The Energy Affordability Bait and Switch

Virginia and New Jersey ratepayers get snookered

Before we get into today’s post, we have some exciting news.

This is our 100th post on the EBB Substack! Whether you’ve been around for all 100, or are relatively new, we just want to thank everyone for making EBB what it is. We hope to keep delivering great content for you all that can be used to advocate for rational energy policies around the country.

Now, into the actual piece.

The Energy Affordability Bait and Switch

The energy world seems to got through phases of what it deems the “it” thing.

For a while, it was decarbonization. Then, after thermal plants started shuttering and blackouts became very real possibilities due to a lack of power supply, reliability became front and center. Last year, all of the talk was about the skyrocketing demand for power from data centers.

Currently, energy affordability is suddenly the New Kid In Town, now that prices have swung dramatically upward in the last few years in much of the country, but predominantly in blue states.

Energy costs are increasingly becoming a larger percentage of American family incomes, and while political leaders across the spectrum have all seemingly taken up the cause of lowering costs, some may just be paying lip service to the new “it” thing.

Many blue states have been forced to pull the plug on some of their more expensive energy initiatives, such as in New York and California (as we noted in a recent post), yet Democrats still can’t seem to help themselves from pursuing outrageously expensive energy policies.

Like all new kids on the block, they may just be biding their time until the next one comes around—using “energy affordability” to pursue the same unaffordable policies.

Take the newly elected governors in Virginia and New Jersey, for example.

Virginia Rejoining RGGI

In her first address to the Virginia legislature, newly elected Virginia Governor, Democrat Abigail Spanberger, made quite the splash.

Not only did she recommit the state to building more wind, solar, and battery storage, which will raise costs and won’t be able to meet the state’s anticipated growth in demand, she also announced that Virginia will be rejoining the Regional Greenhouse Gas Initiative (RGGI) that former Republican Governor Glenn Youngkin pulled out of in 2024.

Governor Spanberger noted that her decision to rejoin was based on electricity costs, saying, “Withdrawing from RGGI did not lower energy costs. We have seen them rise.”

This actually isn’t entirely true. But before we get to that, what exactly is RGGI?

What is RGGI?

RGGI is a cap-and trade program that places a cap on carbon emissions from power plants in participating states. It mandates carbon-emitting plants purchase allowances (equal to 1 short ton of CO2) from auctions, and they must hold enough allowances to cover their emissions for the compliance period.

There is only a certain number of allowances that decrease every year, meaning that reliable power plants like coal and natural gas will be forced to run less as time goes on, and may even be forced to shut down if the program makes them uncompetitive on the market.

The proceeds from the program are redirected back to the states and are taken straight out of the pockets of ratepayers in the states that participate.

André Béliveau, writing in RealClear Pennsylvania, describes the impact of RGGI as the following:

Cap-and-trade schemes are a tax on modern life. They punish consumers, encourage deindustrialization, and arbitrarily manipulate markets in ways that do more harm to our economic environment with no clear positive impacts on our natural environment.

How It Raises Energy Costs

As Béliveau notes, RGGI acts as a tax that families and businesses are forced to pay, and in Virginia, it previously showed up as a line item fee on bills.

From 2021-23, $830 million in RGGI-related expenses were passed directly to ratepayers in the state, artificially increasing energy costs for Virginia families and businesses.

What does the state spend the proceeds from RGGI on? Mostly to fund flood mitigation and energy efficiency programs.

For the most part, however, these initiatives won’t help offset the cost increases brought on by the RGGI carbon tax, especially when you factor in the fact that it produces an incentive to build less-reliable resources like wind and solar that increase total system costs.

As we will explain in a future post, not even energy efficiency can help save money on a green energy electric grid, as the majority of costs become fixed and must be recouped no matter how much electricity is used.

Costs Dropped After Leaving RGGI

It may come to a surprise to Governor Spanberger, but overall electricity prices in Virginia slightly dropped the year after former Governor Youngkin pulled Virginia out of the program, from 10.68 cents per kilowatt-hour (kWh) to 10.62 cents/kWh, after a 17 percent jump in prices from 2021 to 2022.

The decrease in 2024 was led by the drop in commercial electricity prices, while residential and industrial rates both leveled off.

When looking at residential prices in Virginia during its participation in RGGI, Virginia families experienced the single largest year-to-year price increase in over two decades in 2022 of 11.5 percent, followed by another 6.9 percent increase in 2023. After Virginia left the program in 2024, residential electricity prices leveled off and increased by only 1 percent.

While many factors may have impacted both the jump in rates and the leveling off, adding a carbon tax to the bills of ratepayers certainly didn’t help—and the fact remains that overall prices in Virginia skyrocketed during participation in RGGI and fell after leaving RGGI.

This calls into question Spanberger’s entire reasoning for rejoining RGGI, which will once again put upward pressure on Virginia electricity prices and penalize reliable generators for carbon emissions at a time when the state needs all the power it can get. Dominion Energy, the state’s largest electric utility company, said as much in its most recent rate case.

After noting the recent trends in the PJM market, where retirements are outpacing additions and significant load growth is anticipated from data centers, Dominion stated:

Today, the Company needs as much generation capacity as it can get.

With RGGI, which essentially places limits on existing thermal generators, tapping into the state’s existing resources and building new, reliable generators will become much more difficult.

New Jersey Commits to Solar and Storage

The newly elected New Jersey Governor, Democratic Mikie Sherrill, is another policymaker who seems to be promoting Affordability-in-Name-Only policies.

If her proposals are to be taken seriously, she wants to increase spending without paying for it.

On her first day in office, Governor Sherrill signed multiple executive orders—one of which was to freeze electricity rate increases and explore ways to decouple utility profits from capital spending, and another calling to build more solar and storage facilities.

While Governor Mikie Sherrill is issuing these orders in the name of “affordability,” she either fundamentally misunderstands why costs have become so expensive or is simply using the new “it” topic of energy affordability to push the same policies that have led to the reliability and affordability crises we now face.

Her executive orders show these misunderstandings clearly.

Myth #1: Growing Demand Is To Blame for Supply Issues

Governor Sherrill’s Executive Order No. 2 is riddled with claims that “demand is exceeding supply,” and that this is because PJM is experiencing significant load growth. New Jersey, the executive order notes, now anticipates load growth for the first time in two decades.

While this is true, this is only half of the story.

The other half is the loss of firm capacity in the state.

After peaking at 19,400 MW of capacity in 2014, New Jersey has retired over 3,700 MW of coal, natural gas, oil, and nuclear capacity, and has replaced it with just over 800 MW of mostly solar capacity.

To say the least, 800 MW of solar capacity to replace 3,700 of reliable capacity is insufficient, and is a trend playing out on the entire PJM market. Today, New Jersey only has about 16,600 MW online, representing a net drop of 2,800 MW since 2014.

This is important to remember when blue-states, in particular, try to offload their reliability issues on the rise of data centers, which are relatively recent development in the energy world.

The reliability issues we face today are 10-20 years in the making, and if Governor Sherrill cared about affordability, she would recommit the state to reliable resources, cancel the state’s Renewable Portfolio Standard (RPS), and end the commitment to offshore wind, which is one of the most expensive resources out there.

This leads to Myth #2.

Myth #2: Data Centers Are Major Driver of Affordability Crisis

The following statement is in Executive Order No. 2:

“WHEREAS, as described above, the urgent need for more electricity generation to keep up with skyrocketing power demand from data centers is a major driver of the energy affordability crisis…”

This is interesting, because data center demand growth wasn’t a huge factor when prices started rising, and doesn’t explain why electricity rates in New Jersey have always been high and have been steadily increasing since 2018.

For example, in 2024, New Jersey had the 11th highest residential electricity rates in the country. This isn’t much different from 2020, when it had the 12th highest. Furthermore, when looking only at states within the PJM territory, New Jersey historically has the highest residential electricity rates among them, with the exception of 2023 when Pennsylvania surpassed it briefly.

Notice that recent rate hikes in New Jersey started all the way back in 2018 before picking up in 2022.

The question we would ask Governor Sherrill: How can data center demand growth be a “major driver” of the affordability crisis in New Jersey when prices have been rising since 2018 while total electricity sales have been on the decline since at least 2010?

Clearly, something else is driving high electricity costs in New Jersey, and the executive orders do very little to address the real problems.

Conclusion

With these two case examples in mind, it’s important to remember that just because politicians sing “energy affordability” and use it to promote policies, they may be doing the exact opposite.

In fact, the newly elected governors in Virginia and New Jersey really aren’t doing anything new to address affordability in their states. They’re rehashing old ideas and presenting them as new to address a problem that the old policies created.

Energy affordability is a real issue across the country and it won’t be solved with the same policies that brought it to our doorstep.

The truth of the matter is that America had a reliable and affordable grid, built up over many years and paid for by ratepayers, and this grid could’ve been providing inexpensive electricity for decades to come with minor additions to keep it running efficiently, relative to the massive buildouts we see today. We’ve squandered much of this grid, unfortunately, but the solution isn’t to keep going down the road of insanity even further. The solution is to begin the arduous process of building it back up again.

Sunk Costs by Sarah Montalbano

The Great Unraveling by Irina Slav