Commissioner Robert F. PowelsonPennsylvania PUC

October 1, 2009Annapolis, MD

Cap and Trade:

A Colossal Failure of Common Sense

OPSI Climate Change Panel

Coal: “Part of America’s Energy Future”

According to President Obama, the U.S. is “the Saudi Arabia of coal.” Interview with the Canadian Broadcasting Corporation

Vice President Joe Biden: “This is not rocket science. Coal is a part of our energy future. We have enormous reserves. … We can provide clean coal technology, not only exporting that technology, [but also selling it].” Campaign rally in St. Clairsville, WV

Obama / Biden Campaign Promise (9/23/08): Creation of a Clean Coal Jobs Task Force Clean Coal Jobs Task Force

But…..

?President Obama: “If somebody wants to build a coal-powered plant, they can. It’s just that it will bankrupt them.”

Obama & Biden: “Saudi Arabia of coal?” Or anti-coal?

Biden Contradicts Himself on Coal

Economic Impact of H.R. 2454: U.S.

According to recent estimates by the Congressional Budget Office (June 2009), climate change legislation would cost the average American household $175 annually by 2020. This estimate is significantly higher than that previously released by

the EPA ($98-$140 annually).

The CBO released a report in mid-September estimating that the climate change bill would reduce the U.S. GDP by as much as 3.5% by 2050.

National job loss estimates: 1.9 million jobs lost by 2020 3.2 million jobs by 2050*

* “Impact on the Economy of the American Clean Energy and Security Act of 2009 (H.R. 2454),” Charles River Associates, May 2009.

Economic Impact of H.R. 2454: PJM

“Impact of Climate Change Legislation on Electricity Prices in PJM” (1/23/09)

In January 2009, PJM undertook a comprehensive study of H.R. 2454 and analyzed its impact on wholesale power prices within the RTO. PJM found that 75-80% of the price established for CO2 would flow through to wholesale electricity prices.

Note: In 2008, coal was on the margin 70.8% o f the time in PJM.

Another telling story comes from ERCOT: In a similar study conducted by the RTO, CO2 prices are estimated to be between $40-$60 per short ton - this would result in an annual increase in wholesale power costs of approximately $10 billion, which would increase customers’ monthly bills by over $300 annually by 2013. Higher gas prices would increase wholesale power costs to approximately $20 billion.

Economic Impact of H.R. 2454: PJM (cont’d.)

CO2 Price MWh $ Increase

Increase in Expenditures

Emissions Reduction

Increase for Consumers

$10 / short ton $7.50 $5.9 billion 6 million tons $72.00

$20 / short ton $15 $12 billion 14 billion tons $134.28

$40 / short ton $30 $23 billion 66 million tons $267.36

$60 / short ton $45 $36 billion 25 million tons * $409.92

* Emissions reductions are only 25 million tons because gas prices also rise to nearly $10/mmBtu.

PJM Study: The numbers tell the story!

Economic Impact of H.R. 2454: PJM (cont’d.)

Load-weighted average LMP increases by approximately 75-80% of the CO2 price in both the base gas and high gas cases, regardless of the price of natural gas.

Economic Impact of H.R. 2454: Pennsylvania

Background: Pennsylvania = 4th largest coal-producing state Roughly 7% of the nation’s coal supply is in PA 58% of all electricity used in PA comes from coal

In short, Pennsylvania and other coal-reliant states will be disproportionately affected by climate legislation.

Electricity costs could increase by as much as 40% by 2030 Job loss impacts range anywhere from 71,000 to 98,000 jobs GSP is forecasted to drop by roughly 7% At a 20% emissions reduction goal, a new carbon scheme system would

impose a tax of $92.66 per metric ton of CO2 in 2020. This would cost ratepayers $6.45 billion in 2020 and would increase to $55.34 billion in 2050.

Economic Impact of H.R. 2454: Pennsylvania (cont’d.)

The Economic Impacts of Proposed Cap-and-Trade Legislation on the

State of Pennsylvania (Beacon Hill Institute, Suffolk University - June 2009)

2020 2050

$ / Metric Ton of CO2 $92.66 $714

Total Cost to Consumers $6.45 billion $55.34 billion

Total Employment -47,549 -480,852

Tax Revenues - $971.09 million -$8.326 billion

2008 Retail Price 2020 Increase 2050 Increase

Gas ($ / gallon) $2.74 $0.29 $1.94

Natural Gas Price $16.24 $1.75 $10.66

Electricity Retail Price: Natural Gas (¢ / kWh)

$12.06 $1.11 $7.64

Electricity Retail Price: Coal (¢ / kWh)

$12.06 $2.48 $16.93

Based on data from CBO and the Energy Information Agency, the estimated cost of CO2 will be $15/short ton in 2012, resulting in an approximate cost to Pennsylvanians of $636.7 million.

Is there a middle-ground compromise or some type of common-sense approach to this issue?

YES!

To quote President Obama: “The development of renewable energy sources can actively contribute to job creation, predominantly among small and medium sized enterprises which are so central to a Community’s economic fabric, and indeed themselves form the majority in the various renewable sectors. Deployment can be a key feature in the regional development with the aim of achieving greater social and economic cohesion within the community.”

Necessary Considerations

Alternative Energy: Congressional leaders should debate the merits of adopting a national RPS which exempts those states that already have them on the books. Such a system should also include sources like waste coal. Pennsylvania passed the AEPS Act in 2004, which calls for an 18% target for

renewables by 2020. PJM studies show the inclusion of renewables, such as wind, can have positive

effects such as mitigating increases in LMP, wholesale power costs, customer power bills, and CO2 emissions. The addition of 15,000 MW of wind, for example, can reduce customer bills by

$42-$48 annually and reduce CO2 emissions by 34-37 million short tons.

Clean Energy Deployment Administration (“Green Bank”): Congress should support the formation of CEDA to fund viable renewable projects. Initial capitalization: $7.5 billion in “green bonds” issued by the Treasury Independent corporation chartered for 20 years, charged with:

Providing access to affordable financing for widespread development of clean energy, energy efficiency, and advanced energy infrastructure technologies

Issuing direct loans, letters of credit, and loan guarantees for such projects Recommending near-, medium-, and long-term goals for the deployment of

such technologies.

Necessary Considerations (cont’d.) Coal: One of our nation’s cheapest, most efficient energy sources

should be considered vital to America’s future. Additionally, increased investment should be made in new nuclear, natural gas , and CCS demonstrations. A legal, regulatory, long-term vision must be created for carbon capture

& sequestration technology so that we beat other nations to the punch.

Energy Efficiency/Demand Response: These techniques should be made part of the overall energy mix. PJM studies estimate that a 2% reduction in demand could reduce

wholesale power costs by $3-$4 billion, reduce customer bills by $12-$36 annually, and contribute to the reduction of 14 million short tons of CO2.

If this massive carbon policy idea is an economic failure, there must be off-ramps to address things like sizable increases in electric rates,

unemployment, and stagnant GDP growth.

THANK YOU