COVID-19 and Looking Ahead

The ongoing novel coronavirus pandemic has caused significant disruptions to the electric utility sector, from short-term decreases in load and shifts from commercial and industrial to residential load to cost uncertainties and uncertain load forecasting.  Many of these trends and uncertainties are directly tied to the impacts of COVID-19 on our day-to-day lives.  Stay-at-home orders designed to prevent virus transmission and the health care system being overwhelmed have led to a shift away from the office to makeshift home offices and rapidly-developed Zoom expertise.  Recently many states have eased stay-at-home restrictions on businesses and residents in an effort to return to work to bolster the economy and resume a new normal for daily life.  The tradeoff, as seen in some states with rising numbers after lifting the orders, is between policy that tends towards opening up businesses and bolstering the economy vs. imposing restrictions to minimize risks to human health. 

In a new working paper, my colleagues and I examine a recent program that has dealt directly with this tradeoff between business activity and human health in metropolitan areas.  The air quality alert or action day program is a voluntary episodic control program that encourages businesses and individuals to reduce polluting actions (e.g. encouraging telecommuting, avoiding driving during rush hour, carpooling, turning A/C warmer, etc.) on days forecasted to have unhealthy levels of air pollution.  Given that air quality alerts are issued one day ahead to allow sufficient response time, the regulatory agency does not have perfect information when deciding whether or not to issue an alert.  A day forecasted to have poor air quality may turn out to be good (and vice-versa).  Two types of error can occur: (i) failing to issue an alert when the air quality turns out to be unhealthy, or (ii) issuing an alert when the air quality is ok.  Agencies thus implicitly weigh the trade-off of erring on the side of caution to protect public health (“pro-health”) or economic activity (“pro-economy”).  Using daily data on air quality forecasts from 2004-2017, we find that overall agencies tend to be pro-economy, but participating cities exhibit considerable variation.  In particular, metropolitan areas with a larger population (above 350,000) or a higher share of a) population over the age of 65, b) population that thinks climate change is happening, or c) Democratic voters all tended to be more pro-health than the average metropolitan area.  As with the COVID-19 experience, this evidence indicates that there are circumstances in which the tradeoff between health and economic well-being is salient.

One of the few positives to come out of the current crisis has been a reduction in emissions of CO₂ and local air pollution.  While the current reductions are unlikely to be sustainable, it provides an opportunity to consider other ways to incentivize low- or zero-carbon energy resources such as renewables or nuclear power.  In a paper with CMU professors Edson Severnini and Akshaya Jha, we examine the substitution between nuclear power and fossil fuel generation from 1970-2014.  We find a significant decrease in coal generation after a nuclear plant opening of roughly 200 GWh per month over the 1^st 6-12 months, with no significant response from natural gas generation.  Forced outages at a nuclear plant led to a nearly identical increase in coal generation with no change in generation from natural gas, even in recent years after the fracking boom.  We then examine the social costs underlying this substitution. The private production and operating costs of nuclear and coal are relatively similar if not in favor of nuclear, yet the external costs that coal-fired generation creates in terms of SO₂, NO_x, and CO₂ emissions are massive, in excess of $100/MWh in recent years.  A few states have recently implemented policies to compensate nuclear plants for their benefits in reducing air pollution in the form of zero emission credits (ZECs) analogous to the more widespread renewable energy credits (RECs).  Lynne and I are currently working on a paper to analyze the short-term impacts of these ZEC programs in New York and Illinois; updates to come soon! 

We are in the midst of a period of significant uncertainty in all phases.  The disruption caused by the global pandemic is likely to lead to changes in “normal” operations for electric utilities moving forward at a time ripe for innovation.  The role of the regulator is critically important at these times, and I hope to hear from you about your experiences.