Why EPA Expects Its New Carbon Rule to Shrink Your Electric Bill

Although the price of electricity very well might rise, even significantly in some places, your monthly bill won't.

Environmental Protection Agency Administrator Gina McCarthy/Credit: U.S. EPA, June 5, 2014

When Gina McCarthy introduced the Environmental Protection Agency's proposal to crack down on carbon pollution from existing power plants, she hammered at one assertion about the price consumers can expect to pay.

"Critics claim that your energy bills will skyrocket. They're wrong," she said. "Should I say that again? They're wrong."

It's a question at the heart of the debate over the proposed rules, with opponents insisting that the cost of producing electricity will be driven sharply higher as electric companies shift away from cheap, dirty coal. And those costs, they say, will be passed along to consumers.

As it turns out, McCarthy was choosing her words carefully. She didn't say the price of electricity would not rise. She said your monthly bill wouldn't. And that's mainly because she expects people to use less electricity.

The price of electricity—expressed in cents per kilowatt-hour—very well might rise, even significantly in some states, depending on how each state choose to meet the rule's carbon-intensity targets. This is especially true in states that use mostly their abundant supplies of cheap coal to generate power.

But EPA expects energy-efficiency programs—incentives for consumers to cut their use of electricity—to be a big part of the drive to clean up the existing power grid. Instead of making costly investments in new, cleaner power plants to replace dirty old ones, some utilities and state governments might find it cheaper to invest in efficiency, reducing the underlying demand for electricity. That would allow them to close dirty power plants without building replacements.

In that case, consumers of electricity would end up using less of it, so their monthly bills could go down, even if the per-unit price for electricity did go up.

"Because energy efficiency is such a smart, cost-effective strategy, we predict that, in 2030, average electricity bills for American families will be 8 percent cheaper," said Janet McCabe, the acting EPA administrator, at a House hearing on Thursday.

"The price of electricity will go up a little bit but overall bills will come down," she said.

Reid Harvey, director of EPA's clean air markets division made the same point in a presentation at Resources for the Future.

"We looked at the impacts not just on electricity rates but on electricity bills," he said. "We  do see rates go up but as demand for electricity is reduced through increased use of energy efficiency, overall bills decline."

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Electric bills would go up at first—until about 2020, according to one of his slides—but as the efficiency programs take hold and people stop using so much power, they would begin to fall.

The EPA thinks states can achieve savings of about 1.5 percent annually from efficiently using electricity. Its assumptions are not all that ambitious; knowing that many states already have efficiency programs in place, it reckons that laggards will improve their performance to levels around the middle of the pack.

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