The Maryland Public Service Commission is attempting to order utilities to enter into a long-term power purchase agreement with a new natural gas-fired power plant to be built in that state.
The efforts in Maryland are as misguided as similar attempts in New Jersey to stick utility customers with the bill for new power plants that are not needed and whose cost cannot be justified by private developers.
The premise that new, in-state power plants are a cure-all for electricity prices that are seen by some policymakers as too high is not supported by the facts. Electricity supply prices have been dropping everywhere, driven by natural gas prices that have fallen to their lowest point in the last 10 years.
The most recent Basic Generation Service auction conducted by the New Jersey Board of Public Utilities resulted in an average price reduction of 6.4 percent. Customers will begin realizing the benefits of those lower prices on June 1, and could save even more if they choose a competitive supplier for their electricity.
It’s also worth noting that the difference between the averages of the last three BGS auction prices (9.132 cents per kilowatt-hour) and the current competitive market of electricity (7.569 cents per kilowatt-hour) is 17 percent.
A similar story is unfolding in Maryland. The average default service price offered by Maryland utilities has decreased from 12.4 cents per kilowatt-hour in 2008 to 9 cents per kilowatt-hour in 2011.
These results show that the competitive market is producing benefits for electricity consumers in both states.
The other fallacy driving measures to subsidize the construction of new power plants is that the additional generation is needed to combat rising power capacity prices in the regional market operated by the PJM Interconnection. Capacity prices in the auction conducted by PJM in 2011, which covers the 2014-15 planning year, decreased by 40 percent for the zone that includes most of New Jersey and Maryland, while capacity resources included more than 1,500 megawatts of new generation or upgrades to existing power plants.
Because the competitive market treats all sources of capacity the same, new resources in the PJM market also have included a significant growth in demand response and energy-efficiency programs, which can be implemented today at a much lower cost than building power plants.
Actions by state governments to order construction of power plants cannot and will not change the fundamental economics of the electricity market. Instead, they create a precedent that inevitably leads to additional policy tinkering when the returns for developers of new power plants are neither guaranteed nor risk-free.
The solution that is best of electricity consumers is a robust competitive market, not more government subsidies. In the end, subsidies only raise the cost of electricity for consumers and wipe out benefits they have seen from the recent decline in power prices.
L. Gene Alessandrini
Senior Vice President
PPL EnergyPlus
