Electric distributors, generators and regional grid managers told members of the Public Utility Commission and staff this week that while they project ample power will be available to meet summer demands, presenters noted the retirement of electric generating capacity is outpacing on new capacity coming online in the region.

At a separate Clean Energy Conference this week, PUC Vice-Chairman James H. Cawley said the basic cost of generating electricity and environmental requirements on generators have raised the wholesale cost of electricity above the price caps imposed in 1996 and that companies cannot continue to buy electricity at high prices and sell it at lower prices.

Last week, PUC Chairman Wendell F. Holland expressed concern about the cost impact of a proposal by the Department of Environmental Protection to adopt a state-only rule to control mercury from power plants.

The Energy Association of Pennsylvania, the Electric Power Generation Association, PJM Interconnection and Midwest Independent System all presented comments at the PUC briefing.

“Demand for electricity continues to grow,” said J. Michael Love, President & CEO of the Energy Association of Pennsylvania. “Retirements of generating stations continues to outpace generation construction. This is a disturbing trend that could be a harbinger of problems in the future…. While the distribution companies can continue their historic efforts to improve reliability, if there is, over time, a shortage of capacity due to overly stringent environmental regulations, it will be this Commission who will face the challenge of consumer outrage over capacity shortfalls.”

Douglas L. Biden, President of the Electric Power Generation Association, noted the retirement of 3,092 megawatts (MW) of generating capacity in the PJM Interconnection in 2005 which directly serves Pennsylvania.

Biden also provided the Commission with statements by PJM which cautioned that the impact of state-specific mercury regulations could hasten the retirement of older generating capacity—

“New limits on mercury emissions from coal-fired power plants now under consideration in Pennsylvania, New Jersey and Maryland, among other states, may prove to be an important factor in potential future retirements. PJM has been closely monitoring the states’ deliberations on these requirements; its analyses indicate that, should the current proposed requirements be adopted, as much as 4,000 MW of older, coal-fired generation capacity potentially could be retired because the investment needed at such units to meet the new emission limits would be deemed uneconomic.” -- From a March 6, 2006 submission from PJM supporting a regional transmission line project.

Studies have also identified 4,135 MW of generating capacity in Pennsylvania that could be retired if state-specific requirements over and above the federal Clean Air Interstate Rule were adopted, Biden said.

PJM, which is the electricity grid operator for 13 states and the District of Columbia, predicts that customers this summer will drive the net peak demand for power to 133,500 megawatts, compared to the all-time PJM peak of 133,761 megawatts on July 26, 2005. PJM expects to have a reserve margin, the extra power on hand to meet unanticipated demand, of 25.5 percent.

Midwest ISO, an organization similar to PJM, predicts an 18 percent reserve margin, however, its projections also show it will have a reserve margin of less than 5 percent due to retirements by 2015. Fifteen percent is considered a safe margin.

Vice-Chairman Cawley told the Clean Energy Conference that Pennsylvania has two choices to deal with the rising price of electricity after the caps imposed in 1996 come off in 2010—1) we can wait until 2009-2010 and see a big increases in prices like Maryland did; or 2) start bumping up prices now incrementally and look for ways to reduce electricity demand.

“Electricity prices have got to reflect the true price of electricity,” said Vice-Chairman Cawley. “Without that customers have no incentive to conserve. People will modify their behavior if they know what the facts are.”

“We are not going to get into the situation Maryland did, where they have a huge run-up in prices” said Vice-Chairman Cawley.

Vice-Chairman Cawley noted the PUC is meeting on June 22 to hear comments on how the PUC should deal with the elimination of the caps in 2010.

Link: House Committee Told Conservation Most Cost Effective Help on Energy Problems

5/26/2006