Higher Electricity Costs for Delaware?

A "cap and trade" emissions program in which Delaware participates has adopted new guidelines to drastically cut carbon dioxide (CO2) allowances, potentially driving-up electricity prices in the near future.

Nine states comprise the Regional Greenhouse Gas Initiative (RGGI) -- a "cap and trade" program designed to reduce CO2 emissions from large power plants by establishing annual limits.  At periodic auctions, power plant operators need to purchase allowances for the amount of CO2 produced by their facilities. 

Under the new policy announced last week by the program, the 2014 regional CO2 budget  would be reduced 45-percent, from the current 165 million tons to 91 million tons.  The cap would then decline 2.5-percent each year from 2015 to 2020.

The reduction is being initiated, in part, because power companies have produced far less pollution than was anticipated when the RGGI was first established in 2008.  The result created a surplus of unsold CO2 allowances, devaluing their worth.

State Rep. Jack Peterman (R-Milford), who has been a long-time critic of Delaware's participation in the cap and trade program, said that changes in the energy market have outpaced the program's pollution reduction goals.  He noted that many of Delaware's power producers have switched from coal to cleaner, more efficient natural gas in recent years.  Natural gas has dropped in price due to new "fracking" technology that has allowed for vast reserves to be tapped in shale formations in Pennsylvania and elsewhere.  As a result, CO2 emissions from Delaware power plants have dropped by at least 40-percent, far surpassing the RGGI target of a 10-percent reduction by 2019. 

"If reducing pollution was the goal, this program has outlived its usefulness," Rep. Peterman said.  "Market forces have driven producers to cleaner alternatives.  The only reason to keep this in place is for the state to continue its hidden tax on businesses and homeowners."

Proceeds from the auction of the carbon dioxide allowances have been a significant revenue-generator for the RGGI member states, producing more than $1 billion of income.  According to records supplied by the organization, through December 2012, Delaware has reaped nearly $29.7 million in total auction proceeds.  The money has reportedly been spent on energy efficiency and renewable energy programs administered by the Sustainable Energy Utility (SEU).

Rep. Peterman says the cost of those CO2 allowances is being passed along to consumers, usually without their knowledge.

With the planned cap reduction next year, those stealth costs are expected to increase.  According to a published report, one economic analysis estimates the change will add $2.2 billion to the cost of the CO2 allowances over the next eight years.

Data from the U.S. Energy Information Agency (EIA) shows that among the 48 contiguous states, Delaware has the tenth-highest residential electricity rate (13.7 cents per kilowatt hour) and the sixth-highest residential average monthly bill ($132.83).

Rep. Peterman said that should be a concern for anyone who is interested in expanding quality employment in The First State.

"The cost of power is one of the top considerations for a business," Rep. Peterman said.  "Policies that drive the price of energy higher are hamstringing our efforts to be an attractive venue for new employers."