How a court ruling could boost power prices 20%

A ruling in May by a three-judge panel of the US Court of Appeals for the DC Circuit held that regional power grid operator PJM Interconnection LLC and other regional grid operators around the country don't have the legal authority to purchase “demand response,” the formal name for negawatts -- paying industrial firms and other big consumers of electricity to curtail their demand.

Only states can do that, the court ruled in a challenge brought by an association of power generators that includes Chicago-based Exelon. The decision has significant pocketbook ramifications. Eliminating negawatts to meet peak demand would tend to raise prices because it would force consumers to buy from less-efficient, higher-cost power plants that otherwise wouldn't qualify for capacity payments. The independent market monitor for PJM, which plays a market-referee role for the power grid stretching from Chicago across all or parts of 13 states to North Carolina's Outer Banks, estimated that -- if the court ruling stands -- the annual cost to reserve enough power capacity to meet demand during peak periods would rise as much as 124 percent from today's levels. Those capacity costs -- paid by all business and residential customers -- are embedded in the overall energy price reflected in their electric bills. The cost for energy would increase 1.5 cents per kilowatt-hour, or 20 percent above the 7.5 cents currently charged by Commonwealth Edison, according to an analysis by Mark Pruitt, former director of the Illinois Power Agency. That would inflate the revenue for power plants selling into northern Illinois, including Exelon's five nuclear stations in the northern part of the state, by about $1.3 billion.