President Obama’s infamous words—saying electricity rates will “necessarily skyrocket” under his cap-and-trade program that would impose a costly energy tax on American consumers—are set to come true. Just ask the market.
Although cap and trade is not law, the Environmental Protection Agency’s (EPA) backdoor train wreck of energy regulations is forcing utilities to file for significant rate hikes in years to come because of the upgrades they will have to make or the complete shutdown of older plants.
Take Louisville Gas & Electric (LG&E), for instance. In what’s labeled as an “environmental cost recovery,” the utility says ratepayers will see their electric bills increase 19.2 percent by 2016. Why? LG&E spokesman Chip Keeling answered,
The EPA is forcing utilities to do this. We don’t have a choice. It’s not a question of are we going to meet them. The question is when and how and how much money. We have to meet these regulations because the EPA is mandating it for us to do it. They’re forcing us to do it.
LG&E isn’t the only one building cost increases into its projects as a result of EPA regulations. PJM is a regional transmission organization that manages the electric grid and coordinates the wholesale electricity market for 13 states and the District of Columbia. The organization conducts electricity capacity auctions for future years to meet anticipated demand, and it projects EPA regulations are going to increase capacity costs in the magnitude of $2 billion–$3 billion for a one-year period. PJM also “concluded that “60 to 80%” of the increase in generators bid costs in the May 2011 auction was due to environmental regulations.”
As this American Legislative Exchange Council study shows, the EPA’s train wreck of energy regulations leaves a complicated and expensive mess of new requirements for U.S. power plants. A new analysis from the National Economic Research Associates (NERA) looked at just two of those regulations, the Clean Air Transport Rule and the Utility Maximum Achievable Control Technology (MACT). The study finds “Average U.S. retail electricity prices in 2016 would increase by about 12%, with regional increases as much as about 24%.”
American households will be hit hard, as will American businesses. Producers everywhere will try to cover their higher production costs by raising product prices. As a result, consumer demand will fall, and income and employment will drop. There’s no other way to put it: These are unnecessary job-killing, economy-destroying regulations.
Nicolas Loris is a Research Assistant at The Heritage Foundation . http://www.heritage.org/ Roe Institute for Economic Policy Studies. Loris studies energy, environment and regulation issues such as the economic impacts of climate change legislation, a free market approach to nuclear energy and the effects of environmental policy on energy prices and the economy.