Think about how much you pay for electricity right now. Now think about paying 1.25 times that much. Or maybe 2 times that much. Heck, maybe five times that much.
I don’t know how much more expensive power will become, but you can bet your patootie it’s gonna go up soon thanks to the EPA. Coal is responsible for 54% of our nation’s electricity today and is the cheapest way to produce electricity, but unfortunately coal is too “dirty” according to the EPA.
The EPA announced new environmental standards yesterday that will essentially make it too cost prohibitive for anyone to build a new coal power plant that would meet the environmental standards. That means any new power generated is going to come from a more expensive source. Obviously this means prices will go up.
Don’t believe me? President Obama says it himself. He is referring to a cap and trade system in this video, but the concept of setting “clean” energy standards is similar.
…coal power plants, natural gas, whatever the plants were, whatever the industry was, they would have to, uh, retrofit their operations. That will cost money; they will pass that money onto consumers.
Luckily these rules don’t apply to existing power plants. If they did, you would probably see your electricity rates double or triple overnight. With this rule only affecting power plants that are planned to start construction after March 2013, the Obama administration has ensured that you don’t see your electric bill increase until well after the November elections.
Prices Could Skyrocket Sometime Very Soon
With these regulations not taking effect until March 2013 and only applying to new construction, the impact on your electricity bill will be either small or non-existent for at least 1-2 years.
Prices are going to jump substantially the moment the EPA releases standards for existing plants. As soon as that happens, coal power plants are going to raise prices because they will need to raise money to “retrofit their operations.”
This will only happen after the November election and if Obama wins. However, if he does win then you better have a financial plan to account for substantially higher electricity prices.
My recommendation is to financially prepare to double your electricity bill in the next 12 months. If you have an emergency fund, just be aware that you might need to tap it to pay your utility bill at some point in the future. If you don’t have an emergency fund, you might want to think about getting one.
Readers: What are you doing, if anything, to prepare for higher electricity prices? Also, how are you reducing your power usage today, if at all?
I’m Not Here to Argue Man Made Climate Change
If you have a PhD in some relevant scientific field and can show me your calculations that not only proves global warming exists, but also that man’s actions are causing it, then please share your findings. If you don’t, then I don’t want to hear your opinion on climate change.
There are plenty of highly educated scientists who believe humans are causing climate change, and there are plenty of highly educated scientists who have different beliefs.
Regardless of your political/scientific opinion of climate change, I think we can all agree that “clean” energy costs more money than “dirty” energy. Let’s focus the discussion on how you are (or aren’t) preparing for potential price increases in your electricity bill.
Thanks to Jeff from Sustainable Life Blog for coming up with today’s Whatever Wednesday topic!
Kevin McKee is an entrepreneur, IT guru, and personal finance leader. In addition to his writing, Kevin is the head of IT at Buildingstars, Co-Founder of Padmission, and organizer of Laravel STL. He is also the creator of www.contributetoopensource.com. When he’s not working, Kevin enjoys podcasting about movies and spending time with his wife and four children.
“There are plenty of highly educated scientists who believe humans are causing climate change, and there are plenty of highly educated scientists who have different beliefs.”
I would change that to “a majority of highly educated scientists believe humans are causing climate change, and there are relatively few highly educated scientists who have different beliefs.”
Also, you may see a short term spike, but as clean energy is adopted by more and more communities and companies, the costs of building a clean energy power grid will drop dramatically.
That might be a better way to put it. I guess my skepticism is coming through. I’m not someone who denies climate change; I just don’t accept that coorelation equals causation, and I find is very hard to believe that anyone can effectively model anything as complicated as the Earth in a computer.
I’m not saying humans are or are not causing climate change; I guess you could call me agnostic on the topic.
Not sure you can be considered truly agnostic on the topic when you decide that you only want to hear from qualified scientists who can prove its existence (only later to then say you don’t think we can model it anyhow, so would you believe such a proof anyhow?). If I had the same standards for reading about financial advice, I probably wouldn’t be here. 🙂
Lot of assumptions here: you would probably see your electricity rates double or triple overnight”, “prices will jump substantially”, “prepare (for) double your bill in your next 12 months”; “clean energy costs more than dirty energy”.
I saw less proof on these assumptions of effect (one source) than I see scientific consensus on global warming!
Simple fact is, corporations will not make these types of decisions without being pushed. The government subsidizes this initiative, at the manufacturer, distribution and consumer product levels, so although we will probably feel financial pain (especially since the industry will gleefully to jump their prices more than they need, cause they have a scapegoat), I feel quite comfortable (as a father and someone who is saving under the idea that I will be around for a while) with that in exchange for a little less carbon emissions and poisonous waste.
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I really thought this post came across as surprisingly alarmist (but maybe thats just because its after the one with the shotgun picture). I am a new subscriber here, but this is the first day I have really felt I was getting political advice, rather than financial common sense.
Most of the time I talk about personal finance. Sometimes I talk about personal things in my life that have little or nothing to do with personal finance, and sometimes I talk about politics (which can always loosely be tied into personal finance due to taxes).
And I do consider myself agnostic because I don’t know. The information I have seen leads me to believe that humans are not destroying the environment with carbon dioxide, but I don’t have enough information to take a stand either way because I’m not a scientist and haven’t spoken to any and really dissected their research.
I hope you enjoy the semi-regular political post, because you’re gonna get it if you stick around here long enough. 🙂 If I didn’t dip into some of my other interests every once in a while I’d go crazy. One can only write so many exclusively financial articles before he goes crazy.
I’m not sure if your doomsday scenario will occur. Look at the country’s total energy mix from 2000-2010 (http://www.eia.gov/electricity/capacity/). As you can see, there has been little change in the net output of coal power plants in the past decade indicating that no one is building them anymore. The country’s baseload power (coal, nuclear, hydro) is stable and more emphasis has been put towards peak loading (gas turbines). Couple this with falling costs of natural gas and I doubt any large increases in your electricity bill.
In my area (southeast) we will probably see a small increase (reportedly 2.5%) in our power bill as nuclear power plants start adding additional units. And, since more nuclear equals less coal, Obaminator’s mandate will be a thing of the past. (NOT TRYING TO START A NUCLEAR DISCUSSION ON HERE).
This is all really good information. Thanks for sharing.
I tried to make it clear that the main driver of higher prices will be when the EPA puts strict regulations on existing power plants, but I didn’t do as good a job as I could have. That’s really the piece that is going to make prices jump in my opinion.
I’m glad to hear we are building more nuclear power plants; I actually almost worked at a nuclear power plants (one of my job offers out of college). They do a good job of making clean energy in my opinion.
Total energy mix is pretty much irrelevant when we start talking about economic consequences. The aggregate is great so far as understanding the total effect, but not the total effect in various localities.Net-net, higher coal costs probably won’t increase the total amount spent on all electricity all that much. However, in areas such as mine, where the mix is like 90%+ coal, we’re talking a huge change in prices at the local level.Local level changes completely kill competitiveness in industries like manufacturing. My area is almost always on the short-list of places to put a new factory because a high-mix of coal for electricity generation means lower electricity costs and ultimately lower production costs. If coal costs rise, we might not lose manufacturing centers already here, but we’ll definitely lose the chance at future manufacturing industry. And that’s a real shame – it’s only further incentive to take manufacturing overseas.I think it’s dangerous to look at this in the aggregate, when electricity is something that is highly local.
I am on the complete opposite side of the spectrum as you. In South Carolina, our electricity is 50% nuclear, 35% coal. This coupled with easy access to interstates, ports, and tax incentives are bringing a lot of big industry to the area.
And, yes, it is dangerous to aggregate since each region/state/city is different. You know who doesn’t care about this legislation? Washington State. 70% hydroelectric!
On the bright side at least they are finally making an effort to clean up dirty industries. Here in BC the government is jacking up electricity prices just as a way to pretend that taxes are not being increased. So we’ll have to pay more right away and likely even more when Canada passes similar legislation.
Your argument would have been much stronger had you cited any independent or expert source which analyzed the potential effects of environmental standards on existing power plants and came to your same conclusion (price increase of 25 to 500%). Short of that, this post is simply a poorly-researched, reactionary political rant.
Do your research.
Analysis from the state of Indiana (a heavily coal-reliant state) suggests that electricity prices will increase by less than 4% between 2011 and 2015 as a result of the proposed EPA regulations on both new and existing plants.The real cost effects don’t kick in until about 2017, and even by 2025 the increase will be less than 14% for consumers.
http://www.purdue.edu/discoverypark/energy/assets/pdfs/SUFG/publications/EPA%20regulations%20impact.pdf
Your disaster scenario is outlandish.
You cited a paper that was published in January and states in the executive summary that the analysis was done only on the information available at the time. These new rules came out yesterday, so I apologize for not finding a peer reviewed source to estimate price impact after 12 hours.
Second, I made it clear that the biggest impact on price will occur when regulations are announced on existing power plants. I have no idea what the price impact will be since I don’t know what the regulations will be.
Finally, you admit that “clean” energy is more expensive based on the research you provided. That was the point of the article; that clean energy is going to impact people’s bank accounts and people should financially prepare for it. Maybe a 4% or 14% increase in electricity isn’t going to hurt you, but for some people that’s the difference between eating 2 or 3 meals a day.
The study I cited includes what were at the time of publishing “proposed” (pending legal review) and as of today current regulations on new plants (rules from the Clean Air Act). You’ll also notice as you read the article that it includes proposed regulations on both new and existing plants in its analysis, which addresses your concerns about future unknowns.
I didn’t try to deny that clean energy is more expensive than the alternative. However, there is a big difference between a 14% increase on a $200 power bill ($28) and the 500% increase ($1000) that you suggested. $28 a month makes a difference, but it certainly doesn’t make the difference between 2 and 3 meals a day. For that to be true, an individual’s (let alone a family’s!) average meal cost would have to be 93 cents.
It’s close. The average food stamp benefit is $1.50 per meal.
http://chnonline.org/news/local/11081-food-stamp-challenge-means-living-on-150-per-meal.html
Food stamps are intended to be supplementary nutritional assistance (as the name, SNAP, implies), not make up a family’s entire grocery budget. The original food stamp program made up 1/3 of a family’s grocery budget by design. Now, the benefit is equal to the USDA thrifty meal plan value minus 1/3 of the family’s income (which is how much they would be expected to spend on groceries).
http://www.law.cornell.edu/uscode/text/7/2017
http://www.cnpp.usda.gov/Publications/FoodPlans/2012/CostofFoodJan2012.pdf
…and I totally just spent 25 minutes researching that! I’m signing off now, before I become one of those internet people I hate. 🙂 My point is just that while clean energy does cost more money, we’re talking about *marginal* changes to household budgets.
I do appreciate all the well researched and thought out comments. It’s this kind of discussion that I really enjoy, as opposed to people just regurgitating what they hear on the news.
Yeah, I would have liked this post more had it been a bit less overtly political/sassy. You’re making a great point about being aware of how so-called “current events” can (sometimes significantly) impact your personal finances (I honestly don’t even usually think about these things, so this is a great reminder), but I think you’ll probably turn some people off with your tone.
And, this makes me worry you’re also one of those people who thinks Obama is the reason gas prices are high…
I’m sorry if the tone turned you off. I was just trying my best to explain that both Republicans and Democrats agree that “clean” energy will cost more money. I was trying to avoid the “prices won’t go up” responses.
I believe the president (any president) has some responsibility for gas prices, but I also realize there are many other factors at play.
Kevin – Though I dont particularly agree with the rule, as it essentially phases out coal plants, I dont agree with your jump to higher prices either. I’m not saying higher prices are out of the question, but for you to be as certain of that as you sound, you’d have to be certain of the following things: Where the new generation is coming from that will replace coal – Will it be nat gas, solar, wind, nuclear, or something else? If it’s from a resource using method (nat gas/nuclear) what will the price of the input resource be when the phase out and building of new plants begins to happen (also I’d argue this shouldnt be counted as a cost, because eventually every utility will have to upgrade or retrofit a generation station because of old age, something they would have needed to do regardless of this ruling).
Aslo at this point, natural gas is cheap – so cheap in fact, that in north dakota they are simply burning it (flaring) when it comes out with the oil because there’s not enough pipeline capacity to get it anywhere, and it would cost too much for them to get it to market another way. in Wyoming, they are taxing people who flare off gas for the same reason, and it’s still not worth the cost of transportation.
Point being: we cant know future prices – we can guess and attempt to be as accurate as possible, but we wont know what the 2015 nat gas prices are until 2015
My premise is that more regulation means it will cost more money to comply and that cost will be passed onto consumers.
If the regulation were only forcing people to do something they would have done anyway, then the regulation is pointless. While I think our government makes “bad” decisions all the time, I don’t think they are in the habit of making pointless decisions.
If they made a regulation to either reduce coal power plants or make it more costly for them to run, then I think it’s logical to assume prices will go up when the impact of this regulation is felt.
Up to last year, I had been using an older, inefficient HVAC unit In my apartment for the past 20 years that I was informed had possibly two years of useful life. I was paying about $180 a month for gas and electric at the time. I took the opportunity to buy a new, much more energy-efficient unit for $3000, partly in the belief that it would qualify for the federal energy credit then in force (as it happened, in the end it did not qualify because of a technical limitation). After using the new unit for about six months, my gas/electric bills dropped to about $70 a month.
@Rachel: “Yeah, I would have liked this post more had it been a bit less overtly political/sassy. I think you’ll probably turn some people off with your tone.”
– Yep.
I’ll be honest, I don’t foresee electricity prices shooting up a great deal, even when the EPA starts issuing rulings for existing plants. I could be wrong, but I think the end results will probably end up being in the 10-20% range, rather than double, triple, or quintuple the current price per kilowatt hour.Why, you ask? Well, I don’t see much enthusiasm on the part of environmentalists that the forthcoming rules on existing plants will lead to many expensive retrofits and as a result, numerous plant shut downs. (This is a group whom, like David Roberts here: http://grist.org/politics/2010-11-12-so-whats-epa-up-to-with-its-co2-regulations/, would likely cheer if coal plant energy production dropped substantially. Even for someone who considers himself fairly green, like me, that sometimes comes off as a bit much, missing the potential bad (much higher energy prices for a sizable portion of the population) for the good (less air pollution).)Add in the fact that for all the complaints about Obama, he is (a) more moderate than most of his critics claim, (b) a pretty smart guy, and (c) knowledgeable enough to realize that if a sizable jump in electricity prices can be directly linked back to him (or the actions of an agency in his administration ), he can watch Democrats get hammered in the next election. Take all those facts into account, and I’m not expecting more than minor, token attempts until at least 2015, when such changes would have no more potential to have any effect on his Administration, if not later. (Assuming they happen at all; again, he’s a pretty moderate fellow.)All of that said, it’s always a pretty good plan to prepare for possible higher prices, for electricity or any other essential, so I will definitely try to bulk up my reserve funds. Worst case, I’ll be ready if proven wrong, best case, I’ll be more prepared for any personal emergency.
You make a bunch of very good points. I am not, however, nearly as optimistic as you are about the timeline of this administration’s environmental policies. If Obama is reelected in November, I don’t really see anything stopping him from having the EPA fast track new regulations. He can’t be elected for a 3rd term, so I expect all of his “unpopular” ideas to begin right after his reelection (if he is indeed reelected).
On another note, here’s a paragraph from the link you provided:
Here’s the basic problem the EPA faces: The best way to reduce greenhouse gas emissions from stationary sources — primarily power plants — is to approach the situation holistically: shut down a bunch of dirty power plants, build a bunch of clean power plants, and push hard on efficiency to cover the cost differential and protect ratepayers. Legislation could have done that. EPA can’t. EPA can’t make anybody build anything.
This guy’s solution is for the government to force business owners to shut down their current plants and pay to build new ones with their own money. And what happens when the business owners decide not to build new plants according to their standards? Nationalized energy is my guess. That’s a pretty scary thought.
Kevin, I think we’ll just have to agree to disagree about Obama’s plans, since neither of us can read his mind (and as I don’t follow politics much outside of The Daily Show, I can’t claim to have heard anything slip about his second term plans, assuming he’s even thinking that far ahead already). I think the level of push back he’s gotten in the last year or so since the 2010 election has, if nothing else, convinced him that the last thing he wants for his last two years in office is a Republican controlled House AND Senate, particularly if there’s the chance the Republicans could gain enough seats to override his vetoes. If he’s going to do anything really drastic (and potentially harmful to the Democrats, politically), I still see it coming near the end of his second term, not the beginning.
On the other hand, if the Democrats do much better than expected this election, particularly if they retake the House and gain some seats in the Senate (especially if they gain enough to prevent Republican filibusters), he might decide it’s best to take advantage of the situation while he has it, and let the chips fall where they may in the 2014 elections. (I realize in hindsight that I didn’t make this clear; I expect Obama to do what he can to help Democrats do well in Congressional elections in 2014, so he can have an easier time of advancing his agenda in 2015-2016). Again, it’s hard to say for certain; although, being on the lookout is always a good thing.
As for David Roberts’ piece, yup, that’s one reason I try to pay attention to him and the other more extreme (or at least, somewhat oblivious to the real-world impact of such huge environmental regulations) environmentalists: they serve as a good canary in the coal mine about potential shifts in energy and other policies and the effect on the economy. As long as he’s disappointed, I feel pretty safe in thinking that sudden energy policy shifts (and possible electricity cost explosions) are pretty far off. If he’s moderately happy at a turn of events, it’s time get worried about some current plants being shut down (or heavily modified) and the costs being passed to consumers. And if he starts cheering Obama as the best, most environmentally conscious President ever…well, that’s when I’ll get ready to tap the emergency fund to pay my utility bills.
Kevin, it is so impressive that your readers are so intelligent! I don’t have anything terribly bright to say, I just wanted to express how much I appreciate not only your writing (Thank you for have a strong opinion! I don’t always agree with you, but you always make me think) but also all the awesome reader comments and the new info and ideas that they provide. It’s very cool that you take the time to read your comments and the links that readers provide, and offer a thoughtful response to their rebuttals.
Having such resourceful readers is a great reflection of what you’re doing with thousandaire.com!
Thanks Jamie. I always read every single comment, even on days when I don’t have time to respond to all of them. Especially when I get into topics like this, I am well aware that other people know a lot more about it than I do. Sometimes I make sure my opinion is strong so as to encourage those who have different opinions to make sure they provide their input.
I’m always happy to be proven wrong, which I think has happened a few times before. It just means I’m learning and growing as much as my readers are. 🙂
I have yet to see a recantation of the preposterous and uninformed ideas you put forth last year concerning type 2 diabetes.
Increased electricity bill would be a big blow in financial savings of many. I guess we should work on finding way to save electricity.
on another note, I am a new visitor to your site. came across your stock market experiment. it seems interesting
Thanks for this post, Thousandaire! I think that it is definitely something to be aware and a great idea to start saving an emergency fund towards now. It would probably also be a good idea to save towards increased gas prices, as they seem to fluctuate every few months without warning!
As far as saving electricity, I have always been raised to be super-conscious of how much electricity I am using. We turn off the power strip that holds our TV and entertainment electronics when not in use. And I always turn off the lights when I leave a room! Hopefully technology will continue to become more energy-efficient in the near future to help offset the costs, as we’ve seen in the automotive industry. Only time will tell…
Currently I am not doing anything special when it comes to the energy I consume. However, I do plan on building my own home in the near future and when I do, I pan to take advantage of natural sources of power – solar, wind, etc.