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What Will FERC Do in Wake of Increasingly Affordable Electricity Prices?

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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. 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 our 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.

By Michael Panfil

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Bob Meinetz's picture
Bob Meinetz on Jun 23, 2017

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#pag...

Bob Meinetz's picture
Bob Meinetz on Jun 26, 2017

TC_Don, the US Bureau of Labor Statistics tells me inflation has lowered the buying power of a U.S. dollar 13% since 2010.

So, no: it appears that electricity is increasingly unaffordable for everyone in the US (inflation-adjusted rates 9% higher) since 2010, and in California (+17%) especially so.

Bob Meinetz's picture
Bob Meinetz on Jun 26, 2017

TC_Don, I prefer to go to hard data than eyeball a pretty chart to determine what’s “significant” or what’s “slightly higher” etc. Your interpretation just doesn’t mean much to anyone else. From the horse’s mouth (EIA):
U.S. residential electricity rate Jan. 2010: $.1056/kWh
” April 2017: $.1290/kWh (+22%)
California residential electricity avg rate 2010: $.1456/kWh
” April 2017: $.1887/kWh (+30%)
Inflation-adjusted:
22% – 13% = 9%
30% – 13% = 17%
The current average residential rate for San Diego Gas & Electric is $.28/kWh, the highest in the continental U.S., up 56% since San Onofre was shut down in 2012. Must be all that affordable solar energy.

Wayne Lusvardi's picture
Wayne Lusvardi on Jun 27, 2017

Reply to anonymous TC_Don
Does your assertion that renewable electricity prices are “affordable” address Renewable Energy Certificates, Federal and state tax incentives and the dumping of solar power due to the California Duck Chart phenomenon and/or having to pay Arizona to buy dumped solar power?

Given that Renewable Energy Certificates are “mystery meat” and may actually be for fossil fuel power how can you make the assertion that renewable power is lower in price or cost?

California residential cents per kilowatt hour is about 19 cents (0.1898/cents) compared to 20 cents for Massachusetts and Connecticut according to the “Clean Tech Leadership Index” and the NRDC:

Link: https://www.ecowatch.com/renewable-energy-state-index-2428109809.html

Bob Meinetz's picture
Bob Meinetz on Jun 27, 2017

TC_Don, why are you responding to my original post comparing prices 2010-2017 with nominal residential price increases since 2001, or “over the last five years”?

Tsk, tsk. Cherry-picking unmatched datapoints is not the way to go.

Wayne Lusvardi's picture
Wayne Lusvardi on Jun 27, 2017

Ok point well made. But you didn’t answer my question: does the price/cost of renewable electricity reflects REC’s, tax incentives and dumping? My guess is the EIA does not divulge that. But any comparison between renewable and conventional power then becomes the proverbial orange and apples problem. Data garbage in, data garbage out. And the bigger question is that the price/cost of renewable power might be dropping but is that because it shifts the cost of new transmission lines and grid coordination to conventional power ratepayers? Or not?

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