The Rising Cost of Power

Higher electricity costs are on the horizon as growing demand and environmental regulations stress rates

By Megan McKoy-Noe

Thirty-five years ago, disco was king, personal computers were born and Americans needed more electricity.

To meet this demand, not-for-profit, consumer-owned electric utilities—in partnership with their wholesale power suppliers—built or invested in power plants, mostly coal or nuclear.

Unfortunately, many of these plants may be forced to make expensive changes to meet increasing environmental regulations—and as electric demand climbs again, new generation will be needed to keep the lights on.

Some coal-fired power plants may require modifications so severe it will be more cost effective to shut them down.

Accelerating Factors

Adding more plugged-in devices daily, consumers already are paying more for electricity. The average annual residential electric bill has risen $263.40 since 2005, with electricity use outpacing efficiency efforts.

Despite the recession, the average U.S. home used an additional 50 kilowatt-hours every month between 2009 and 2010; retail electricity sales rose 4.4 percent.

Americans are not the only people using more power. As worldwide energy use grows, resource competition—and prices—shoot up.

By 2035, global energy consumption, primarily in China and India, will jump 53 percent from 2008 levels.

Despite increasing energy needs, 37,600 megawatts of older coal-fired power plants are slated for retirement by 2018. The North American Electric Reliability Corporation (NERC)—the organization charged with overseeing reliability of the electric grid covering the United States, most of Canada and the Mexican state of Baja California Norte—predicts a worst-case scenario of environmental regulations could force coal plants generating up to 54,000 MW of additional power to shut their doors by 2018.

New power plants could offset this loss, with natural gas taking center stage. The National Energy Technology Laboratory—a branch of the U.S. Department of Energy focused on advancing national, economic and energy security—predicts 20,000 MW of natural gas facilities will start operating this year, with another 28,000 MW proposed for 2013. A strong breeze from wind project proposals may add 42,000 MW this year and 28,000 MW in 2013—but only if federal production tax credits continue.

Shifting Fuel Focus

While about half of the nation’s electricity comes from burning coal, co-ops outside the Northwest rely more heavily on it—about 80 percent. Why the difference? Most co-op coal power plants were built between 1975 and 1986, when using natural gas was prohibited by the federal Powerplant and Industrial Fuel Use Act.

Now, a series of U.S. Environmental Protection Agency regulations impacting cooling water intake structures, coal ash disposal, interstate transport of air pollutants and hazardous air pollutants such as mercury are affecting all electric utilities.

In most cases, co-ops will need to retrofit coal-fired plants with costly pollution control equipment; in others, co-ops could opt for early plant retirements.

"Time is tight," says Kirk Johnson, senior vice president of government relations for the National Rural Electric Cooperative Association, the service organization for the nation’s 900-plus electric cooperatives. "Improvements take time and new technologies have to be tested before going mainstream.

"We’re deeply concerned that EPA’s strategy to require significant change within very compressed timelines may be unachievable and could damage the economy of rural America and affect service reliability."

Seeing the handwriting on the wall, co-ops have taken action. During the last decade, power supply co-ops have invested $3.4 billion to boost plant performance and limit emissions. In fact, since 1990, power plant emissions of nitrogen oxides and sulfur dioxides—compounds formed by burning fossil fuels—dropped at least 67 percent nationally, even as electricity use climbed 38 percent.

The large-scale expenditure is not finished. Another $4 billion has been slated for upgrades through 2021, with the bulk of the money—$2.18 billion—marked for work this year and next.

Regulation Risks

NERC’s 2011 Long-Term Reliability Assessment reports that "environmental regulations are shown to be the number one risk to (maintaining electric) reliability over the next one to five years."

Why the concern? Steps required by EPA rules have the potential to cost the industry billions of dollars and do not provide enough time to comply.

"Regulation on top of regulation, and court decision on top of court decision, have compounded the situation to the point that we now have contradictory regulations and court decisions that don’t make any sense," says NRECA CEO Glenn English.

NRECA has actively urged EPA through comments, testimony and litigation to consider the negative impacts of increased electric power costs on consumers as it moves forward with its rulemakings.

"Our nation needs to adopt a balanced, common-sense approach to environmental protection that factors in electric reliability and affordability," English says.

Megan McKoy-Noe writes on consumer and cooperative affairs for NRECA. Steve Johnson and Jennifer Taylor contributed to this article.

Posted February 21st