, equipment and construction needs, which will likely create “substantial bottlenecks” in MISO and nationally, the study says. Study authors expect these bottlenecks to result in construction delays and cost escalation.

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