Clean Power Plan Could Raise Electricity Rates

A new study funded by the American Coalition for Clean Coal Electricity found that most of the states subject to the U.S. EPA’s Clean Power Plan (CPP) will see significant increases in electricity prices. The Coalition hired The National Economic Research Associates (NERA) to conduct the study, which was published November 7, 2015.

Key Details:

NERA’s report examined two different compliance strategies with intra-state or regional trading. States can choose either a rate-based or mass-based approach to compliance. Under a mass-based approach, states would be trading emissions allowances but, under a rate-based plan, states would be trading emissions rate credits. The modeling presented a possible range based on two potential allocations of the allowances. In the first scenario, the allowances are auctioned to generators and electricity price impacts of the CPP are not reduced. In the second scenario, 50% of the allowances are auctioned to generators and the other half are freely distributed to local distribution companies to be used as credits to retail rates. The study found that in both scenarios electricity rates will increase.

Implications from NERA’s Study:

  • Energy sector expenditure increases range from $220 to $292 billion and raise electricity prices in each of the states subject to the new regulation during the examined period
  • Annual average expenditures increases between $29 and $39 billion per year
  • Average annual U.S. retail electricity rate increases range from 11% to 14% per year (relative to baseline) over the same time period
  • Overall, the economy would suffer a hit amounting to a loss to U.S. consumers in the range of $64 to $79 billion on a present value basis over the same period, not including potential increased costs for transmission and distribution and natural gas infrastructure
  • Consumers in 40 states could see double-digit electricity price increases, and 28 states could face electricity price spikes greater than 20%
  • Additional generation retirements would total up to 47,000 megawatts or more of coal-based electricity, posing a major threat to electric reliability in many parts of the country

The NERA study, funded by an opponent of the CPP, casts a very different light on the implementation costs and benefits of the CPP than those presented by the EPA. The EPA projected the CPP implementation costs at $41 to $50 billion, with a public health benefit of $26 to $45 billion by 2030.

NERA’s State-by-State Analysis:

The study’s authors collected four points of data across every state. Average percentages for those data points are below. One piece of data stands out as affecting consumers greatly in the near term, average annual electricity price increases of 11% to 14%

  • Percentage of electricity generated by coal: 38%
  • CO2 emission rate reduction for 2030 target relative to 2012 rate: 33%
  • Peak year electricity price increase: 24%
  • Average annual electricity price increase: 11% to 14%

Source: http://www.americaspower.org/nera/

More Information

Official Report: Follow Link to Download the Analysis

State-by-State Analysis: What Does EPA’s Plan Mean to Your Home State?

This summary is part of ScottMadden’s Fossil Minute series. To view all featured Fossil Minutes, please click here.

Contributing Author: Chance Cobb

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