Electricity is becoming increasingly affordable throughout the United States. This fact was not lost on the Federal Energy Regulatory Commission (FERC), the entity charged with overseeing our interstate electricity grid, during a Technical Conference held last month.
Although the Conference was initially organized to focus on how regional electricity markets and state public policies interact, it became clear over the two-day long event that more fundamental questions were on the minds of many participants. Most significantly, for generators, was the question of cost.
More affordable electricity bills are good for customers and businesses. Environmental Defense Fund (EDF) has long supported technologies, resources, and policies that help lower electricity prices, reduce carbon emissions, and cut waste. However at the Conference, many power companies urged FERC to take steps that would increase costs (and, consequently, their profits).
The argument these power companies advanced was nuanced. It had to be, as simply asking FERC to increase prices goes against a core FERC mandate: to keep prices “just and reasonable” (that is, as affordable as possible while maintaining reliability). So instead, power companies argued that state public policies are to blame, and artificially make electricity prices lower than they should be.
State public policies are, however, not to blame. As we wrote in EDF’s filed comments, low-prices are largely being driven by incredible oversupply and cheap natural gas in the marketplace. Oversupply, that is, having more supply of a product (in this case, electricity) than demand, is particularly rampant. In the mid-Atlantic, for example, the most recent energy auction resulted in 23 percent more generation being purchased than needed.
In a typical marketplace, oversupply coupled with flat or shrinking demand generally leads to lower prices and costlier merchants leaving. Yet wholesale electricity markets are still signaling the opposite — power companies continue to build new power plants and are racking up extra reserve resources at record rates. This suggests a different picture than what many power companies argue: prices aren’t too low; they may in fact be too high.
Cheaper, cleaner, faster
Electricity markets are generally delivering what was promised when they were first created: electricity continues to be reliable at more and more affordable prices. There are ways they can be improved; in our comments we recommend a series of steps that can help make electricity markets more efficient and more affordable. EDF suggests that markets can be improved, for example, by reducing oversupply and more accurately pricing sought-after attributes.
Our comments additionally point out that arguments against state public policies are misguided. States play an important role in our electricity system, and the legal system respects the fact that state and local officials are best able to judge the needs of their citizens. Unlike what some argued at the Conference, state public policies are helping to support a healthy electricity sector, and work together with wholesale electricity markets to ensure that we’re getting reliable, affordable electricity.
The American electricity grid is overseen by regulators charged with ensuring reliable electricity at ‘just and reasonable’ prices. EDF will continue to advocate before them for affordable energy, state and consumer rights, and an efficient electricity market. Look for more blog posts on the topic in the weeks and months to come.
By Michael Panfil
Originally Published on June 22, 2017
The Energy Exchange Blog is a forum where EDF‘s energy experts discuss how to accelerate the transition to a clean, low-carbon energy economy. Follow them on Twitter here: @EDFEnergyEX
