Regulator: In open market, coal will thrive

With gas the dominant fuel for most new electricity capacity, many in the industry feel pessimistic about the future of coal-fired power plants in the US. But a regulator from a top coal mining state and the nation's leading electricity exporter, says the gloom is unwarranted. If the wholesale electricity market remains open and transparent, coal will continue to play a major role in the country's electricity supply, said Bill Gregg, of the West Virginia Public Service Commission.


By the OGJ Online Staff

HOUSTON, Mar. 19�With gas the dominant fuel for most new electricity capacity, many in the industry feel pessimistic about the future of coal-fired power plants in the US.

But a regulator from a top coal mining state and the nation's leading electricity exporter, says the gloom is unwarranted. If the wholesale electricity market remains open and continues to develop reliable and transparent price signals, coal will continue to play a major role in the country's electricity supply, Bill Gregg, director of the Consumer Advocate Division of the West Virginia Public Service Commission, said during testimony before a US House subcommittee.

While coal will be forced to "internalize" more of the costs from its mining and burning, it will continue to enjoy a substantial price advantage over other energy sources, including gas, Gregg said. Coal currently delivers for $1-$1.5/MMbtu in West Virginia. Gas is selling for $5/MMbtu.

Even though it costs more and takes longer to build a coal-fired power plant, Gregg said the savings in running costs make coal a cheaper alternative for base load power in almost any life-cycle cost analysis.

Gregg said most new plants announced recently are peaking units, and even at today's high prices, "gas remains particularly suited for use in peaking facilities."

Companies also are holding back from building coal-fired plants because of uncertainty over future environmental rules. But as capacity factors of existing plants rises and the underlying base demand for electricity grows, Gregg said there will be a need for new base load generation.

"Given a level playing field, coal will remain an attractive choice as the fuel source for new base load generation," he said.

He told lawmakers the nation will be better off with a wide range of generation options and advocated allowing the market to determine the most cost-effective solution to supplying its energy needs.

"The Congress should not mandate market outcomes, but should instead ensure regional markets are truly open and transparent and not subject to manipulation," Gregg said. Lawmakers and regulators should establish reliable and stable environmental rules, he said.

If Congress wants to favor one type of generation over another, he said, lawmakers should do it through research and tax policy, not restructuring legislation. Gregg said he favored giving states maximum flexibility.

"In West Virginia, I have taken the position that we should not distort the market by mandating purchases or establishing set-asides for any type of generation," Gregg said. "Other states may require purchases from specific types of generation. So long as regional markets are truly open and communicate reliable price signals, policy mistakes by any one state should soon become apparent."

Since January 2000 when the state adopted a plan to restructure the electric industry, more than 5,000 Mw of new generating capacity, a 37% increase over existing capacity, have been announced in the state. More than 70% of the energy produced in the state is exported, Gregg said.

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