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The Private Sector: The case for coal
Common sense is needed in developing the state's long-term energy policy
Tuesday, October 16, 2007
A towboat pushes barges loaded with coal toward the West End Bridge.

Green energy is good. So is clean-coal technology, keeping jobs in Pennsylvania, and helping utility customers avoid price shock when rate caps are lifted in other parts of the state during the next several years.

Green energy has been receiving most of the headlines in recent news coverage of the special legislative session on Pennsylvania's energy policy. While wind and solar will be important components of that policy, a common-sense approach is needed that stresses reasonably priced power and economic growth along with environmental benefits.

State law currently requires 18 percent of the state's power be provided from renewable resources by 2021. That process already has begun, with an increased amount of renewable power phased in each year. However, let's not forget the critical role coal plays.

Thanks in large part to its vast coal reserves (current estimates indicate it will continue to meet the state's needs for 250 years), Pennsylvania has one of the lowest costs for electricity production of any state.

The electricity generation sector is a major Pennsylvania employer, with 16,000 jobs. When you factor in mining and other supportive employment, that number grows to almost 100,000 jobs in the state.

In addition to serving all of its needs, Pennsylvania exports $3.8 billion in electricity to other states each year because it has the ability to produce power more cheaply than those states.

Renewable generation is much more expensive than traditional sources. If we were to replace all of the existing coal plants in the state with a combination of wind and solar plants (which we could not), the cost of electricity production today would increase by $9 billion a year -- just in Pennsylvania.

While green energy is an important part of the long-term mix, shouldn't your dollars be prioritized toward improving this existing, low-cost energy source currently employing thousands of Pennsylvania residents, rather than providing additional funding to technologies that don't provide a steady, reliable, cheaper source of power? Effective energy policy should leverage the state's natural resources and power plants to help Pennsylvania's economy grow by both adding and protecting good-paying jobs.

How utilities purchase power is another key policy area where a common-sense, customer-focused approach is needed.

Duquesne Light uses a flexible portfolio approach to providing a default-service energy supply, combining two-party procurement contracts with a mix of short- and long-term contracts with suppliers. Through four default-service plans, all featuring bilateral contracts, Duquesne Light's residential and small commercial customers have received a reliable, safe source of energy while paying a total rate for their monthly electric bill that is below what they paid 15 years ago, and is currently scheduled to remain lower through 2010.

However, current legislation governing default energy service, which will affect customers of utilities whose rate caps will expire over the next several years, has pushed utilities into an open-market method of buying electricity for their customers. Use of auctions, which can be ill-timed, rather than a more flexible combination of options, has resulted in rate increases ranging from 33 percent to 70 percent for residential customers in other parts of the state where price caps have expired.

We believe Duquesne Light's successful default-service experience could benefit customers throughout Pennsylvania by helping to mitigate price increases while meeting environmental goals.

Conservation and load management both have important roles to play in the state's long-term energy policy. Providing common-sense incentives to invest in programs and technologies that can shave peak demand should be a key focus.

Electricity use usually peaks at certain predictable times of the day and the season. However, if demand outstrips supply, prices for energy can rise significantly as more expensive sources of power are brought online. Typically, peak usage causes expensive natural-gas and oil-fueled power plants to be used to meet additional electricity needs. By cutting peak usage, we can conserve these precious fuels and dramatically lower the cost of producing electricity for all consumers in the state.

One peak-shaving initiative that is strongly being considered involves installing a "smart" meter at every residence and business in the state.

Traditional electrical meters measure only total consumption. Smart meters provide a means to also measure when energy is consumed, thus potentially allowing different prices for consumption based on different times of day and season.

A Carnegie Mellon University study found that providing smart meters for just large industrial and commercial customers would make the most cost-effective impact on peak demand.

In summary, an effective energy policy in Pennsylvania should emphasize proven procurement policies and "good-green" initiatives that balance what's best for our environment with what's best for customers and the state's economy.

First published on October 16, 2007 at 12:00 am
Morgan K. O'Brien is president and chief executive officer of Duquesne Light Co.
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