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EPSA Provides Its Vision of Pathways to Energy Security at 2008 Deloitte Energy Conference
"We can put the country on pathways to a secure future - but only if there is support across party lines to finally embrace longer-term energy approaches both more supply and reduced demand - in light of global realities and environmental imperatives, recognizing the substantial contributions to be made by competitive power suppliers."
WASHINGTON, D.C. - John E. Shelk, president and CEO of the Electric Power Supply Association (EPSA) today addressed key economic, environmental, political and regulatory developments facing competitive power suppliers as they rise to the challenge of meeting the nation's future electricity needs. Shelk spoke during the Deloitte Energy Conference "Pathways to a Secure Energy Future." His remarks included the following statements:
On the rising cost of new generation across all states, regardless of different electricity market and regulatory structures: "I attended conferences in 2005 and early in 2006 at which several traditional utility CEOs ... asserted that only utility-built rate base generation could diversify the fuel base for electricity with new nuclear power plants and advanced coal technologies, including IGCC. This time there wouldn't be any cost overruns, they said.... What a difference three years makes! Some of the very companies who dismissed the future for competitive power in 2005 and 2006 have had projects rejected by courts and regulators, or when projects were approved, costs and eventual retail rate impacts that continued to rise at double digit rates. Here in the Washington, D.C. area, the dominant utility in Virginia successfully urged the legislature to re-regulate, ostensibly to avoid double digit rate increases, only to recently file for a nearly 20 percent rate increase, to cover only part of the higher fuel costs incurred to date, not to mention future premium rates of return on new plants."
On the achievements of competitive power suppliers: "At the same time, competitive power suppliers are now in the front of the line in applying for applications to build the first new nuclear plants in 30 years. Competitive power suppliers are the leaders in renewable electricity - wind, geothermal and solar - and large regional power markets are seen as essential to accommodate renewable sources and promote demand response. Our sector continues to achieve higher capacity factors at nuclear and coal plants than occurred prior to the introduction of market discipline. The natural gas technologies pioneered by competitive suppliers will be critical to the transition to a carbon-constrained future and beyond. Competitive suppliers are also very active in developing and deploying coal technologies, including pursuit of carbon capture and storage."
On the need for investment: "The last build out of generation plants was almost entirely accomplished by independent power producers on a merchant basis. With the latest estimates of the investment required in coming decades up almost 50 percent in the last year, to over $500 billion for power generation and almost $1.5 trillion when transmission and distribution are added, the higher costs of the coming build out will test all of us - as will the risks associated with new technologies. All we in the competitive sector are seeking is the opportunity to put the considerable -- and I might add successful -- experience as power developers and operators to work to help address these challenges."
On the need for climate change legislation: "The absence of federal legislation that sets mandatory, market-based limits on greenhouse gases makes it much more difficult, and some would argue impossible, to make the multi-billion dollar, multi-decade investments in power infrastructure that the nation requires. This is true for competitive suppliers in restructured states and for regulated utilities in vertically integrated states."
On the political climate: "While we need reasonable federal legislation to point us on the pathway to a carbon-constrained future, I fear that final enactment may slip beyond 2009 and 2010 and occur closer to 2011 or 2012. I hope I am wrong, for the absence of responsible legislation is a drag on necessary long-term investments just as decisions on the next build cycle need to be made." Shelk said, "It is unfortunate, to put it mildly, that three years after enactment of the Energy Policy Act of 2005, major provisions to advance nuclear and coal technologies through loan guarantees and other programs have not been fully put in place. Similarly, it is disheartening that Congress continues to keep critical renewable energy tax incentives on a short leash."
On the regulatory climate: "Numerous studies, including some by market monitors, confirm that mitigated wholesale prices have generally not made investment in new generation economic despite indications based on reliability forecasts that new generation is necessary. Thankfully, as confirmed this past week in PJM, and earlier this year in New England, the new capacity markets are helping to procure increasing levels of demand response, higher output at existing plants, fewer retirements and new fuel-diverse projects. Now is not the time to make major changes in the organized markets - certainly not the proposals from producers of the higher-cost inputs that generators depend on."
On the states: "We continue to urge states that restructured to appreciate that re-regulation is unwise, especially in a rising cost environment for anyone building power plants. It makes more sense to stick with competitive suppliers who have every incentive to control costs and operate plants more efficiently." He said, "Many states did not restructure -- and that was their choice. EPSA continues to believe they should implement competitive procurement to give consumers projects built on time and within budgets. Regrettably, many utilities have put a moat around their territories, even in states with nominally attractive competitive procurement rules.
In conclusion: "What we see, as energy prices increase today, is a re-run of past political debates with assumptions that prices are up primarily for reasons other than supply and demand. The result is lots of finger-pointing, including at company financial results, and political stalemate. We can put the country on pathways to a secure future - but only if there is support across party lines to finally embrace longer-term energy approaches both more supply and reduced demand - in light of global realities and environmental imperatives, recognizing the substantial contributions to be made by competitive power suppliers. Let's make 2008 the year we get on that pathway."
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Remarks by John E. Shelk at 2008 Deloitte Energy Conference on "Pathways to Energy Security."
Deloitte LLP Energy and Resources
CONTACT: JOHN SHELK
(202) 349-0154or 703-472-8660
EPSA is the national trade association representing competitive power suppliers, including generators and marketers. These suppliers, who account for nearly 40 percent of the installed generating capacity in the United States, provide reliable and competitively priced electricity from environmentally responsible facilities serving global power markets. EPSA seeks to bring the benefits of competition to all power customers.