Posted by: theoptimisticconservative | May 24, 2012

Necessary skyrocketing

Here it comes.  DirectorBlue (Doug Ross) has a superb summary of recent updates on the colossal increase in electricity prices being imposed by the Obama EPA.  With the ongoing and prospective shutdown of coal-fired generating plants throughout the Northeast, the recent power-capacity auction for the year 2015 produced a market-clearing price of $136 per megawatt, or eight times the price from the 2012 capacity auction.

For northern Ohio, the price was a surreal $357 per megawatt – because northern Ohio has been heavily reliant on coal plants that will all be shut down by 2015.

These increases can only be passed on to the consumer – or taxpayer.  Again, this is what bidders actually committed to pay for power generating capacity.  As Doug Ross reminds us, this isn’t information from a model; it’s a real-world, market-driven data point.  It’s going to cost that much to generate power without the coal plants.  If you want electric power, you’re going to have to pay the rate that makes it possible to generate power at that cost.

And, of course, almost no one can afford to do that.  Suppose the eight-fold increase in the auction price produced a commensurate eight-fold increase in the unit price of a kilowatt-hour for the consumer.  (It may not, but it will produce a significant increase, probably on the order of 500-700%.)

Imagine the average $120 or so monthly electric bill of Northeasterners exploding to $960 a month.  The 500-700% increase would produce average bills running from $600-720 a month.

Even just doubling the amount of people’s electric bills would entail a huge economic shock.  The eight-fold-increase numbers are hard to get our minds around, but supposing that the increase no more than doubled or tripled the amount of the average electric bill – with the residue being absorbed by taxpayer-debt-funded government programs – it would still have a very disruptive effect on social cohesion.  Only a small percentage of Americans would riot in the streets, but millions of Americans would begin fleeing the areas where they could no longer afford to live.

Those who already live in rural parts of northern Ohio would no doubt turn exclusively to diesel generators, propane heaters, and wood fires.  (Which we can expect would then be outlawed.)  They and their rural confreres in the neighboring states would be joined by more and more refugees from the cities.  Suburbanites would go off-grid to the extent they could, but would remain captive to urban regulation.  Many in the Northeast and Midwest would make the long delayed decision to move elsewhere – south and west – even if that meant losing the investment in their homes.  Still others would begin considering the move for the first time.

What Americans will not do is blithely revert to living in 19th-century conditions in the cities.  More than household electric bills will skyrocket:  the cost of everything in life that relies on electricity – in other words, everything – will skyrocket as well.  Retailers, no matter what they sell, will have to charge much, much more for their products, not only because making them costs the producers more, but because keeping the lights on or the machines operating in the retail facility will cost so much more.

This electricity increase will force thousands of businesses to shut down.  Even many big businesses can’t handle this cost increase.  It will kill more jobs than anything has to date, making the Great Depression look like a roaring recovery.  It will make things we take for granted, like fresh produce, impossible to obtain unless you live right next to a farm (and live outside of the Northeast, where commercial farming will die out entirely) – but it will also distort and suppress all kinds of sophisticated and packaged production, including those related to the most basic necessities.  The price of gasoline may remain comparatively stable, but if there are far fewer retailers to ship products to, many truckers will still go out of business.

Doug Ross cites the North American Electric Reliability Corporation (NERC) predicting that the massive shutdown of coal plants will compromise the reliability of the power grid in the Northeast.  But we must also consider the likelihood that power companies will lose so many customers, and lose so much revenue, that they will go under.  “Saving” them with big bailouts would only make the areas they serve more beholden to their “patrons” in the federal government.

These are mostly first-order effects.  As distortions mushroomed in the Northeast, we can assume that the federal government would not stand idle.  If its priority remained limiting the people’s access to electric power, it would do whatever was necessary to ensure that there would be no benefit from fleeing to the other parts of the country.

The bottom line on this prospective skyrocketing is that it cannot happen without tremendous social disruption.  That doesn’t mean the American people will turn violent or undisciplined – a small minority would, and they are already displaying their character as we speak – but it does mean that we cannot continue life as we know it, with almost everyone in the northeastern part of the country artificially priced out of the convenience of central-grid electric power.

Keep in mind, this is entirely artificial.  This is government policy, made independently of any sort of outside crisis.  Nothing imposes this on us except the Obama administration’s acceleration of hallucinatory ideological extremism.

Ross notes that after NERC published its estimates on the reliability problems of the future power grid, it was promptly investigated by the Federal Energy Regulatory Commission (FERC).

J.E. Dyer’s articles have appeared at Hot Air’s Green Room, Commentary’s “contentions,Patheos, and The Weekly Standard online.

Note for new commenters:  Welcome!  There is a one-time “approval” process that keeps down the spam.  There may be a delay in the posting if your first comment, but once you’re “approved,” you can join the fray at will.

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Responses

  1. Yes, treasured readers, that generic comment on the one-time comment approvals should have been added a long time ago.

    • some guy named Doug Ross reads a report from some site that cites an EIA report that coal usage in electricity generation has dropped because of a downward spike in natural gas prices…….and which the EIA also says that it expects to reverse in a half-year or so……

      and we’re off!!!!——

      how the heck to you manage to suspend your disbelief and buy into this sorry sack of swizzle sticks?

  2. No surprise here. In 2008 Obama said, on multiple occasions, “energy prices will necessarily skyrocket” and “electricity rates would necessarily skyrocket,” clearly he meant it.

    It’s virtually a religious imperative for many on the left.

    Part of his plan to “fundamentally transform” America.

  3. That doesn’t mean the American people will turn violent or undisciplined
    They should.

  4. Well, that’s just wonderful news…
    Maybe we can hope for a technological breakthrough at ITER in France before 2038. Otherwise, I’ll have to start sending my comments to Optcon by carrier pigeon.

  5. This reminds me of a story the comedian Shecky Greene tells about himself. He was walking past a Vegas casino when two huge goons jump him, start beating the bejesus out of him. Sinatra walks out of the casino, says: “That’s enough.” Shecky tells the audience: “Do I love Sinatra? Man, he saved my life!!”

    What the audience understood, of course, is that Old Blue Eyes sicked the goons on Shecky in the first place.

    So I won’t be surprised if in October, His Worship exempts the coal-fired regions from the diktats of his EPA goons. Just as he’ll waive tuition and mortgage debts, declare amnesty for illegals, and lift a drilling ban here and there. At least through February 2013.

    Do I love him? Man, he saved our country!!

  6. Ontario Canada has been gearing up to produce electricity via natural gas. Are there any natural gas pipelines that would be able to service the NE of the US for this purpose as well?

  7. Debunking Conservative Media Fearmongering About New EPA Rule:

    (April 2, 2012) After the EPA proposed regulations on greenhouse gas emissions from power plants, several conservative media outlets claimed that the new rule would increase electricity prices for consumers by prohibiting the construction of coal plants without carbon dioxide controls. But economists and other analysts say that because low natural gas prices are already suppressing coal-plant growth, the rule will not significantly affect electricity rates.

    Read more:

    http://mediamatters.org/research/201204020012

    Jeez.

  8. tminus1 — great story. (Shecky Greene was hilarious.) And I imagine you’ve nailed it. It’s the Chicago Way to manufacture threats that you then release the victims from, at a price. A “shakedown” is another word for it.

    Welcome, Ken Noorlander. I don’t know about the gas pipeline situation in that area of our border. But it’s a good question.

    Jeff S — welcome. That’s a nice quote, but it doesn’t seem to come from anyone who actually has money on the line. Those who do have money on the line, and understand the industry and what it takes to produce power, have just bet their money that the cost of producing electricity will be much higher in 2015. I’ll go with their expectation.

    • Understood. But then the question becomes how these price increases will actually affect the consumer. As both the left and right wing bases tend toward hysteria, I often don’t accept their pronouncents at face value without further investigation and this story strikes me as ripe for a more in depth look. So, here’s PJM Interconnection’s press release on the auction which prompted this story:

      http://www.pjm.com/~/media/about-pjm/newsroom/2012-releases/20120518-pjm-capacity-auction-secures-record-amounts-of-new-generation-demand-response-energy-efficiency.ashx

      There, on page 2, Andy Ott, PJM senior vice president, “noted that the 2015 capacity prices’ overall effect on retail consumers’ electricity rates is expected to be moderated by other factors. “Capacity is a fairly small component of the retail price of electricity, and the cost of capacity at the retail level tends to be averaged out over several years,” Ott explained. “In addition, if natural gas prices remain low, that would tend to restrain retail electricity prices.””

      A Chicago Tribune story the day before the auctions opened with this lede:

      “Residential electricity prices are expected to spike by more than 10 percent beginning in 2015, with consumers paying between $150 and $330 a year more than this year, as coal plants, the least expensive producers of electricity, continue to close.”

      http://articles.chicagotribune.com/2012-05-17/business/ct-biz-0517-rate-shock-20120517_1_coal-plant-electricity-producers-electricity-costs

      In other words, an eight-fold increase in capacity prices does not translate into an eight-fold increase in what consumers will pay.

      Hardly, the EPA-Driven Apocalypse predicted in the article that serves as your jumping off point.

      It should also be noted that the price increase actually came in lower than forecasted. Again from the Tribune article:

      “In June, consumers will pay power plant operators $16 per megawatt-day in capacity payments based on the results of an auction held three years ago. (A megawatt-day is about equivalent to the amount of electricity used by 330 homes in 24 hours.)

      “Travis Miller, director of utilities research at Chicago-based Morningstar,…predicts that number will jump to $140-$180 per MW-day in Friday’s auction. Goldman Sachs analysts estimate even higher figures, $220-$300 per MW-day in 2015, or 14 times to 19 times this year’s prices and roughly double the results of last year’s auction.”

      Turns out though these predictions were high. The actual market-clearing price for the NE was $136 per MW.

      Look, I’ve read some really good stuff by you on this blog, especially material that reflects your military intelligence training and skills, but this kind of right-wing fearmongering is unbecoming. Just sayin’

      • if natural gas prices remain low, that would tend to restrain retail electricity prices.”

        Since commodities historically vary up and down, and natural gas is currently at near historical lows, that’s not just a really big ‘if’, it’s a completely unrealistic expectation, as it necessarily predicates a suspension of natural economic patterns.

        Yet you question that assertion not at all…

        Is predicting a 10% retail price increase when the commodity’s wholesale price rises by eight times reasonable? Yet you accept it without skepticism reserving your skepticism for the “conservative media”…

        The very liberal Chicago Tribune is a paragon of objectivity, whose assertions should be accepted at face value? In the article you cite, no opposing views are quoted, implying that knowledgeable observers are unanimous in their viewpoints. Given the fundamental economic factors cited above, the likelihood that the Tribune is practicing ‘agenda’ journalism is virtually certain.

  9. If you are dealing with regulated utilities, you can take it to the bank that increased costs will be passed on to the rate payers.

    And the liberals are attacking this from several fronts. Not only are they increasing the cost of coal-produced electricity, the states are mandating that certain percetages of the utility’s electricity be produced from renewable or other alternative sources, such as wind or solar. These kilowatts cost a lot more than the coal or natural gas produced kilowatts, but the utilities will not care, as they get to pass it all on to the consumer, preserving their profit margins. In addition, they are requiring subsidies from the utilities to customers installing their own alternative energy sources of electric power. That’s no skin off the utility’s nose, as they just include those costs in their rate base.

    Even with the artificial increases in the costs of utility-generated electricity, it remains economically unfeasible to buy your own solar or wind generated electricity. But, the federal government is there to save the day by allowing you to spend other people’s money.

  10. Well, let’s just see how it pans out. My money’s on Jeff S.

    • hey, you’re betting against the idiotic hysteria that the opticon is backing?

      I’ll have to remind you that she stood four-square with Glenn Beck when he predicted that Obama was planning to tape and beam into all public schools weekly indoctrination messages!!!!

      I’ll also have to remind you that it was the opticon who told us all that the Stuxnet worm was a Chinese invention and probably not really meant to target iran.


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