As Americans struggle to make ends meet, asking them to pay more for an essential service like electricity, especially electricity they didn’t use, is a bad idea. Asking them to do it for the benefit of a powerful utility’s bottom line is even worse.
U.S. Senate and House energy leaders held hearings yesterday to examine the impacts of the COVID-19 pandemic on the energy industry. In her opening remarks, Senator Lisa Murkowski, chair of the Senate Energy and Natural Resources Committee, noted that the energy sector has been “acutely and uniquely impacted” by COVID-19. Put more frankly, David Turk of the International Energy Agency said the pandemic has created the biggest shock in global energy since World War II. There is no question that every sector of the American economy, including the energy sector, has taken a hit. However, as Congress considers additional COVID-19 recovery legislation, based on the performance of the system those efforts should place the interests of consumers—not industry—first.
Reliable Service Continues Despite Challenging Circumstances
Since the beginning of this crisis, Electric Power Supply Association (EPSA) members—competitive power suppliers that generate and sell electricity—along with our peers across the industry have maintained our commitment to providing safe and uninterrupted power. As Americans rushed to adapt to a new reality of working and learning from home, EPSA members worked closely with local officials to ensure mission critical employees responsible for operating power plants could safely continue to do their jobs.
As a result, the electric grid has performed extremely well. Earlier this year, in the midst of the pandemic, the North American Electric Reliability Corporation found no “specific threat or degradation to the reliable operation of the [Bulk Power System]. To its credit, the industry continues to operate the BPS in a reliable and secure manner, the pandemic introduces a significant degree of uncertainly that is without precedent.”
Yet altered demand patterns due to COVID-19—shifting power usage away from offices, hotels, restaurants, to home—has led to reduced power demand. Domestic reduction in demand for electricity is estimated to be around 5.7% according to testimony from Stephen Nalley of the Energy Information Administration. Closer to home, reductions in power demand have been estimated between 8 and 10% in PJM relative to 2019 levels, while in hard-hit New York City the year-over-year decrease has been as steep as 20%. As demand for power falls, so too does the price of power. While this is good for consumers, it has created challenges for EPSA members who rely on sales of power to earn revenues.
Recovery Efforts Should be Limited and Target Only COVID-19 Related Costs
Should Congress pursue recovery for the energy sector, that aid should be narrowly tailored to focus on expenses incurred directly as a result of actions taken in response to COVID-19 that ensured reliable operation of the grid.
Unlike regulated utilities, our business model places investment risk and market exposure on private investors, not captive ratepayers. We believe it is more appropriate for companies—not consumers—to take on the risk of building, operating, and maintaining a power plant. As such, when the market dips from lower-than-expected demand, we take the hit. Congress should be leery of any requests for “relief” that make up for “lost revenues” as a result of changed market fundamentals. At a time when Americans are struggling to make ends meet, asking them to pay more for an essential service like electricity, especially electricity they didn’t use, is a bad idea. Asking them to do it for the benefit of a powerful utility’s bottom line is even worse.
Similarly, now is not the time to provide support to other sectors of our industry under the guise of COVID-19 recovery. In his testimony yesterday, Mr. Turk from the IEA found the renewable sector to be the most “resilient” in the energy sector and he expected renewables to grow in 2020. Additionally, requests based in grid reliability or resilience should be carefully evaluated. As noted above, NERC has found no degradation of electric reliability as a result of the crisis and found generation levels to be adequate heading into summer 2020. There is a time and place for these discussions; however, it is not now.
We continue to believe that recovery efforts should be focused elsewhere. Should Congress pursue recovery for the energy sector, that aid should be narrowly tailored to focus on expenses incurred directly as a result of actions taken in response to COVID-19 that ensured reliable operation of the grid. Such expenses could include those incurred to procure Personal Protective Equipment for essential personnel. Additionally, any aid should be made available to all sectors of the industry, recognizing that competitive power suppliers are compensated differently than regulated utilities and cooperatives.
We recognize there have been job losses across the industry as a result of this crisis. Still, the best solution to that problem is getting Americans back to work. Until we have a vaccine, government efforts should focus on ensuring Americans can comfortably and safely return to work.
Brian George is director of strategic policy and government affairs for the Electric Power Supply Association.
Read EPSA’s Senate Testimony on COVID-19 Impacts to the Energy Sector.