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AEP demands 45% rate increase for Ohio — what all America can look forward to under McCain

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"AEP demands 45% rate increase for Ohio — what all America can look forward to under McCain"

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What happens when your utility is 68% dependent on coal?

American Electric Power said Thursday it must raise electricity rates 45 percent for its nearly 1.5 million customers in Ohio over the next three years, to cover soaring coal prices and the cost of modernizing its systems to keep them reliable….

AEP executives acknowledge that the increases will be tough on consumers already facing high gas and food prices during a slumping economy.

“The fact is that coal has doubled in cost in the last year alone, dramatically affecting AEP Ohio’s costs,” Joe Hamrock, AEP Ohio president and chief operating officer, said in a statement. “The tools given to us by the State’s new energy plan allow us to phase in those fuel price increases over time so that unlike the spikes Ohioans see in so many products, AEP Ohio’s rate increases are spread out to be made more affordable.”

Note to AEP Ohio — Other than gasoline, what are the “so many products” that Ohio consumers ever see rise 45% in three years? Answer — not bloody many.

Now it is inescapable that under McCain’s energy and climate plans, the entire country’s electricity rates and bills will soar for several reasons:

  • First, McCain supports a cap-and-trade system. That raises coal prices significantly, and coal generates 50% of US electricity.

[Yes, McCain and his advisors have been running away from a mandatory cap as fast as possible to appease conservatives while hoping the media and independents don't notice (see "Abba was right: Fool me once, shame on Bush, fool me twice, shame on McCain") but I na¯vely believe that McCain as president would flip-flop-flip back to his original position.]

  • McCain’s energy and climate plans include no substantial energy efficiency efforts (see “McCain on energy efficiency: He is Cheney’s third term!“). Indeed McCain now repeatedly mocks energy efficiency. Energy efficiency is the only strategy that can keep energy bills from rising in the face of rising rates (see “Efficiency part 3: The only cheap power left“). Efficiency is the only major source of 24/7 power that is far cheaper than current electricity prices — and five times cheaper than new nuclear, coal, and natural gas plants.
  • McCain’s climate plan relies heavily on shoving 45 new nuclear plants down the throat of the American public by 2030. Yet even AEP’s CEO Michael Morris announced last August that the company was not planning on building any new nuclear plants because they are too expensive and take too long to build: “I’m not convinced we’ll see a new nuclear station before probably the 2020 timeline.” Indeed, new nuclear plants are so expensive they are likely to provide electricity at some fifteen cents per kilowatt hour — or 50% higher than average retail electricity prices in this country (see “Nuclear power, Part 2: The price is not right“). Progress Energy said earlier this year that twin 1,100-megawatt plants it intends to build in Florida would cost $14 billion, which “triples estimates the utility offered little more than a year ago.” And that doesn’t even count the 200-mile $3 billion transmission system utility needs, which brings the price up to a staggering $7,700 a kilowatt. Under Florida law, to pay for these nukes, Progress Energy can raise the rates of its customers a $100 a year for years and years and years before they even get one kilowatt-hour from these plants. Something all Americans can look forward to under president McCain.
  • But won’t McCain’s support for next-generation coal with carbon capture and storage save us? Well, if existing, already-paid-for coal plants are forcing a 45% rate hike, you can imagine how much the price of new, traditional coal plants must be soaring (see “Power plants costs double since 2000 — Efficiency anyone?“). What about next-generation coal? One very good source of apples-to-apples comparisons of different types of low-carbon electricity generation is the modeling work done for the California Public Utility Commission (CPUC) on how to comply with the California’s Global Warming Solutions Act, online here. The research for the CPUC puts the cost of power from coal gasification with carbon capture and storage at 16.9 cents per kWh — almost double current electricity prices.
  • McCain, like virtually all conservatives, has consistently voted against efforts to advance renewable electricity (see “Anti-wind McCain delivers climate remarks at foreign wind company“). Wind power may be the only form of new generation with large-scale near-term potential whose cost is comparable to existing national electricity rates and thus much cheaper than new coal or new nuclear. The Bush Administration itself believes 300,000 MW of wind is possible by 2030 for about 6 to 8.5 cents per kilowatt hour, unsubsidized (i.e. no federal tax credit) and including the cost of transmission to access existing power lines within 500 miles of wind resource. Oilman T. Boone Pickens told me we could have 200,000 MW in 10 years. Solar baseload (also known as concentrated solar thermal power) is probably going to be lowest-cost carbon-free new generation available 24/7. Utilities in the Southwest are already contracting for power at 14 to 15 cents per kWh. The modeling for the CPUC puts California solar thermal at 12.7 to 13.6 cents/kWh (including six hours of storage capacity) — and at similar or lower costs in the rest of the West. Again, too bad that, contrary to all of his TV ads and public statements where he claims to support “all of the above,” McCain in fact has been a strong opponent of renewable energy.

The bottom line is that McCain’s policies would ensure soaring electricity rates and bills for Ohio and the entire country.

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16 Responses to AEP demands 45% rate increase for Ohio — what all America can look forward to under McCain

  1. kenlevenson says:

    Obama campaign,
    Are you reading this post?

  2. Joe Galliani says:

    Joe -
    When you say, “The research for the CPUC puts the cost of power from coal gasification with carbon capture and storage at 16.9 cents per kWh — almost double current electricity prices” what is that estimate based on? Is there currently an electric plant on the planet that gets its power from “coal gasification with carbon capture and storage” that they were able to use as a model?

    Also, that 16.9 cents per kWh estimate is double the current cost, but once Ohio increases their rates by 45% I bet the carbon collaborators will say their “clean coal” estimates are deliberately inflated by “environmentalists.”

    Of course I would argue that unless we add the costs of the damage coal is responsible for, then we’re not accurately tabulating coal’s true cost. If coal were fairly taxed for its CO2 contributions you could easily double that 16.9 cents estimate.

    One other point – isn’t keeping all existing coal in the ground right where it is the most proven, safe and reliable method of carbon capture and storage ever designed? I have some religious friends who might even call that intelligent design.

  3. Rod Adams says:

    Joe:

    What is stopping energy efficiency from solving all of our energy supply problems right now? Is there some kind of law or restriction that prevents users from taking action to reduce their usage? Can you give me a single reason why this fantastic energy supply product that your mentor – Amory Lovins of RMI – has often called “nanowatts” has not expanded much in the 30 years he has been selling it?

    In contrast, I can name several legal obstacles to the near term expansion of nuclear power that have been implemented by the established energy industry. I can also give you a number of reasons why I believe that those barriers are inevitably going to fall in the next decade or so.

  4. Publius says:

    “Other than gasoline, what are the “so many products” that Ohio consumers ever see rise 45% in three years? Answer — not bloody many.”

    …Global food prices surged 39% last year.

  5. Rod Adams says:

    Joe:

    Interesting article. With regard to California’s energy efficiency success, there are a few points that you seem to be missing.

    1. While CA is a “high tech” state and has many companies designing wonderful inventions, they have suffered from an exodus of manufacturing. Most of the inventions that Silicon Valley creates are actually produced somewhere else. Much of the measured GNP is in CA while the associated energy intensive part of the operation is not.

    2. If energy efficiency alone was such a huge source of cheap energy, why are electric power rates in CA twice as high as in South Carolina, a state that has based its recent rise on manufacturing?

    3. Businesses like Dow certainly have put a lot of effort and achieved success in designing efficient processes; they have huge economic incentives for doing so. Fuel and raw materials – which are often the same hydrocarbons used in fuels – cost the company about $24 Billion each year. With costs like that, a few percentage points in savings each year can be a huge deal.

    Companies that produce steel, aluminum, paper, plastics, etc. have similar incentives and have also worked for years to reduce waste. What makes you certain that you are so much smarter than the engineers working for those companies? I do not understand why sophisticated customers would give the utilities more money than necessary if they could see economical ways to cut energy use. I buy your argument that utilities have an incentive to sell more, but what stops big consumers from seeking those cheap “negawatts” that you and Lovins love so much?

    4. Even if we succeed in producing enough energy savings to avoid the need to produce any more electricity in the future than we are producing today, why would we want to keep the same old, polluting infrastructure that we currently have? Each year, we have to extract, transport and burn more than 1 billion tons of coal each year, more than 7 trillion cubic feet of natural gas, and more than 100 million barrels of oil to produce the electricity that Americans use. The CO2 produced during all that fuel burning represents about half of all of our CO2 emissions for the entire country.

    In contrast, 20% of our electricity comes from about 2000 metric tons of commercial nuclear fuel. Half of that fuel during the past 15 years has actually been serving the dual purpose of destroying former weapons material, something that no efficiency program can ever do. No CO2, SOx, NOx, mercury, fly ash, or trace metals come out when we fission uranium and keep the waste material encased, controlled and inventoried.

    5. One more thing – your description of the way that utilities were regulated in the past and rewarded for building with guaranteed rates of return still apply in some places but not all. Texas and Maryland are both rate deregulated states, with generation plants that do not get cost based rates, but both are leading candidates for new nuclear plants with leaders like Constellation, Amarillo Power, and NRG. Why are these non regulated power producers so interested in nuclear power?

  6. Bill says:

    “… Solar baseload (also known as concentrated solar thermal power) is probably going to be lowest-cost carbon-free new generation available 24/7. Utilities in the Southwest are already contracting for power at 14 to 15 cents per kWh. The modeling for the CPUC puts California solar thermal at 12.7 to 13.6 cents/kWh (including six hours of storage capacity) …”

    Six hours of storage only covers the peak load. To get baseload power would take several times as much storage — at a fraction the power level. The combination would make real “solar baseload” far more expensive.

  7. “… Solar baseload (also known as concentrated solar thermal power) is probably going to be lowest-cost carbon-free new generation available 24/7. Utilities in the Southwest are already contracting for power at 14 to 15 cents per kWh. The modeling for the CPUC puts California solar thermal at 12.7 to 13.6 cents/kWh (including six hours of storage capacity) …”

    Six hours of storage only covers the peak load. To get baseload power would take several times as much storage — at a fraction the power level. The combination would make real “solar baseload” far more expensive.

    The problem of course is that this is “modeling”. The recent NEI White Paper has nuclear costs at 8.4 cents/kWhr. (at least their model is based on *actual* submissions to the NRC C&OL process). There are current CPS being built around the world. The *cheapest* is about 15 cents/kWhr. Some have hot water storage. All are very expensive. No one is talking about a REAL plant being built for anything less than 10 cents/kWhr.

    I’m all FOR building a molten-salt storage system for CPSs. Lets’ do it and SEE what it costs…No one has build a plus 10MWt MS storage system. Until then, it will not provide base load nor peak load but only what it can give us for 6 hours a day.

    BTW…Base load is around the clock, it’s inclusive during the peak, so you have to build a CSP that can provide 24/7 power, base. Good luck with that (I mean it, it would be great to see it done).

    David Walters

    [JR: Actually, CSP with 6 hours storage is load following, which is better than baseload, since it displaces shoulder AND peak. In this country, it would make no sense to waste energy to store power for 4 am. But I'm calling it baseload because load following is too obscure.]

  8. David B. Benson says:

    Bill — Check just how little electric power is consumed overnight.

  9. Bill says:

    Here’s today’s consumption for California:
    http://www.caiso.com/outlook/outlook.html
    Peak is ~36 GW; the baseload is ~24 GW — less, but still substantial.

    If a solar plant can generate power for about hours around solar noon, and store power for another six, it can cover the peak load well, but that leaves the other twelve hours.

    (Why isn’t there a preview button on this site?)

    [JR: Solar peak is not noon. It is later. CSP follows the load, and that is very valuable.]

  10. JimHopf says:

    I like the idea of CSP stations because they naturally generate power roughly at the time of peak load, where electricity is most expensive. Thus, it will displace peaking generation that is now fired by natural gas, much of which will soon be imported from the Middle East.

    However, I think the idea of trying to store the energy for off-peak hours (i.e., to allow CSP units to be baseload plants) is stupid, at least for now. Why would you spend a large amount of money on extra equipment, and suffer some energy losses, just so you can move kW-hrs from peak-demand times, when they are needed most and fetch the highest market price, to off-peak hours where the reverse is true? Why voluntarily give up one of solar’s most attractive, and inherent, features?

    If they think that adding a small amount of energy storage would allow them to tailor the power shape to best match the demand profile (and thus maximize the market price of the kW-hrs produced), that’s fine. But trying to store energy so you can generate kW-hrs at night (off peak) is just plain stupid.

    Why the big push (by some) to make CSP units capable of 24/7 generation? Is this a triumphalist crusade to show that solar can do everything, and that we don’t need to pursue any other energy options? Given that solar now produces less than 0.1% of our power, I would suggest that it’s a little early for that. Gotta walk before you can run. One step at a time.

    CSP’s goal for next couple decades should be to become a significant contributor, and to shave a significant fraction of the demand peak. The best way to do this is to minimize CSP’s costs, and maximize its profitability, by NOT making any attempt to store power for off-peak use. If and when CSP mostly fills this peak-shaving nitche, then (and only then) should be start talking about using CSP for off-peak generation (using storage, etc..)

  11. JimHopf says:

    Suffice it to say that I don’t agree with your 15 cent/kW-hr nuclear cost estimate. Your estimate for coal w/ sequestration on the other hand, seems about right.

    Concerning the FPL nuclear cost analysis, one has to be careful not to confuse an over-night capital cost (which people often use to compare costs between different energy sources) and total costs which include all financing/interest costs, as well as escalation (i.e., inflation during the plant licensing and construction). Total costs are much higher than overnight capital costs (more than double). The price per kW quoted by FPL was a total cost, and must not be compared to overnight costs one has probably heard elsewhere for various other sources.

    I believe that the FPL analysis quoted a resulting, per kW-hr, power cost, and it was much less than 10 cents, let alone 15 (I think). Also of note is the fact that their analysis (which the PUC concurred with) showed that nuclear was the cheapest option; cheaper than coal (assuming CO2 limits) and gas, as well as any renewable option.

    There is a wide range of opinion/analysis concerning the relative costs of various energy sources, and thus we all spend an enormous amount of time arguing about it. The tragedy is that none of this analysis/argument is necessary. You don’t have to know which sources are most economic or promising in order to implement good energy policy. The main job of energy policy is to ensure that external costs are accounted for in the market, and more generally to prevent any given plant/source from inflicting significant public harm and/or cost. The relative economics of various sources is best sorted out by the market.

    There are three main externalities out there, that are currently not captured in power prices; air pollution (which kills 25,000 Americans every single year), global warming, and the economic/geoplotical effects of our foreign oil and (soon to be) natural gas dependence. Thus, the best way to determine the relative economics of various energy options is to simply cap or tax CO2 emissions, other air pollutant emissions, and foreign energy imports, and then let the market decide how to respond.

    One final consideration is subsidies. The market system described above would be fair only if the subsidies enjoyed by the major sources are at least roughly equal. The notion that nuclear power is more subsidized then other sources is a myth. It’s actually one of the least subsidized, with recent support programs merely bringing nuclear more in line with other sources. Conservation and renewables’ R&D budget is ~50% larger than nuclear’s, as shown on page 19 of:

    http://www.cfo.doe.gov/budget/08budget/Content/Highlights/Highlights.pdf

    In terms of direct operating subsidies, renewables are much more subsidized, on a per-kW-hr basis. Finally, it should be noted that the loan guarantees that are offered to nuclear under the 2005 Energy Policy Act are offered to renewables and sequestered coal as well. How’s this a relative subsidy?

    Anti-nukes continually claim that renewables are less expensive then nuclear, but at the same time they’re the one’s who are always doing everything in their power to prevent a free, fair, and open competition between the two. Examples include, supporting state reactor bans, and continuing to support renewable portfolio standards which require renewables to be used regardless of price or practicality. Let’s see, you CANT build nukes, and you MUST build renewables…. Some competition!

    Another recent example is the current Liberman-Warner cap-and-trade bill. Under the current plant, the govt. will get hundreds of billions of dollars from the auction of CO2 credits. Instead of leaving well enough alone and letting the market decide how best to reduce CO2 emissions (by using the money to reduce the national debt, or give every American a general tax cut, etc…) they can’t help but interevene in the market by using all this money to develop and encourage energy options they favor. Who will recieve all this largesse? My understanding is that both renewables and coal sequestration will recieve hundreds of billiong of dollars in subsidies and R&D funding, while nuclear will get virtually NOTHING!! Hmmmm… Seems like these people (e.g., Boxer) know what would happen if there was a fair competition between sequestered coal, nuclear and renewables, and it seems that they don’t like the result. They apparently think that a massive market intervention is necessary in order for coal or renewables to capture much of the non-emitting generation market.

    If you look at people’s actions, as opposed to their words, it appears that most people don’t think that renewables are cheaper than nuclear. I’m looking forward to hearing your explanation Joe.

  12. Bill says:

    [JR: Actually, CSP with 6 hours storage is load following, which is better than baseload, since it displaces shoulder AND peak. In this country, it would make no sense to waste energy to store power for 4 am. But I’m calling it baseload because load following is too obscure.]

    Well, please stop. It’s misleading people into overestimating solar power’s potential — notably yourself. Your original statement was, “Solar baseload … is probably going to be lowest-cost carbon-free new generation available 24/7.”

    By the way, I couldn’t find a general source for the price of electricity throughout the day, but this PG&E rate schedule,
    http://www.pge.com/myhome/environment/pge/electricvehicles/fuelrates/index.shtml
    suggests that at ~13 cents/kWh, solar power isn’t cost-effective for covering the shoulder. But six hours of storage looks about right to shift it into the 2:00–9:00 Peak period.

    [JR: Solar peak is not noon. It is later. ...]

    Which is why I specified “solar noon”. I’m sure we’re all familiar with the effect of daylight saving time.

  13. Fred Walters says:

    Political garbage statement!!
    The Senate was/is liberal. The House was/is liberal.
    And now the new President is a Dem.
    The 45% rate increase for Ohio, also hits here in Virginia!!!!!
    What’s going to change except my higher electric bill, actually up 70% over past winters. Nothing has changed, so why is McCain in your headline to begin with?
    Additionally, I loathe any internet article that does NOT carry a DATE!!!

    Fred Walters

    [JR: Fortunately CP posts all have a date on them right on the bottom!]

  14. geciktirici says:

    What is stopping energy efficiency from solving all of our energy supply problems right now? Is there some kind of law or restriction that prevents users from taking action to reduce their usage? Can you give me a single reason why this fantastic energy supply product that your mentor – Amory Lovins of RMI – has often called “nanowatts” has not expanded much in the 30 years he has been selling it?

  15. sikiş says:

    One final consideration is subsidies. The market system described above would be fair only if the subsidies enjoyed by the major sources are at least roughly equal. The notion that nuclear power is more subsidized then other sources is a myth. It’s actually one of the least subsidized, with recent support programs merely bringing nuclear more in line with other sources. Conservation and renewables’ R&D budget is ~50% larger than nuclear’s, as shown on page 19 of