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Look Closely: Will New Regulations Will Affect Your Electric Power Pricing?

By Lindsay Audin - September 2014 - Energy Efficiency


When thinking about dire claims of electric power price increases due to new regulations, however, it's important to understand if the claimant is referring to wholesale power pricing, which, for many customers, may be only half of a customer's total electric bill.

Determining the impact on an electric bill starts with knowledge of your utility's generation mix. Its Environmental Disclosure Label (EDL) shows the percentage of electricity from each energy source. Many states require EDLs to be publicly available, making that a good starting point.

To see if your state requires an Environmental Disclosure Label (EDL), go to: bit.ly/GreenPowerEDL

If an EDL is not available, find the percent of coal dependence of your state at: bit.ly/StateCoalDependence (scroll down to page 11)

To see if your state is affected by the wind-borne pollution regulation (called CSAPR), EPA has an interactive map showing which states are sources (or recipients) of cross-state pollution at: bit.ly/StateCSAPR. Place your cursor over your state to see who's "blowing smoke" at whom.

What Will Change Look Like?

Retirement of coal-fired plants may have multiple impacts on an electric bill. Understanding the structure of your bill may clarify how and when it could be affected. Commercial customers are charged for both how much electricity they use (consumption) and how fast they use it (demand, capacity). The first hint of a price hike may show up in the consumption part of the bill. About 60 percent of customers also pay a fuel adjustment charge (FAC) to cover their utility's incrementally higher costs of purchased power or fuel. A FAC could boost the next month's bill, or be passed through as a quarterly charge, or even as an annual true-up. Without such a charge, the impact may be delayed until the next rate case — a year or more later. To get a heads-up on possible impacts, a chat with your utility account rep may be helpful.

Higher demand or capacity charges may also occur, especially where a grid-wide reserve margin — the percent of maximum grid output beyond peak demand — is tight, such as states with rapidly growing populations. Demand charges may be fixed by tariff — the legal document setting out rates — but capacity charges may vary monthly, seasonally, or annually with wholesale power markets. Projected losses of coal-fired capacity have already driven up the forward cost of capacity in some areas, and may eventually do the same with tariff-based demand charges. Higher forward capacity pricing is being seen, for example, in eastern Massachusetts, where the Brayton Point coal-fired power plant is scheduled for shutdown by 2017. The same is being seen in the Chicago area and the eastern part of the PJM grid, though other factors are contributing to the rise.

Monthly pricing may also become more volatile. Shifting more power production from coal to gas-fired units reduces emissions and may even cut cost, but it also opens the door to the vagaries of wholesale natural gas pricing. As was seen during the 2014 winter, wildly fluctuating gas pricing led to brief but extraordinary jumps in power pricing. Some saw electric bills triple relative to the same months in prior years. When cold weather subsided, and the demand for gas for space heating passed, gas prices plummeted, causing electric prices to suddenly drop. Some facility and accounting personnel are still queasy from the ride.





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