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Conservation Will Be Your Best Friend Chamber Energy Summit Told

Somerset Wind Farm

Over 325 participants attended the state Chamber of Business and Industry Energy Summit and heard several speakers said they need to do all they can to become more energy efficient as Pennsylvania makes the transition to market-based pricing for electricity in 2010.

Several speakers provided an overview of the energy situation and how it will impact Pennsylvania, while a follow up panel provided some ideas on what businesses can do to react to the coming changes, particularly in the electricity markets.

Alternative Energy

David Stoner, Vice President for Wind Energy Development for BP Alternative Energy, provided an overview of alternative energy development in Pennsylvania, focusing on wind energy, the largest segment.

BP Wind has 400 megawatts of wind projects in operation or under construction with 1,000 megawatts expected to be in operation by the end of 2008.

Pennsylvania has excellent wind resources in a number of areas, reasonable access to transmission lines and the electric market, a reasonable regulatory regime that attracts wind energy developers to the state and an alternative energy portfolio standard that requires electric utilities to purchase electricity generated from wind and other renewable energy sources, said Stoner.

A collaborative wind energy and wildlife impact policies have resulted in a model local ordinance that townships can adopt to deal with local siting issues and voluntary wildlife evaluation guidelines that help in the permit process that have been helpful in the state.

Wind energy provides significant economic and environmental benefits, including local property taxes, jobs during construction and operation, lease payments to property owners and emission-free energy that has no fuel supply.

BP Wind has a 100+ megawatt project in the development stage in Wyoming County and more projects are planned in Pennsylvania.

BP Alternative Energy includes wind, solar, biofuels, natural gas and hydrogen no or low carbon energy resources. (Additional background is available in Mr. Stoner’s presentation.)

Public Utility Commission

Public Utility Commission Chairman Wendell Holland said between 1996 and 2008 natural gas prices increased 140 percent and coal prices increased over 55 percent, the two main fuels used by electric generators, while Pennsylvania electric customers continued to pay 1996 prices for their electricity service.

Chairman Holland said the PUC has adopted regulations requiring a phase-in to a competitive market and the General Assembly and the Governor are looking at other steps to take. He also said the PUC would be working as well to make changes in the pricing for the wholesale electric market controlled by the PJM Interconnection.

Chairman Holland recommended businesses do all they can to reduce the consumption of electricity ahead of the rate caps coming off and to prepare to shop for the best prices from electric providers.

He pointed to the success in the Duquesne Light service territory where competition has resulted in prices for commercial customers that are typically lower than 1996 prices.

Electric Generation

Doug Biden, Electric Power Generation Association, said fuel costs make up about 76 percent of the wholesale cost of electricity, while environmental costs make up 13 percent, operation and maintenance 5 percent and congestion costs on the electricity grid are about 2 percent. Only about 2.9 percent is generator markup.

While fuel costs are a significant part of the bill, future costs for electricity will also be driven by required investments in environmental compliance for clean air and climate change requirements. The investments needed for clean air rule changes alone are in the $50 to $80 billion range.

Worldwide demand for electricity is also pushing construction costs for new generation capacity up significantly. Fore example, costs have increased about 130 percent since 2000, which means a project that cost $1 billion in 2000 now costs $2.3 billion.

The deregulation of Pennsylvania’s electric generators in 1996 has resulted in a 9,000 megawatt increase in generating capacity, primarily through increases in the efficiencies of existing power plants and an increase in plant availability times. Capacity factors have increased from 70 percent to over 93 percent in Pennsylvania. This increase in efficiency nationwide is the equivalent of adding 26 new nuclear reactors to the generation fleet.

Electric Distribution

Michael Love, President and CEO of the Energy Association of PA, said just as important, but a little more technical than the electric rate caps coming off in 2010, are the changes being discussed to the customer class rate designs.

Every electric customer is assigned to a rate class. The changes in these class designs means, in most cases, customers who are used to the cost of electricity per kilowatt coming down with increased use, will see the cost per kilowatt hour remain the same regardless of usage. These changes will have a more profound impact that simply lifting the rate caps.

Love said the impacts on electric customers will be different in different service territories around the state. There will not be one generic rate increase, so customers will have to monitor the changes made by each utility.

Love also recommended businesses get serious about energy conservation, “not conserving is not an option.” He noted that 80 percent of Pennsylvania’s housing stock was built before 1979, the last energy crisis, and if policy-makers are serious about reducing the demand for electricity they have to start looking at ways of addressing this issue.

Biofuels

Rolf Hanson, Associated Petroleum Industries of PA, gave the Summit an overview of transportation fuel issues noting the dramatic increase in the cost of energy around the world. 54 percent of the cost of gasoline at the pump was the price of crude oil, 20 percent the cost of refining, 11 percent distribution and retail and 15 percent federal, state and local taxes.

Hanson said the new federal renewable fuels mandate signed into law in December has eliminated the need for state-only mandates, like Gov. Rendell has proposed. But it will also present challenges in the future as the federal goals mandate an increase in the use of renewables. The production capacity to make these fuels is simply not available and will need to be built in the future presenting an opportunity for states.

Several speakers provided participants with ideas on how they can get their businesses ready for a competitive energy market.

Angela Beehler, Wal-Mart, provided an overview of energy conservation efforts in that company, Susan Bruce, McNees Wallace & Nurick LLP provided a guide to contracting for energy supplies and Rich Fathvon, Reliant Energy Solutions, described just a few of the many energy products available in competitive energy market states.

NewsClip: Conserve to Cut Costs of Energy Group Told

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