10.05.11 4:14 AM ET
Electric Bills About To Spike
From Alaska to Georgia and Wyoming to Florida, utilities are seeking permission to pass on hundreds of millions of dollars in new charges to customers to help upgrade aging infrastructure and build new or retrofitted power plants that comply with tougher environmental regulations, a Daily Beast review of regulatory filings has found.
The influx of requests, many still pending before state regulators, has left energy experts convinced that electricity prices will be on the rise for the foreseeable future as the industry struggles to modernize its aging infrastructure.
“They desperately need to upgrade,” says Bill Richardson, the former New Mexico governor and Clinton-era energy secretary who once famously called America a superpower with a Third World power grid. “You’re seeing rate hikes everywhere because this is a widespread, national problem.”
The pending rate hikes are bad news for poor and elderly Americans on tight budgets, as Congress and the White House begin making cuts to programs that help people cope with their utility bills. One program in particular, the Low Income Home Energy Assistance Program, was slashed during the budget negotiations earlier this year, and is slated for even deeper reductions this fall.
During the budget battle, Congress cut $500 million from the program to bring this year’s total to $4.7 billion, down from a high of $5.1 billion in 2010. For next year, the Obama administration requested only $2.6 billion, leaving states with roughly half the assistance they’ve had in the past. The White House rationale relies on the assumption that energy prices will decline, but regulatory filings have indicated the opposite trend is in store.
In the latest round of budget negotiations, House Republicans have suggested adding $822 million on top of Obama’s request for next year, but the gap could still result in rationing.
Already this summer, Illinois cut back on its energy-assistance grants, forcing seniors and poor families to forego air conditioning during the sizzling August heat. And governors of cold-weather states such as Michigan’s Rick Synder and Maine’s Paul LePage—both Republicans—are fighting the drop in funding, warning that people could freeze. Northeastern Democrats are equally concerned by the president’s proposed cuts.
“During these tough economic times, it is critical that we both fully fund LIHEAP and ensure that states have timely access to the funding they need,” Rep. Rosa DeLauro, D-CT, says. “These changes could prevent states from being able to respond quickly to severe cold weather and leave the most vulnerable Americans out in the cold.”
The Beast’s review of regulatory filings found at least 16 utilities covering 6.1 million customers are seeking rate hikes of 5 percent or more. Almost half of those want increases of 10 percent or more.
And several more utilities already have received approval for large increases.
For instance, close to three million customers in parts of Virginia, Kentucky, Ohio, and West Virginia that get their electricity from American Electric Power have seen their rates increase between 48 and 88 percent over the last few years. Those rates are expected to rise an additional 10 to 35 percent in the next three years. The reason? AEP officials are quick to blame environmental regulations that they say are going to cost the company $8 billion in compliance and upgrades.
AEP, which operates in 11 states, says it is raising rates because it needs the cash to upgrade its infrastructure. The company plans to retire five coal plants—which amount to 6,000 megawatts of generation— and build at least two natural gas plants by the end of this decade.
“None of this is cheap,” says Mike Morris, AEP’s chief executive officer. Morris predicts that rolling brownouts also could loom on the horizon because the current system can’t keep up with demand, which is expected to grow by 44 percent by 2035.
Electricity rates were static for most of the 1990s and early 2000s. According to the Energy Information Administration, the average residential customer saw his or her bill increase just seven-tenths of a cent per kilowatt between 1998 and 2004. Between 2005 and 2010, the average price spiked about 2.5 cents and then flattened out over last year as natural gas prices dropped, EIA says.
Dozens of factors affect rate increases, but one of the biggest is that much of the transmission system was built at a time when the radio was still the main form of entertainment. The power grid simply can’t keep up with modern demand as more people use more appliances, computers, and gadgets.
In addition, more than half the states have imposed new clean-energy standards that require utilities to feed in renewable sources. Older systems can’t handle variable power sources such as wind and solar, and therefore require significant upgrades. Throw in pollution controls now required by federal regulations, and utilities are facing billions in upgrade costs that they are eager to pass on to customers.
In Wyoming, the roughly 135,000 households and businesses that get their electricity from Rocky Mountain Power will see their bills go up twice this year alone. In April, rates increased an average of 2 percent to cover increased fuel costs. The second increase took effect at the end of September –an average 8 percent rate hike—to fund infrastructure upgrades.
In South Carolina, Duke Energy has requested a 17 percent increase in residential rates to pay for new power plants and environmental compliance measures. Alaska Electric Light and Power got a 24 percent residential rate hike to deal with inflation and to build a new hydro project.
Customers in Richardson’s home state of New Mexico were looking at a 21 percent hike for infrastructure upgrades, but the state utility commission capped it at 9 percent.
And in Florida, Gulf Power has requested a 10 percent increase—the company’s first request in a decade—to pay for new power lines and other infrastructure. The public service commission won’t rule on the case until early next year, but approved an interim 4 percent price hike for the company’s 376,000 customers.
The industry is at the beginning of what analysts at the Edison Electric Institute, the association of shareholder-owned electric companies, describe as a long-term transition to a lower-carbon industry. Coal is on the way out for many power plants, and natural gas, solar, and wind power are being phased in.
“It’s a relatively recent phenomenon that’s happening because a good portion of the coal plants in use today are at or near the end of their useful lives,” EEI’s Jim Owens explains. Though the specific upgrades will vary among utilities, there is no doubt the costs will be passed on to consumers who will have to shoulder most of the burden despite the economic difficulties they face.
Utilities also are facing more stringent environmental regulations. The Environmental Protection Agency is considering a variety of new rules that would affect electricity generation, essentially forcing utility companies to shutter their coal plants or invest hundreds of millions in scrubbers that remove toxins from the air. Many of these proposed changes are court-ordered and required under the Clean Air Act.
In July, the agency finalized its Cross-State Air Pollution Rule in an effort to cut sulfur-dioxide and nitrogen-oxide emissions after the Bush administration’s plan was thrown out by a judge. Earlier this year, the EPA proposed national standards for mercury pollution from power plants. It’s also working on a controversial plan to regulate carbon dioxide as a pollutant.
The EPA has been a convenient punching bag for electricity companies, which have been arguing that onerous regulation is pushing up prices and giving electricity companies too little time to shutter older plants. But, the administration has listened, at least in part, to their concerns. In early September, President Obama gave a two-year reprieve to utilities on tougher ozone regulations because of fears the rules might harm the fragile economy.
And, a report in August by the nonpartisan Congressional Research Service countered some of industry’s claims of gloom and doom. That report noted most of the plants that will be affected are coal-fired facilities that are more than 40 years old—many of which are already being closed or have been upgraded to deal with toxic emissions.
The report also states that many of the new rules are the result of court rulings mandating regulation. “Some may question why EPA is undertaking so many regulatory actions at once, but it is the decades of regulatory inaction that led to this point,” the report notes.