In the face of another 1.5 percent increase in peak demand growth, electric generating facilities are being retired at a rate three times faster than new units are added in the PJM regional electric grid, according to comments presented at the annual summer electric reliability briefing held by the Public Utility Commission this week.

Comments were presented by the Energy Association of Pennsylvania, the Electric Power Generation Association, PJM Interconnection and the Midwest Independent System Operator.

PJM predicts that customers will drive the net peak demand this summer to 136,961 megawatts, compared to the all-time PJM peak of 144,644 megawatts set on August 2, 2006. The previous 133,763 MW record was set on July 26, 2005. PJM expects to have a total reserve margin, the extra power on hand to meet unanticipated demand, of 21.9 percent.

Doug Biden, EPGA, noted over the last two years the PJM area has lost 3,547 MW of generating capacity to retirements, while adding just 914 MW of new capacity. PJM also estimated an additional 4,000 MW of generating capacity will be retired due to new mercury control regulations, like the one adopted by the Department of Environmental Protection.

In addition to another 1.5 percent increase in peak electricity demand growth throughout the regional grid this summer, Biden said new environmental regulations and forthcoming climate change proposals will further increase electric generating costs and speed the retirement of generating capacity. Uncertainty over the future of competitive electric markets is also causing investors to be wary of investments in new generating capacity.

"Over the long-term, generating units must have a stable and adequate opportunity to recover sufficient revenues in the marketplace to cover their costs over their useful lives," Biden said. "Policymakers must reaffirm their commitment to competition in electric generation."

Biden noted that since electric restructuring began in 1996, generating capacity increased by more than 9,000 megawatts in Pennsylvania, but that recent investment in capacity has dropped off significantly due to regulatory uncertainty and wholesale prices that are currently too low to recover the high fixed costs of emerging clean coal technologies or new nuclear plants.

"Investors must expect that wholesale prices will be high enough over time to recover not only operating costs, but also the capital invested in building plants before new power plants will be built," Biden said. "Presently, investors are extremely wary of the multitude of state initiatives to re-regulate."

On the environmental side, Biden said that federal and state environmental policies have forced greater reliance on natural gas as a power plant fuel. At the same time, federal, state and local policies limit the expansion of gas supply.

"We have serious concerns about adequate gas supplies over the next several years," Biden said. "Domestic wells and imports from Canada are declining. LNG [liquefied natural gas] projects face stiff opposition, and the supply/demand imbalance that caused prices to rise dramatically in 2005 has persisted."

Biden said that policymakers and all citizens need to understand the critical relationship between adequate fuel supplies, balanced environmental policy, reasonable electricity prices and electric reliability, emphasizing that "All of these issues are inextricably linked".

Mike Love, EAPA, said his member electric distribution companies all have pilot projects underway to test methods of reducing peak demand for electricity, including time of day pricing, load control, generation buyback and load reduction techniques.

Love also said his companies have been working to meet new federal requirements for improving the reliability of the electric distribution system through more sophisticated

load and capacity forecasting, vegetation management and inspection practices.

Link: Generation Retirements, Environmental Rules Forcing Electric Costs Up

6/1/2007