Why Should Delaware Care?
Residents of Delaware will likely see higher energy prices next year due to recent energy auctions, placing additional pressure on households still contending with abnormally high inflation. Whether corporate greed, flawed calculations or an overzealous push for green energy are to blame for the prices is still being debated.
A July electricity auction that pushed wholesale power prices skyward in the mid-Atlantic has sparked a backlash from state governors, consumer advocates and environmentalists who are calling on an industry-run grid operator to enact sweeping reforms, including faster approvals of proposed wind and solar projects.
Last month, governors in five states, including Delaware Gov. John Carney, sent a letter to the region’s grid operator, PJM Interconnection, that spelled out a foreboding future for homes and businesses unless the company urgently acted to “prevent consumers from paying billions more than is necessary.”
The governors said “serious flaws” had taken hold in the electricity market, causing a July capacity auction to return prices of $14.7 billion – a 568% increase from the $2.2 billion cost the year before.
Consumers are going to be hit, bang-bang.
Ruth ann price, delaware public advocate
And that price could surpass $30 billion next year, the governors said, if reforms are not made – such as changing how PJM oversees bids for wholesale electricity, and lowering a price cap back to a level used last year.
The prices that result from such electricity capacity auctions help to determine the larger wholesale rates that utility companies – such as Delmarva Power – must pay to power plant companies for electricity.
And because Delaware law allows utility companies to achieve a set amount of profits, industry experts expect increased wholesale prices to be passed along to consumers.
Delaware Public Advocate Ruth Ann Price said the extra amount that Delaware households and businesses could pay late next year as a result of the July auction is not yet clear.
But, she does expect a price jump that will be big enough to shock Delawareans.
“Consumers are going to be hit, bang-bang,” said Price, who is tasked with pushing for consumer interests in front of state energy regulators.
When asked whether there will be a price increase, a spokesman for Delmarva Power told Spotlight Delaware that it is too early to say.
The utility is the state’s biggest, providing electricity to almost all of New Castle County, as well as parts of Kent and Sussex counties. It is also the only electric provider regulated by the state-run Public Service Commission.
In August, an executive at Delmarva Power’s parent company, Exelon Corp., told investors that there likely will be double-digit increases on customer bills in certain jurisdictions within the PJM power grid, which extends from the coastal mid-Atlantic to parts of Indiana and Illinois.
In neighboring Baltimore, household electricity bills could jump by $21 per month, according to a legal complaint challenging the auction’s result filed in September by the Sierra Club.
Across Maryland, household electricity costs could jump between 2% and 24%, according to a report from that state’s consumer advocate.
While Maryland’s Eastern Shore will see the smallest price jump in that state, according to the report, it will come on the heels of separate price increases that this year hit much of the sparsely populated Delmarva Peninsula – including lower Delaware – following a $100 million error in an local auction that occurred the previous year.
That error sparked months of litigation that ended with federal appeals judges ruling that the results of the flawed auction could not be undone.
Why the price spike?
Immediately after the July electricity auction, PJM published a statement saying that the bids had been competitive and would ensure that the region would enjoy a reliable supply of electricity, even during its coldest months.
The statement acknowledged that prices were high, and attributed them to a decreasing supply of electricity following the mothballing of several large power plants.
PJM CEO Manu Asthana also said the high prices would encourage new power plants to be built in the region.
“The market is sending a price signal that should incent investment in resources,” he said.
But, in legal filings and public statements, PJM’s critics have sought to rebut those the company’s assertions, arguing that the price spike was a result of too much market power held by too few power producers, and of a failure by PJM to include the entirety of the region’s electricity supply into the auction.
Critics also argue that high prices will not incentivize the construction of new power plants because there already exists a long line of proposed generators waiting for PJM’s approval to enter into the region.
“(New power plants) haven’t even been built because of various issues going through the PJM queue,” said Price, the Delaware Public Advocate.
Last week, Price’s counterparts in Maryland, New Jersey, Illinois, and Washington, D.C. made similar arguments in a legal challenge filed with the Federal Energy Regulatory Commission (FERC).
The states’ advocates argued that the auction’s design was unjust and unreasonable because it subjected “consumers to crushing capacity clearing prices that serve little purpose while incumbent generators reap enormous windfall revenues.”
They argue that FERC should establish replacement electricity rates, among other remedies.
“There is simply no way around it: significant aspects of the (auction) design are unjust
and unreasonable,” the complaint stated.
The state advocates’ complaint followed the Sierra Club’s challenge from September, in which it argued that PJM failed consumers by not including power plants that only operate during peak demand periods in its auction.
That failure amounted to forcing consumers to pay twice for the same electricity, the complaint asserted, because ratepayers are already charged fees to ensure those power plants, such the coal-burning Indian River Power Station in Millsboro, stay open.
PJM: Green government push also to blame
When asked in an email about the July auction, a spokesman for PJM noted that the record-high prices that resulted account for only one part of consumers’ overall cost of electricity.
The spokesman Jeffrey Shields also placed part of the blame for surging prices on government, arguing “that policy pressure on generators to retire before their replacements are in place could result in an electricity supply crunch.”
As part of its plans to cut greenhouse gasses, the Biden administration has enacted several policies to limit emissions from coal-fired power plants in particular, including in April when the EPA issued a rule that those generators either close by 2039 or install equipment to capture emissions from smokestacks.
In response to a question about PJM’s approval of new power plants, Shields said his company has recently implemented a new approvals system that he said could process a hefty 200,000 megawatts of proposed power over the next three years.
If all 200,000 megawatts were approved and built, they would more than double the amount of electricity produced in the PJM region in 2023.
Nevertheless, Shields did say that PJM officials are concerned that several obstacles to building new power plants remain from factors outside of its control, including from supply chains, financing and from finding suitable site locations.
“Right now, PJM has approved about 34,000 megawatts of mostly renewable generation to connect to the grid, but these projects are not coming online at the pace we need to replace retiring generators,” he said.
Finally, Shields noted that PJM has delayed its next electricity capacity auction by six months to allow federal regulators to “consider the complex issues raised by the Sierra Club and others.”
“Further, this delay will allow PJM to discuss with its Members, stakeholders and the PJM Board of Managers the possibility of other capacity market reforms that could occur,” Shields said.
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