The cost of electricity, which has been capped at the retail level in Pennsylvania for the past 11 years, would have to increase more than 40 percent when the caps come off over the next few years to outpace inflation over the same period, the President of the Electric Power Generation Association, Douglas L. Biden, told Pennsylvania's largest industrial users this week in Harrisburg.

Speaking before the Industrial Energy Consumers of PA, Biden added that Pennsylvania consumers pay 12 percent less for electricity today than they paid in 1996 (adjusted for inflation). "Clearly, consumers have benefited greatly from those price caps," Biden said.

"People look to the future knowing the rates are going to increase when the caps come off and tend to blame it on the restructuring of the market," Biden said. "So they recoil from the market and reach for 'solutions' that will make things worse. But the truth is the market is working very well, and has helped to mitigate cost increases, which are almost entirely due to the recent increases in fuel costs, and the increased expenditures for environmental compliance."

Biden cited that the cost of coal more than doubled between 2000 and 2005 before declining slightly in 2006. The price of natural gas, which powers many of the newer power plants, increased almost four-fold between 1999 and 2005, before moderating in 2006.

Moreover, Biden told the group that environmental regulations impact the generators choice of fuel, capital and operating costs, and even unit retirements.

"We must meet our responsibilities to adhere to the federal Clear Air Interstate Rule, stringent state mercury emissions regulations, the Clean Water Act and other current regulatory requirements as well as ones coming down the road," Biden said. "Complying with all of these requirements adds significantly to the cost of generation."

In addition, Biden said that compliance can also force generators to retire older capacity. Replacing that capacity with new state-of-the-art generation requires higher wholesale prices to support the investment.

"EPA estimates that 5,000 MW will retire because of the CAIR and the Clean Air Mercury Rule," Biden said. "Consultant estimates are more than double that amount."

Biden said that the generating industry fully supports working with the Public Utility Commission, industry, and other consumers of electricity to mitigate electric rate increases when the caps come off over the next few years. But he cautioned against changes to the competitive market.

"Without competition, the prospect of even higher energy costs would be much greater," Biden said.

A full copy of the presentation is available online.

For more information visit the EPGA or PA Energy News websites or call 717-909-EPGA.

5/11/2007