What will FERC do in wake of increasingly affordable electricity prices?

Electricity is becoming increasingly affordable throughout the United States. This fact was not lost on the Federal Energy Regulatory Commission (FERC), the entity charged with overseeing our interstate electricity grid, during a Technical Conference held last month.

Although the Conference was initially organized to focus on how regional electricity markets and state public policies interact, it became clear over the two-day long event that more fundamental questions were on the minds of many participants. Most significantly, for generators, was the question of cost. 

More affordable electricity bills are good for customers and businesses. Environmental Defense Fund (EDF) has long supported technologies, resources, and policies that help lower electricity prices, reduce carbon emissions, and cut waste. However at the Conference, many power companies urged FERC to take steps that would increase costs (and, consequently, their profits).

The argument these power companies advanced was nuanced. It had to be, as simply asking FERC to increase prices goes against a core FERC mandate: to keep prices “just and reasonable” (that is, as affordable as possible while maintaining reliability). So instead, power companies argued that state public policies are to blame, and artificially make electricity prices lower than they should be.

State public policies are, however, not to blame. As we wrote in EDF's filed comments, low-prices are largely being driven by incredible oversupply and cheap natural gas in the marketplace. Oversupply, that is, having more supply of a product (in this case, electricity) than demand, is particularly rampant. In the mid-Atlantic, for example, the most recent energy auction resulted in 23 percent more generation being purchased than needed.

In a typical marketplace, oversupply coupled with flat or shrinking demand generally leads to lower prices and costlier merchants leaving. Yet wholesale electricity markets are still signaling the opposite — power companies continue to build new power plants and are racking up extra reserve resources at record rates. This suggests a different picture than what many power companies argue: prices aren’t too low; they may in fact be too high.

Cheaper, cleaner, faster

Electricity markets are generally delivering what was promised when they were first created: electricity continues to be reliable at more and more affordable prices. There are ways they can be improved; in our comments we recommend a series of steps that can help make electricity markets more efficient and more affordable. EDF suggests that markets can be improved, for example, by reducing oversupply and more accurately pricing sought-after attributes.

Our comments additionally point out that arguments against state public policies are misguided. States play an important role in our electricity system, and the legal system respects the fact that state and local officials are best able to judge the needs of their citizens. Unlike what some argued at the Conference, state public policies are helping to support a healthy electricity sector, and work together with wholesale electricity markets to ensure that we’re getting reliable, affordable electricity.

The American electricity grid is overseen by regulators charged with ensuring reliable electricity at ‘just and reasonable’ prices. EDF will continue to advocate before them for affordable energy, state and consumer rights, and an efficient electricity market.  Look for more blog posts on the topic in the weeks and months to come.

 

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2 Comments

  1. Bob Meinetz
    Posted June 23, 2017 at 11:17 am | Permalink

    Michael, what's the basis of your claim U.S. electricity is "increasingly affordable"?

    The U.S. Energy Information Administration disagrees. They put the current residential price at 12.90¢/kWh, up 22% since 2010. Here in California, where EDF is tirelessly pushing renewables as an affordable source of energy, residential rates have risen from 14.56¢/kWh to 18.87¢/kWh, up 30%.

    Sorry, if we're supposed to accept these claims at face value.

    https://www.eia.gov/electricity/monthly/current_year/january2011.pdf#page117

  2. sean o
    Posted June 24, 2017 at 12:56 pm | Permalink

    If you think about it, this all started with the NE blackout in 2003. By flattening the grid, you need less reserve capacity in case of power spikes and get more reliability (like a 15-20% decrease in fuel use), which was the Bush energy plan in 2005. The Utilities were dragging their feet doing the interconnections and creating the interconnections because they said they couldn't get enough line capacity to justify building out the lines. which was also an issue for rural electrification as well. The CPP was tacked on top of this and it has multiple goals, but one of them was to try renewable energy sources to see what might work, the other was to put those projects where we needed the lines run to create the interconnections or for rural electrification which creates the line capacity, just going in the opposite direction. And it gave us an opportunity to see actual project costs and to see if we could scale it to make it cost effective.

    The excess capacity, isn't necessarily bad. Most of it is NG, and it gives an opportunity for utilities to start depreciating the costs. A number of them are waiting for the 50 year depreciation schedules for coal plants and potentially nuclear to expire because closing those. It fills in the gaps we potentially could see from winter/summer types of issues from solar. A NG facility requires less people and work to operate so sitting idle for half the year isn't as big of an issue.

    We are also trying to prep for more demand, if we electrify the transportation fleet we can see 20-30% more electric use. If gas goes bonkers in the short term ike 5 years as projected. it could happen a lot faster then we can build out renewables.

    Most of this "panic" in cost is a result of stripping profits and not reinvesting in infrastructure since the Reagan corporate profit era which essentially gutted most american companies and infrastructure in the name of short term profits for stockholders.

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