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Electricity Markets: Lessons Learned from California.
Subcommittee on Energy and Air Quality
Mr. John Quain
Mr. Chairman, members of the Committee, good morning. Thank you for your kind invitation to appear before you. In the time available to me, I would like to summarize for you the Pennsylvania experience with electricity deregulation. Pennsylvania's story has been a success story. · As of October 1, 2000, more than 550,000 customers in Pennsylvania were purchasing their power from a competitive supplier. · Customers across Pennsylvania have saved nearly $3 billion since the beginning of electric choice in 1997. · It is anticipated that 36,000 new jobs will be created in Pennsylvania as a result of competition by the end of 2004. · Approximately 15,000 megawatts (MWs) of generation are projected to
come on-line in the Pennsylvania-New Jersey-Maryland Interconnection
(PJM) in the next five years.(1) That represents a 25% increase in regional
generation. When Pennsylvania began electricity competition in 1997, rates were, on average, 15% higher than elsewhere in the United States. Today, Pennsylvanians pay rates, on average, 4.4% lower than elsewhere in the United States. One of the questions that has repeatedly come up in the past weeks and months is whether the situation now prevailing in the California electric industry will happen in Pennsylvania? I assure you that so long as Pennsylvania continues on its present course, it will not. The reliability of our electric system is sound. Retail competition works. Well thought out, collaborative industry restructuring as embodied in the Electric Competition Act passed by the Pennsylvania General Assembly, has assured the maintenance of system reliability and the viability of customer choice. In preparing my comments for today, I was asked to outline a comparison and contrast of the situations in Pennsylvania versus California. Both programs tried to reach the same goal of customer choice and electric generation competition. However, there are many differences between our two restructuring efforts and the consequences of those efforts. Following are some of the most fundamental differences: · Pennsylvania's restructuring law and its implementation were based on collaborative efforts by all participants. · Pennsylvania started competition with a generation surplus and an adequate, reliable transmission infrastructure, conditions that prevail to this day. Pennsylvania is a net exporter of power. · PJM, which serves approximately 9.5 million customers, has 57,000 MW of installed capacity whereas CAL-ISO, which serves approximately 10 million customers has 45,000 MW of installed capacity. · Pennsylvania is the second largest producer of electricity in the US. · The growth of demand in Pennsylvania over the next five years has been projected at 4%, while PJM regional demand growth is projected at 10%. During the same time period, a conservative estimate is that generation is expected to increase by 25% or 15,000 MW. · Generation within PJM is based primarily on coal fired units and nuclear units. California's generation is based to a large extent on natural gas and hydro-power imported from the Pacific Northwest. High natural gas costs and falling water supplies have both impacted the price of electricity in California. · Pennsylvania's utilities have the option of retaining their generation in an affiliate company or of selling that generation. Pennsylvania's restructuring program and the development of competition has been the beneficiary of ongoing stewardship and careful monitoring by the Governor's Office, the State General Assembly's oversight committees, the Public Utility Commission, the Office of Consumer Advocate, the Office of Small Business Advocate, and by the active participation of all parties with a stake in the evolution of competitive markets. Ongoing oversight must maintain the delicate balance that prevents government intrusion while avoiding government indifference. We want reliability maintained. We want energy markets to work. To achieve those goals, we know that we must be vigilant. We also understand that while the majority of electricity generation in PJM is coal or nuclear, natural gas does provide 15-20% of peak load, and that the new generation proposed for PJM is almost entirely gas-fired. While our Commission does not have jurisdiction over generator siting or fuel portfolio choices, we are encouraged that the PJM ISO is now considering the long-term impact of fuel choice on proposed generation. In conclusion, Pennsylvania's utility industry is strong. Our customer choice programs have been a success and are rightly recognized, nationally and even internationally, as models. Through the collaborative process, considered legislation, careful implementation and ongoing stewardship, I am confident that we have avoided and will continue to avoid many of the problems that have beset other states. I thank you for your attention, and I look forward to your questions.\ 1. If all proposed projects are included, this total could be as high as 46,000 MWs. Many additional projects beyond the 15,000 MWs previously referenced are only proposals, however.
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