The Senate Environmental Resources and Energy and Consumer Protection Committees held their second public hearing on energy policy this week taking comments from representatives of the electric generating and distribution industry.

The witnesses included Douglas Biden, Electric Power Generation Association, David Kleppinger, Industrial Energy Consumers of PA, Michael Love, Energy Association of PA, Richard Rathvon, Retail Energy Supply Association and Michael Kormos, PJM Interconnection.

Douglas Biden, Electric Power Generation Association, told the Committee electric generators have assumed the financial risk of building new power plants under Pennsylvania’s competitive electricity market instead of ratepayers under the hold regulated system. As a result, few new power plants are being built because they cannot be assured of a return on their investment.

In addition rate caps have stifled retail competition and have restricted the development of demand response and energy efficiency programs because consumers are not getting the appropriate price signals when they use power at peak use times, the time at which power is most expensive.

Biden noted that more than 96 percent of the average PJM Interconnect wholesale price for electricity in 2006 was comprised of fuel (76 percent), environmental costs, other variable operating and maintenance expenses and congestion costs. Only 2.9 percent of the average wholesale price was contributed by generator markup.

On the pending energy policy bills, Biden had this to say, “The procurement provisions in the proposed amendments to the Competition Act codify the selection of winners and losers and interfere with the market by substituting a legislative preference for demand side and alternative energy resources, and creating a special test that some generation sources (such as coal and nuclear) must pass before they can be included in capacity plans. Given the time and resources required to plan and build adequate generation capacity, this provision could have serious adverse consequences for electric reliability and prices if government decisions turn out to be wrong.”

Michael Love, Energy Association of PA, commented that legislators are facing priorities that are not always complementary, noting that electric system reliaibility (keeping the lights on) is of great concern while at the same time there are priorities for increasing renewable sources of energy which do not provide steady, reliable power all the time. For example, wind generators work about 25 percent of the time while solar units produce electricity about 15 percent of the time.

Love also expressed concern for electric reliability provisions in the pending legislation that would require increased electrical demand be met first by demand side management and energy efficiency, which is a voluntary program, while mandating the use of renewable sources of energy that do not operate all the time.

Love recommended more should be done to address energy conservation efforts in Pennsylvania’s housing stock, 30 percent of which was built before 1939 and 80 percent before 1979, the first energy crisis. Many older homes still lack insulation, energy efficient windows and have inefficient water heaters.

He noted his Association supports long-term contracts, as long as other ratepayers do not subsidize the lower prices in these contracts.

David Kleppinger, of the Industrial Energy Consumers of PA, represents 24 large commercial and industrial electricity and natural gas users. Kleppinger said without changes, economic development and employment will suffer in Pennsylvania when electric rate caps expire in 2010 and offered support for long-term energy contracts.

He noted the system benefit charge proposed by Gov. Rendell to fund an $850 million bond issue to promote new and renewable energy resources will “undeniably increases prices to customers in the short-term with a promise of lower prices in the future.” He recommended the legislative language be clarified to set a firm cap of $10,000 per year for each company affected.

Richard Rathvon, Retail Energy Supply Association, said they agree with the goals of Gov. Rendell’s energy initiative, but does not agree that legislation affecting Title 66 and provisions related to electric competition is necessary to accomplish those goals.

“The Public Utility Commission has issued a set of policy guidelines and default service rules that will begin the transition (of electric rates) towards competitive markets and should be allowed to work,” said Rathvon. “Indeed, RESA believes that the legislation at issue is fraught with unintended consequences and could have a chilling effect on the progress toward a competitive electric market.”

For example, Rathvon noted that long term contracts shift financial risk to other ratepayers and would mute price signals to consumers to promote energy efficiency or participate in demand side management programs. Longer contracts could also increase the need for new power plants and transmission lines.

Giving authority to the PA Energy Development Authority to buy and sell power raises a number of conflict of interest questions, said Rathvon. He noted California hired consultants and trades during its electric crisis with “disastrous results” and conflicts occurred between the traders and consultants hired.

“The competitive market is the best pathway to deliver innovative products that allow consumers to meet their unique individual needs and reducing consumption thus helping the environment,” Rathvon said.

Michael Kormos, PJM Interconnection, provided an overview of PJM responsibilities in maintaining a reliable electric transmission system and a regional market for electricity for 51 million people in 13 states from New Jersey to Illinois.

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 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).

To watch a video of the hearing and for copies of testimony, visit the Senate Environmental Resources and Energy Committee webpage

NewsClip: Energy Efficiency, Rate Caps on Collision Course

6/15/2007