Tuesday, June 5, 2012

EPA MACT rule; S.J. Res 37; Increased electric utility costs throughout the Northeast by 2015

Electric utility rates are set to increase tremendously over the next three years in Pennsylvania and throughout the northeast, according to PJM Interconnection:

Last week [mid-May 2012] PJM Interconnection, the company that operates the electric grid for 13 states (Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia) held its 2015 capacity auction. These are the first real, market prices that take Obama’s most recent anti-coal regulations into account, and they prove that he is keeping his 2008 campaign promise to make electricity prices “necessarily skyrocket.”
The market-clearing price for new 2015 capacity – almost all natural gas – was $136 per megawatt. That’s eight times higher than the price for 2012, which was just $16 per megawatt. In the mid-Atlantic area covering New Jersey, Delaware, Pennsylvania, and DC the new price is $167 per megawatt. . . .
Why the massive price increases? Andy Ott from PJM stated the obvious: “Capacity prices were higher than last year's because of retirements of existing coal-fired generation resulting largely from environmental regulations which go into effect in 2015.” . . .

These are not computer models or projections or estimates. These are the actual prices that electric distributors have agreed to pay for new capacity. The costs will be passed on to consumers at the retail level.
emphasis added

Just as importantly, these increases will make it much more expensive to own and operate real estate. Landlords should factor these costs into any long-term leases, unless the tenant is solely responsible for all utility costs. Even so, landlords should anticipate the effect such an increase will have on their tenants' ability to stay in business or on the ability of residential tenants to afford the rent. Purchasers should factor these increased costs into the cash flow projections for prospective properties.

These increased costs will place downward pressure on real estate prices and rents.  These increased costs should also provide an additional factor in support of owners' tax assessment appeals.

The U.S. Senate is currently considering S.J. Res 37, which would disapprove many of EPA's recent regulatory requirements that have created these costs. Specifically, Resolution 37 would strike down EPA's Maximum Achievable Control Technology (MACT) rule that has or will force the shutdown of so many coal fired generation plants throughout the northeastern United States.

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