The Senate Environmental Resources and Energy and Consumer Protection and Professional Licensure Committees held the first of two joint hearings on energy policy in Pennsylvania.

Dan Desmond, Deputy Secretary for Energy and Technology Development at the Department of Environmental Protection, provided the committees with an overview of Gov. Rendell’s Energy Independence Initiative.

A video and copies of the comments presented at the June 5 energy policy hearing is available on the Environmental Resources and Energy Committee webpage .

Wendell F. Holland, Chairman of the Public Utility Commission, Vice Chairman James H. Cawley, Commissioner Kim Pizzingrilli and Commissioner Terrance J. Fitzpatrick; and Sonny Popowsky, Pennsylvania Consumer Advocate, provided the Committees with comments on Pennsylvania’s competitive electric market.

Desmond said the United States now faces a new energy economy dominated by imported fuels that drains billions of dollars from Pennsylvania.

The Governor’s Energy Independence Initiative would invest $850 million in the development of advanced and clean energy technologies financed by a fee imposed on all electric customers, amend the Utility Code and Alternative Energy Portfolio Standards Act to allow for long-term electricity contracts, more flexibility in setting electric rates and to encourage more clean electricity generation and require transportation fuels to include renewable content.

A number of Senators expressed concerns with the fee proposed by Gov. Rendell to finance the investment in cleaner energy technologies.

Sen. Boscola (D-Lehigh), Minority Chair of the Consumer Protection Committee, said the new proposed fee would be “pick pocketing people” who are already going to be hit with increased electric rates when the caps on electric costs come off for most people in Pennsylvania in 2010.

Desmond said some of that increase will be offset in many areas by the elimination of the special stranded costs fee for nuclear power plants that will come off at the same time rate caps do.

Sen. Tomlinson (R-Bucks), Majority Chair of the Consumer Protection Committee, asked why revenues from the fee were not used to upgrade existing electric generation facilities and if the Governor’s proposal includes funding for residential weatherization to reduce energy consumption for lower income households.

Desmond argued against investing more public dollars in legacy generating plants because they are now upgrading to meet federal and state environmental requirements and can’t go much further.

Sen. Mary Jo White (R-Venango), Majority Chair of the Environmental Resources and Energy Committee, noted that coal fired power plants are shutting down now in Pennsylvania due to environmental regulations and more will in the future and asked if DEP would support allocating money to keep them open.

Last week information from the PJM Internection, the regional electric grid operators, showed power plants are closing at a rate three times faster than new power plants are coming online.

Demond said Pennsylvania cannot afford any deficiency in energy supplies and new plants should include the flexibility to adopt to new technologies.

Wendell Holland, Chairman of the Public Utility Commission, provided an overview of the PUC’s activities relating to the transition to a competitive electricity market during his portion of the hearing and on implementation of the Alternative Energy Portfolio Standards Act.

Holland noted that Demand Side Response (energy conservation) and smart electric meters should be a major element of any future energy strategy since helping to reduce energy use during peak use periods will both reduce overall energy costs and increase electric reliability.

Holand concluded by saying pending energy legislation was “expansive” and includes many new ideas that he hoped would be the subject of further discussion before the General Assembly takes action.

James Cawley, Vice-Chairman of the PUC, said public policy should empower customers to take control of their energy costs through mechanisms like time-of-use pricing, demand side management programs, distributed generation and consumer education.

Commissioner Cawley said it was not possible for Pennsylvania to return to a regulated electricity market with monopoly electric service providers, saying there is “no way to unscramble the egg.” He said public policy makers should focus on fixing the “foibles and flaws” in the existing electricity market.

Commissioner Kim Pizzingrilli echoed the setiment of Commissioner Cawley by saying, “We need to continue to evaluate and establish policies that empower consumers to conserve energy; provide them with the tools they need to better manage their energy usage and costs; and attract and enhance the availability of alternative energy sources.”

Commissioner Pizzingrilli cited a study by the Mid-Atlantic Distributed Resources Initiative which concluded that even a modest reduction in electricity use during peak hours would reduce energy prices by $57 million to $182 million annually in the Mid-Atlantic region.

She noted the PUC’s budget request includes a $5 million consumer education campaign to help prepare electricity customers for potential increases during the transition from capped electricity rates to a market-based system.

PUC Commissioner Terrance Fitzpatrick said the biggest challenge facing Pennsylvania is successfully making the transition from paying capped prices for electricity to paying market-based prices. Some customers will see little impact, but others may experience increases of 30 percent or more. Rates have been capped since 1996.

If other fuels were capped from 1996 to 2010 like electricity, Commissioner Fitzpatrick noted gasoline prices would increase by 80 percent, fuel oil by 57 percent and coal by 91 percent.

Commisisoner Fitzpatrick said increasingly stringent environmental requirements and the rising cost of coal and natural gas are helping to drive electricity prices higher and future actions to regulate carbon emissions will push costs still higher.

Commissioner Fitzpatric also recommended great care in crafting legislation to deal with electric competition and expressed concern for provisions that state in “minute detail” how the PUC is to conduct its business. “This lack of flexibility is risky because it assumes that future events can be predicted with certainty. This approach is contrary to the tradition of giving the Commission latitude to make adjustments as circumstances change—a tradition that I believe has worked well.”

Sonny Popowsky, Pennsylvania Consumer Advocate, said, “the policies that we develop between now and 2010 may determine whether Pennsylvania has a crash landing, as has occurred in some of our neighboring states, or whether we continue on what has generally been a positive path toward restructuring our electric industry.”

Popowsky called again for a portfolio approach to making the transition to a competitive electricity market that has a mix of long-term, mid-term and short-term contracts to provide electricity and that alternative energy sources should be part of the mix.

Popowsky also underscored the importance of demand side management (energy conservation, energy efficiency) in helping to reduce the cost of electricity, especially at peak use times. He said conservation is particularly important as the “inevitable impacts of global climate change regulation” become apparent.

Gov. Rendell’s Energy Independence Initiative is included in: Senate Bill 716 (Musto-D-Luzerne) making changes to Title 66, Senate Bill 715 (Musto-D-Luzerne) amending the Alternative Energy Portfolio Standards Act, Senate Bill 661 (Wozniak-D-Cambria) giving additional responsibilities to the PA Energy Development Authority and Senate Bill 789 (Dinniman-D-Chester) establishing the PennFuels Program to require renewable content in transportation fuels.

And in the House, House Bill 1200 (DePasquale-D-York) making changes to the responsibilities of the PA Energy Development Authority, House Bill 1203 (Hornaman-D-Erie) amending the Alternative Energy Portfolio Standards Act, House Bill 1202 (Gerger-D-Montgomery) establishing the PennFuels Program to require renewable content in transportation fuels and House Bill 1201 (George-D-Clearfield) making changes to Title 66.

The Senate Committees will hold a second hearing June 12 featuring testimony from the Industrial Energy Consumers of Pennsylvania, Electric Power Generatig Association and the Energy Association of PA.

The Majority Chair of the Environmental Resources and Energy Committee is Sen. Mary Jo White (R-Venango) and the Minority Chair is Sen. Ray Musto (D-Luzerne) and the Majority Chair of the Consumer Protection and Professional Licensure Committee is Sen. Tommy Tomlinson (R-Bucks) and the Minority Chair is Sen. Lisa Boscola (D-Lehigh).

Two House committees are scheduled to take up several bills in the Governor’s energy package this coming week. (see separate story)

For more information, visit the Senate Environmental Resources and Energy Committee webpage

NewsClip: PUC: Electric Competition is Here to Stay

6/8/2007