Two energy-related items from over the weekend:
First, this is a nice retrospective on the failure of deregulation of electric utilities to deliver savings for consumers in Maryland, as well as in D.C. and Virginia. It's pretty familiar stuff for anyone who's followed the issue, but one thing that jumps out is how much the lack of new transmission is affecting the price of electricity: getting cheap power from distant plants is hard, so nearer, more expensive plants have to be fired up. (This is something Tom has been harping on for a while now.) Of course, it doesn't help that power companies in the region don't seem terribly interested in building new capacity:
Since deregulation, new residents and energy-consuming gadgets have pushed up the region's demand for power. A report by Maryland regulators last year predicted brownouts by 2011 if more plants aren't built.
But little capacity has been added. Environmental costs and public opposition have hindered the construction of plants, especially for companies trying to compete with the owners of plants whose value has skyrocketed.
So federal regulators agreed last year to allow the mid-Atlantic power industry to collect a surcharge to generate new supply.
Maryland regulators estimate that these "capacity" charges, passed on to customers, will add $300 million to bills this year.
"The only tool we have is to provide a financial incentive to build," PJM's Dotter said. "Older plants are shutting down, and there's nothing replacing them."
Critics say the supply has increased so little because the existing system not only benefits the companies in the region, it gives them an incentive to constrain the supply of electricity to keep prices high: Shareholders get the capacity payments even if they build nothing.
"It's money in the pocket of the generating companies without a guarantee that they are going to build," said Paula Carmody, director of the Maryland Office of the People's Counsel. "From a consumer perspective, it doesn't seem terribly beneficial."
The "environmental costs and public opposition" mentioned above are probably not going to go away, particularly when it comes to building new coal and nuclear plants. Kansas Gov. Kathleen Sebelius's decision to deny a permit for a new coal-fired power plant is likely the first shot in a long campaign to stop building new coal plants that don't capture their carbon emissions. Even Wall Street is recognizing that coal, besides not making any environmental sense, doesn't make much economic sense, either. The problem, of course, is replacing coal with cleaner sources that are as effective, and getting rid of regulations impeding them. Something like combined heat and power, for example, is cheaper and cleaner than conventional coal, but state and federal regulations currently favor large, centralized plants. Poorly designed deregulation rules that don't promote actual competition don't help either.