Representatives of industry, consumers and the Public Utility Commission testified this week before the House Environmental Resources and Energy Committee about the competitive advantages of establishing public power agency to combat escalating electric prices.

The hearing focused on House Bill 1909 (George-D-Clearfield), the Committee Chair, which would create an independent Commonwealth Energy Procurement and Development Agency to purchase cheaper electricity on behalf of Pennsylvania’s 12.5 million citizens and businesses and spur development of new generation sources in the state.

“AARP… has seen the failure of electricity deregulation across the country,” said Ray Landis, AARP Pennsylvania advocacy manager. “There is no doubt deregulation has failed to produce the price cuts and retail competition its supporters had predicted.

“AARP has advocated for creation of a state power authority since 2007,” Mr. Landis said. “Although the price caps are now expired for some customers, it is still not too late to take this important step.”

Steve Etsler, purchasing agent for AK Steel Corp., said industries’ ability to compete will be diminished when remaining rate caps expire across Pennsylvania on Jan. 1, 2011, an action that “could be disastrous.”

Mr. Etsler, speaking on behalf of the Industrial Energy Consumers of Pennsylvania that represents energy-intensive businesses that employ more than 43,000 Pennsylvanians, cited a study that said the wholesale market scheme inflates the price of electricity by 1- to 2-cents per kilowatt hour. Mr. Etsler said an independent agency could negotiate for cost-based rates and enable industries to remain competitive.

Tyrone Christy, Vice Chair of the Public Utility Commission, said a public power agency can issue competitive solicitations for third parties to build and operate power plants.

“With long-term contracts, better pricing is available because of lower interest rates and less equity needed to finance projects,” Commissioner Christy testified. “Capital-intensive facilities with low running energy costs can once again get built.”

Commissioner Christy said advantages of pursuing a public power agency through HB 1909, include: The ability to bring economies of scale to purchases; Being able to scour the market for strategic purchases; Significant tax advantages; The ability to participate actively in federal wholesale market proceedings.

Sonny Popowsky, Consumer Advocate of Pennsylvania, said he believed that a Pennsylvania power agency could provide substantial benefits to Pennsylvania consumers.

“The short-term market system that we have in place today in Pennsylvania and our surrounding PJM [Interconnection] states, in my view, has the unintended consequence of over-compensating owners of existing generation whose capital costs have already been paid for through depreciation and stranded cost recovery, while providing inadequate incentives to new entrants in the generation market,” Mr. Popowsky said.

“The problem is that, under the PJM pricing schemes, where all generation is paid [Reliability Pricing Model] auction prices for capacity and the highest market clearing prices for energy, we have to overpay almost everyone in order to try to get someone to build the generation we need,” Mr. Popowsky said. “Yet we still have no assurance that adequate new generation will be built.

“In my view, this is where a Pennsylvania Power Authority could play a vital role in the future,” he said.

Rep. George prefaced the 2-hour-plus hearing with a warning that Pennsylvania’s failed attempt at deregulation requires legislative action to correct a competitive electric wholesale market that exists “in name only.”

1/25/2010