April 30, 2014

Prepare for Electricity Price Shocks

Barack Obama warned that prices would “necessarily skyrocket.” He was right.

In January 2008, Barack Obama said, “Under my plan of a cap-and-trade system, electricity rates would necessarily skyrocket. Coal-powered plants, you know, natural gas, you name it, whatever the plants were, whatever the industry was, they would have to retrofit their operations. That will cost money. They will pass that money on to consumers.” Unable to pass cap-and-trade (or, as we call it, cap-and-tax) via legislation, Obama turned to the EPA, which has been waging a war on coal.

In February of this year, after several months of new record highs for electricity prices, Department of Energy official Julio Friedmann told Congress that new coal regulations could cause prices to rise as much as 80%, which would definitely qualify as “skyrocketing.” We already pay about 42% more than 10 years ago.

With that background in mind, the Los Angeles Times reports on a “fundamental problem” with U.S. electrical infrastructure and pricing: “There is a growing fragility in the U.S. electricity system, experts warn, the result of the shutdown of coal-fired plants, reductions in nuclear power, a shift to more expensive renewable energy and natural gas pipeline constraints. The result is likely to be future price shocks. And they may not be temporary.”

Now, you may be thinking, “Good for the LA Times, exposing this problem Obama has had a big hand in creating,” but the Times story doesn’t mention Obama at all – not once. Fortunately, it does note that looming EPA regulations are already the reason coal-fired plants are shuttering because it’s too expensive to retrofit the plants, despite the fact that the agency promised in 2011 that regulations would cause few closings. It’s interesting, then, that the EPA has delayed the next round of regulations until after the mid-term elections. And if you think prices are rising now, just wait, the Times says: “When the regulations go into effect next year, 60 gigawatts of capacity – equivalent to the output of 60 nuclear reactors – will be taken out of the system, according to Energy Department estimates.”

Speaking of nuclear reactors, five have been shut down in recent years, and further closures are under consideration. No reactors have been built since the Carter administration, though four new reactors are under construction.

Philip Moeller, a member of the Federal Energy Regulatory Commission, points to basic supply and demand economics, saying, “We are now in an era of rising electricity prices. If you take enough supply out of the system, the price is going to increase.”

Instead of the all-of-the-above approach to energy that Obama claims to promote, however, his policies have clearly targeted coal and fossil fuels while promoting so-called renewable energy. Those alternative sources are expensive – again, according to the Times, “In some cases, the renewable power costs as much as twice the price of electricity from new gas-fired power plants.”

So while the president is promoting energy policies that increase costs for every American, he’s wailing about how Republicans are opposed to policies like the minimum wage – which, by the way, also increases costs and joblessness. He’s squeezing Americans at both ends and blaming the GOP.

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