Delaware and Maryland utility commissions have one more shot to convince electric grid regulators to lower the cost of the Artificial Island Transmission Line. Governors Markell and Hogan have joined forces to fight the burdensome cost of this project, but a new approach is needed. If we want to win this fight we need to negotiate using an alternative approach. More local power generation could replace the transmission line. This could lead to lower electric rates instead of higher rates, to a more robust economy, and to improved electric reliability.
The Artificial Island project is a technical response to importation of power. Maryland and Delaware are the second and fifth highest electricity importing states in the country. In 2015 Maryland imported 41% of its power, and Delaware imported 32%.
Importing power lowers electric grid reliability. It also adds cost. Regional grid manager, PJM Interconnection, is responsible for maintaining reliability with a combination of pricing mechanisms, and transmission line policy. There are line charges to compensate for longer power transmission distances, congestion charges to encourage lower peak demand, and capacity charges to encourage more local generation. See the graph below to see how these premiums can go. These premium charges roughly equal the added monthly costs of the proposed transmission line, are already added to our electric bills, and most of the cost will continue even if the new transmission line is built!
Cost Premiums in Delaware & Maryland for Grid Congestion and Transmission Cost
Source: PJM Interconnection Real Time Statistics
So, how do we boost local generation? Start by asking electric generation and distribution companies already invested in the state what state policies would encourage more generation. State policies led to lower local generation in very real ways and changed policies can help reverse the trend. Prepare to kill some sacred cows when we hear the answers.
Maryland and Delaware are the only two states in the thirteen state PJM region with a tax on carbon dioxide emissions from power plants. The cost of that tax is passed on as a hidden tax on electric bills. Our generating facilities burning coal and natural gas have to charge more, and lose bids to supply power. Consequently, local power plants operate less frequently. For example, the Indian River power plant in Millsboro, Delaware, is only operating 20% of the time compared to an average of 55% for coal fired plants nationally.
The tax was designed to reduce emissions but all it has really done is shifted the emissions out of state, and discouraged power plant construction locally. The revenue was supposed to be used for energy efficiency and renewable energy projects, but after a decade of work only a quarter of annual tax revenue is being spent on such projects. Ending the tax would lower electricity prices and would allow more power to be generated locally.
In Delaware we only need to build the equivalent of three to four new power plants to become self-sufficient. Calpine recently completed a new natural gas fired power unit in Dover and has the permits needed for a second unit. What incentive does Calpine need to build the second unit?
Exelon recently acquired Delmarva Power, the state’s largest electric distribution company, and is one of the largest generation companies in the nation. A decade ago distribution companies owned all the generation facilities as well with a guaranteed rate of return regulated by the Public Service Commission. Delaware and Maryland joined a handful of other states in deregulating the price of generated power thinking this would increase competition and lower electric cost. The actual result was the sale of generating facilities and a 70% increase in electric rates in the deregulated states. Partial reregulation might encourage distribution companies to build at least some new generation capacity.
Exelon is one of the largest builders of large scale solar farms in the country. A little known fact is utility scale solar is now essentially competitive with conventional power plants during high demand daylight hours. Delaware policy has emphasized building smaller scale systems that actually add cost to our electric bills. Yes, in this case bigger is better and a policy change is needed.
Land acquisition is a barrier to building more solar. The state could offer marginal state owned open space land for long term lease for solar farms to lower start-up costs. The revenue could be used for state park operations.
No doubt a dialogue to boost local power generation would uncover more opportunities. The result would not only avoid the added cost of the Artificial Island project but might lower existing electric rates by as much as 15% removing a barrier to job creation, and could lead to up to a billion dollars in new construction projects.
David T. Stevenson, Director
Center for Energy Competitiveness