Commissioner Robert F. Powelson Pennsylvania PUC October 1, 2009 Annapolis, 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 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 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 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  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 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 and analyzed its impact on wholesale power prices within the RTO. PJM found that 75-80% of the price established for CO 2 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, CO 2 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 Higher gas prices would increase wholesale power costs to approximately $20 billion.

Economic Impact of H.R. 2454: PJM (cont’d.) CO2 PriceMWh $ Increase Increase in Expenditures Emissions Reduction Increase for Consumers $10 / short ton$7.50$5.9 billion6 million tons$72.00 $20 / short ton$15$12 billion14 billion tons$ $40 / short ton$30$23 billion66 million tons$ $60 / short ton$45$36 billion25 million tons *$ * 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 CO 2 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 = 4 th 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 CO 2 in 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) $ / Metric Ton of CO 2 $92.66$714 Total Cost to Consumers$6.45 billion$55.34 billion Total Employment-47, ,852 Tax Revenues- $ million-$8.326 billion 2008 Retail Price2020 Increase2050 Increase Gas ($ / 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 CO 2 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  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 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 CO 2. 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