Impending new environmental compliance requirements are a “regulatory train wreck” said public power companies gathered in Washington, DC this week.

Public power companies, created over the last century by local and state governments to ensure local control over electric supply, see that control slipping away under a double whammy of the environmental standards and federally-directed wholesale power markets.

The upshot, public power officials say, will be ever-higher electricity prices for consumers.

The eroding ability of local and state officials to influence power supply and prices – and their fight to stop that erosion – pervaded the American Public Power Association annual conference in Washington, DC this week, which drew more than 1,500 registrants.

APPA represents some 2,000 public power systems nationwide. Those systems – often called municipals or munis – range in size from the Los Angeles Power & Water District with 1.4 million customers to systems serving towns with fewer than 2,500 customers. All are non-profits providing electricity at cost, many own older coal generating plants, and most are exempt from state regulation.

Their management reports to a local board that sets local rates, and Katherine Masterson of Fitch Ratings said, on average, public power entities have higher bond ratings than investor-owned utilities.

APPA Executive Director Mark Crisson said public systems face the same issues as private generators as the Environmental Protection Agency grinds out a series of new rules in the next few years. This “train wreck” includes regulations restricting greenhouse gases and mercury, tighter sulfur and nitrogen limits, and a water pollution rule that could require larger plants to construct cooling towers. The rules will force all generators with aging coal plants to decide whether to undertake costly retrofits or shut them down, which could especially impact small public systems with few plants.

And that’s coming while public systems are trying to cope with restructuring electric markets. Regional transmission organizations (RTOs) were enabled by Congress in 2005 to encourage regional electricity markets and approaches to transmission building. The Federal Energy Regulatory Commission has given authority to ensure reliable interstate electric service to those RTOs, so all electric systems have to join.

APPA members point to the best-established RTO, the PJM area serving the Mid-Atlantic region east to Chicago, as an example of a regional market that advantages the large private generators over munis.

Not just munis, said Paula Carmody, People’s Counsel for the state of Maryland. States are now finding themselves unable to protect consumers from power price hikes.

At issue: the PJM capacity market, an auction held to ensure that generating capacity will be available several years in the future. The capacity market was established after everyone agreed that the short-term electricity markets provided no signals or incentives for generators to meet future needs.

But, Carmody told the conference, the PJM auction has resulted in huge payments to generators to guarantee future capacity that generators have simply pocketed. Both Maryland and New Jersey have congested transmission grids, and at auction, their capacity costs were 8-9 times higher than the rest of PJM. APPA says Maryland consumers alone will pay an extra billion dollars.

So New Jersey decided to build new capacity in the state, to lower the cost. Generators and PJM appealed to FERC, which said essentially the state couldn’t interfere with the market that way.

Maryland was looking at a similar approach, and Carmody said, “We seem to have lost control” over what Maryland residents are charged.

Other regional power markets are in their relative infancy, and the PJM experience has APPA members campaigning to stop them in their tracks. Crisson said APPA’s Electric Market Reform Initiative, begun in 2006, has raised over $2 million to continue its work against expanding the electricity markets.

FERC is encouraging regional markets to form, contending they’ll bring the most efficient power in the end.