The Erosion of Energy Affordability

Since 2024, America’s airwaves have been flooded with phrases like “nuclear renaissance” and “drill, baby, drill.” Energy affordability has occupied the minds of the president, state legislators, regulators, energy suppliers, and utility companies, as everyday Americans confront rising energy costs. States like California have seen an increase in electricity bills between 2021 and 2024 of 50%. But are there immediate solutions to address these increasing costs? The demand for electrification, the surge in data centers, the development of artificial intelligence, and overall increased demand from growth have regional transmission operators (RTOs) and independent system operators (ISOs) scrambling to adapt to the constantly evolving energy landscape.

COMMENTARY

Energy affordability is poised to decline for approximately 65 million customers across 13 states in the PJM area, following the capacity auction scheduled for July 2024. Capacity charges have skyrocketed by 833%, jumping from $2.2 billion to $14.7 billion, largely due to the retirement of power plants and a backlog in interconnections. As a result of this backlog, fewer new generation plants are coming online. Commercial customers may experience electricity bill increases of up to 30%, while residential customers might see rises of up to 20%. This rate hike will take effect during summer, when electricity consumption typically peaks.

Possible Solutions

Energy advocates, experts, and legislators are re-evaluating energy sources to meet the increasing demand. Renewable options like wind and solar have led markets and interconnection queues across ISOs and RTOs, as states push for carbon-free energy solutions and incentives. Once seen as the unwanted stepchild, nuclear power is viewed as a prized child. Legislative sessions in states like Ohio, Texas, and Maryland have promoted nuclear technology advancement.

Small modular reactors (SMRs) are emerging as a promising and cost-effective short-term strategy to enhance energy production, especially in light of the Vogtle plant’s significant construction delays and $16 billion cost overruns in its transition to commercial operation. Proponents claim SMRs have a smaller footprint; their prefabricated units can be installed onsite, making them more cost-effective than large reactors and reducing construction delays. However, research from ICF indicates that SMRs may ultimately be more expensive than natural gas, renewable energy, and traditional nuclear power. The success of SMRs hinges on many factors, such as cost, lead time, federal incentives, and public acceptance.

The Trump administration has sought to enhance energy affordability by increasing production. President Trump’s executive order, “Unleashing American Energy,” aimed to dismantle “roadblocks” obstructing energy production, which included revoking environmental protection orders from the Biden administration and streamlining permitting processes. More recently, President Trump enacted a series of executive orders to boost coal production in response to rising energy demands driven by artificial intelligence. These executive orders include exempting coal plants from the U.S. Environmental Protection Agency’s (EPA’s) Mercury and Air Toxics Standards, restarting coal leasing on federal lands, and permitting coal plants to remain open in areas with reliability issues.

Coal production has significantly declined over the last 20 years as it struggles to compete with natural gas and renewable energy sources. Coal remains one of the priciest options for new power generation, averaging nearly $90/MWh. In contrast, natural gas plants produce electricity at about $43/MWh, while solar power without battery storage is the least expensive new power source, averaging about $23/MWh. If the federal government allows inefficient and costly plants to operate, it will increase Americans’ electricity costs. Therefore, these executive orders will not solve the immediate needs of many who struggle with their bills or have any meaningful impact on energy production in the future, because many coal plants are no longer economically viable in the U.S.

To better understand the situation, let’s examine the Brandon Shores and Wagner power plants in Maryland. They were originally scheduled to close in June 2025 due to declining market margins. However, because of reliability concerns identified by PJM Interconnection, the regional grid operator, both plants may remain in operation for several more years. This extension is intended to ensure grid reliability while new transmission lines are constructed, which are expected to be completed by 2028 or 2029. Reliability-must-run (RMR) contracts, such as the one established by Talen Energy, the owner of these plants, overlook the economic and environmental repercussions for ratepayers and communities. Generally, RMR contracts provide generators with compensation exceeding market rates, raising consumer prices. Accordingly, these contracts do not serve the interests of ratepayers. Instead, new and efficient generation facilities should be introduced without increasing rates. Maintaining these facilities will impose an annual cost of $180 million on consumers until the transmission upgrades are completed.

What’s Next?

Solutions to the energy affordability crisis are expected to arise more at the state than the federal level, as well as through RTOs and ISOs. Effective transmission planning is essential, with RTOs adopting a proactive strategy by assessing which lines require repairs or upgrades, ultimately benefiting the entire transmission system. Transmission planning will assess future scenarios to identify cost-effective strategies for alleviating grid congestion, improving reliability, and integrating new generation resources. For instance, in 2023, Talen Energy notified PJM about its plan to close the plant in 2025; however, PJM still needed to establish an RMR agreement, evidence of ineffective transmission planning.

RTOs need to implement innovative transmission planning strategies to reduce energy costs and enhance reliability. The National Transmission Needs Study indicates that rising energy demand requires a 57% increase in transmission systems by 2030. Yet, the development of transmission lines has decelerated due to permitting and siting challenges that hinder progress. Additionally, RTOs struggle to finalize projects while contending with a slow interconnection queue. Projects cannot linger in these queues indefinitely, which results in years of delays and exorbitant transmission upgrades. Consumers are entitled to reasonable energy prices, but this situation risks eroding if fundamental changes are not made.

—Janique Williams is a licensed attorney and manager of Regulatory Strategy and Compliance with WGL Energy.