Statement of Mr. James E. Rogers
Chairman, President and
Chief Executive Officer
Cinergy Corp.
Before the
Committee on Environment and
Public Works
United States Senate
May 2, 2001
Mr.
Chairman and members of the committee, my name is Jim Rogers and I am the
chairman, president, and CEO of Cinergy Corp.
I would like to thank you for giving me the opportunity to share my
thoughts on global climate change and suggest how Congress might consider this
critical issue, especially in the context of developing a comprehensive
emission reduction strategy for the electricity industry.
It
was my pleasure to testify before this subcommittee just two weeks short of a
year ago on the need for a coordinated comprehensive emissions reduction
program for coal-fired power plants.
My
views have not changed since that hearing.
With the growing national demand for more electric generation, energy
producers more than ever need the certainty that a comprehensive longer-term
program would bring.
I
believe that Congress, in considering a long-term comprehensive approach to
power plant emissions, must consider the uncertainties and challenges posed to
my industry by the climate change issue.
If indeed, the legislation is intended to build some kind of “certainty”
into our planning process, climate change must be on that environmental road
map.
There
are those in my industries and others who believe any plan that considers
climate change will doom the coal industry.
I disagree and, in fact, am a firm believer that no climate change
policy – one that is accepted by the public – can be successful if it ignores
our most plentiful domestic natural resource.
Coal-fired
power plants, which supply more than half of the nation’s electricity, face a
battery of existing and proposed emission control requirements from federal and
state agencies and even neighboring countries.
These requirements and proposed new programs are focused primarily on
the reductions of four power plant emissions:
Sulfur dioxide, nitrogen oxides, mercury and carbon dioxide.
Because
these regulatory initiatives are largely uncoordinated and often conflicting,
the electric power industry faces enormous uncertainties as it tries to develop
appropriate plans to upgrade plants and add pollution control equipment. Utility planners are even more challenged by
the need to ensure their customers continue to receive reliable and affordable
energy.
But,
the unfortunate results of today’s regulatory soup are unnecessarily high costs
for both shareholders and consumers, longer downtimes for our generating
stations and continued uncertainty in an industry that is critical to the U.S.
economy.
And
our progress on clean air has not been what it could – or should – be.
We
appreciate the interest expressed by Chairman Smith, Chairman Voinovich,
Ranking Member Reid and Ranking Member Lieberman in promoting a legislative
solution to this vexing regulatory problem.
I am optimistic that this Congress and the new Administration will work
together to reduce power plant emissions in a comprehensive manner and I look
forward to working with you to make that happen.
Cinergy
has a lot at stake. We are one of the
nation’s leading diversified energy companies with a total capitalization of
$9.0 billion and assets of $12.0 billion.
Our Energy Merchant segments owns or operates nearly 21,000 megawatts of
electric and combined heat plant generation in the U.S. and overseas. Approximately 14,000 of those megawatts
comprise our core system of 14 baseload stations and seven peaking stations
located in Ohio, Indiana and Kentucky, where we serve 1.5 million electric and
500,000 retail gas customers.
While
we have made substantial investments in renewable energy, combined heat and
power plants, microturbines and fuel cells and other emerging technologies,
much of the electricity we produce here in the U.S. is generated by coal-fired
power plants located in the Ohio River valley.
Last
year, Cinergy burned 29.2 million tons of coal in our generating stations and
we project our coal consumption will continue to grow in the foreseeable
future. As you can see from the chart,
coal is vital to the Midwestern economy, supplying 80 percent of the generation
in 1999. We’re proud that the fuel
we’ve purchased has provided a livelihood to thousands from West Virginia to
Illinois.
But
we’re equally proud of our environmental record, which tells the story of
progress made in reducing the emissions from our coal-fired power plants.
Since
1990, we’ve invested more than $650 million in scrubbers, precipitators, low
nitrogen oxide burners, selective non-catalytic reduction units and a clean
coal technology project at our Wabash River Station in Indiana.
These
technology improvements have resulted in a 47 percent decrease in our sulfur
dioxide emission rate and a 25 percent drop in our emissions rate for nitrogen
oxides.
The
future promises even more.
Over
the next five years, we plan to build up to 11 selective catalytic reduction
units on our power plants, significantly reducing our nitrogen oxide
emissions. We will also install
sophisticated computer software to improve our plants’ coal combustion process
and boiler efficiency.
We
have already pioneered with success the use of selective non-catalytic reduction
at one of our Ohio plants and will explore further use of this technology.
Our
goal is clear: We will strive to reduce
the impact the company’s coal-fired power plants have on our environment as
cost-effectively as possible in order to keep electricity costs reasonable.
Congress
can help put the logic back in environmental policy with a comprehensive
multi-emission bill that sets the course for cleaner air, fuel diversity and
reasonable goals. By passing such
legislation, you can remove one of the “question marks” that hang over our
industry as we struggle to meet a growing need for electric power.
A
comprehensive approach must address reasonable timetables for further
reductions in sulfur dioxide and nitrogen oxides and new reductions of mercury. It must fix new source review and give
utilities maximum flexibility to meet the nation’s environmental goals while
still keeping the lights on.
Obviously,
I am not a climate scientist but I have tried to follow the scientific debate
that has occurred over the years on global climate change.
Most
atmospheric scientists seem to agree that human activities are affecting the
climate on Earth although there is still debate over the significance, timing
and impact on the planet.
While
the science will certainly advance in the years to come, I am convinced that it
is prudent to take action now to address what we do know.
This
does not mean we must act precipitously and without careful and complete debate
over the proper long-term response. We
should remember that this problem has been created by two centuries of
industrialization. We cannot change our
way of life overnight and we will be mired in endless debate if we try.
But
we need to start down the road. The
U.S. electric utility industry, in fact, began that journey seven years ago,
becoming one of the earliest industrial sectors to take a major step to
dramatically reduce its carbon emissions.
Beginning
in 1994 with the Climate Challenge, Cinergy and other utilities representing
more than 70 percent of the electric generation in the United States, enrolled
in a voluntary carbon emission reporting and reduction program. Under the Climate Challenge the electric
utility industry reduced, avoided, or sequestered 124 million tons of C02
equivalent green house gases in 1999.
The
industry believes that future voluntary programs to reduce or offset greenhouse
gas emissions can be just as successful.
Even though the Climate Challenge pledged carbon reductions and offsets
only through the year 2000, many of the programs initiated under the Challenge
will continue to deliver reductions and offsets for many years.
As
an original participant in the Climate Challenge, Cinergy has been actively
involved in a number of projects, both at home and abroad, to reduce or offset
our carbon emissions.
Ten
years ago, Cinergy’s operating companies, PSI Energy and The Cincinnati Gas
& Electric Company, were more than 95 percent coal-fired. Our profile today is much different.
Through
our Cinergy Solutions, Global Power and Capital and Trading affiliates, we have
invested in natural gas, combined heat and power, cogeneration and renewable
projects that now account for 32 percent of our total electric production.
Another
Cinergy affiliate, Vestar, provides energy facility and infrastructure
improvements and energy management services to large users, making them more
energy efficient.
We
have chosen to invest many of our R&D dollars in so-called “disruptive
technologies” that are already beginning to alter the way traditional utilities
do business. These technologies fall
into categories such as e-commerce, information management, digital utility,
retail services and distributed generation – all of which contribute either
directly or indirectly to increased efficiencies and reduced carbon emissions.
Cinergy
has partnered with The Nature Conservancy and other utilities in operating a
125,000-acre tropical forest preservation and management project in
Belize. It is estimated that this
project will sequester five million tons of carbon as well as protect the
forest from being developed for agricultural purposes.
We
are investing over $2 million in cooperation with The Nature Conservancy, Ducks
Unlimited, the National Wild Turkey Federation, Quail Unlimited and local
communities to plant three million trees and thousands of acres of native
grasses here in the United States.
These projects not only sequester carbon but they also enhance the local
environment and can be effective land conservation tools.
All
these projects and plans say one thing loud and clear: The electric utility industry has already
begun successfully addressing the climate change issue and is positioned to
make further progress in the years ahead.
This
is not to say that we can do everything all at once without massive impacts on
the reliability and cost of electricity.
President Bush’s recent letter to Senator Hagel and others on climate
change highlights the reality that some cures may be unacceptably disruptive,
at least in my industry.
For
example, Cinergy has not and cannot support the Kyoto Protocol. We have the same concerns regarding
developing nation coverage that the Senate recognized in its 95-0 support for
the Byrd-Hagel Resolution back in 1997.
We
cannot, as the Kyoto Protocol requires, turn back the clock to 1990 in a few
short years. Cinergy, like most
electric power companies in this country, fed the decade’s economic boom with
progressively higher demands for electricity.
This robust growth led to similar growth in our carbon emissions. As a practical matter, we cannot return to
those levels by the end of this year or by the end of this decade.
As
I read the President’s letter, I noted his concern about global climate change
and his desire to address it in a reasonable, timely matter and in a way that
doesn’t disrupt our economy. He said
“no” to Kyoto but he didn’t put global climate change on the shelf.
I
agree with the President’s view and believe we need to move beyond the debate
over the Kyoto Protocol to create a workable climate change program.
I
also agree with the President’s view that carbon dioxide should not be
regulated as a “pollutant” under the Clean Air Act. The tools provided in the Act to fight smog in Los Angeles or
acid rain in New Hampshire are inappropriate to address the slow buildup of
greenhouses gases worldwide.
There
are no silver bullets out there that can “fix” the greenhouse gas problem
quickly. Global climate change is the
most challenging environmental issue we’ve ever faced. We have technologies that can scrub most of
the sulfur dioxide, nitrogen oxides and reduce mercury and particulates out of
our smokestacks
There
is no such technology for carbon.
That
doesn’t mean, of course, that power generators cannot go forward with a program
to reduce greenhouse gases through other means, as the industry has
demonstrated in the Climate Challenge program.
While
global climate change is a long-term problem that demands a long-term solution,
we need to take steps now to begin reducing our greenhouse gas emissions.
Congress
should base any response on three truisms:
First,
the national economy depends on an ample supply of energy and those of us who
produce that energy can only do so if we are able to use all the fuel sources
available to us. This country is facing
a looming energy shortage and we simply can’t turn our backs on the abundant
supply of fossil fuels that are providing most of America’s electric
generation.
Second,
voluntary programs, economic incentives and market approaches and flexibility
are the keys to cost-effective greenhouse gas reductions.
Third,
there must be a recognition that a greenhouse gas strategy for the nation and,
specifically, for the electric utility industry, must consist of both a
near-term program that focuses on flattening our carbon growth curve and long-term goals that focus on the technological
solutions that ultimately will be needed.
Based
on these considerations, a short to mid-term program should have the following
attributes:
The program should not set these early goals so high
as to knock current generating stations out of the box. We need these plants for the foreseeable
future and companies should be allowed to recoup the capital investments they
have made to supply their customers with electric power.
Congress should consider setting industry goals but
should not try to impose these goals or targets on a unit-by-unit or generating
station by generating station basis.
Since there is no technological fix to reduce greenhouse gases on
existing plants, targets aimed so narrowly would result in many of these plants
being closed.
Congress should consider both economic growth and
the costs involved. Goals could be
based on current emission levels or established by using a future level. A growth factor based on the most efficient
generation available or a cost ceiling may provide appropriate safeguards.
Industry should have full flexibility in meeting any
goal. On-system reductions, efficiency
gains, demand side management, renewables, co-generation, carbon sinks,
sequestration, carbon internment and reductions in other greenhouse gases such
as methane ---- all must be recognized and endorsed as appropriate strategies.
Private sales and allowance trading should also be
included. We know that market forces
can work to keep costs in check and they should be employed here to the
greatest extent possible.
Congress should update Section 1605(b) of the Energy
Policy Act to ensure all reductions are quantifiable, credible and independently
verified. And for the purposes of any
future international agreement, the U.S. government needs to stand by those
demonstrated reductions.
A short-term policy ought to provide appropriate
mechanisms to ensure that current technologies get into the marketplace. On the fossil fuel side, I’m thinking about
the many advances that have been made in developing clean coal technologies
but, for economic reasons, haven’t been deployed. And on the renewables and alternative generation side, I believe
Congress should provide more economic incentives to jump start emerging wind,
solar, fuel cell and microturbine technologies.
To encourage widespread participation, the policy
should include proper incentives such as new source review reform and financial
assistance.
In order to ensure continued development of needed
generation during this period, we should consider creating a 10-20 year safe
harbor for new facilities that meet “best carbon reduction practices”.
In the long run, technological solutions are the best hope for achieving a maximum level of carbon dioxide reductions. Legislation should encourage government and the private sector to work together to speed the development and deployment of new energy-efficient technologies and a mechanism to scrub greenhouse gases out of the fossil fuel energy production chain.
In fact, the real solution to global climate change lies in our ability to develop breakthrough technologies that will decouple energy production from greenhouse gases. With sufficient resources and attention, I have no doubt that we can and will achieve that goal.
If
global climate change is as serious a threat as many experts say, the United
States should attack this technological puzzle as single-mindedly as it did
nearly 40 years when our best scientists focused on putting a man on the Moon.
In
summary, Congress needs to address the climate change issue and develop an
initial climate change program for the industry as part of the comprehensive
multi-emission bill.
My
company seeks comprehensive multi-emission power plant legislation because we
want long-term clarity and certainty built into our environmental compliance
planning process. I think there is
general agreement on both sides of the aisle that this approach makes sense.
For
me, this line of reasoning dictates the necessity of including a carbon
commitment in the legislation. Without
some sense of what our carbon commitment might be over the next 10, 15 or 20 years,
how can I or any other utility CEO think we have a complete picture of what
major requirements our plants may face?
Further,
I know from personal experience that it’s impossible to build new coal baseload
power plants since the economics cannot be determined without knowing what
requirements the plant will face on carbon.
Congress
has a unique opportunity to make a difference in our nation’s long-term air
quality and to take affirmative action toward establishing a workable global
climate policy. Cinergy stands ready to
do what we can to help.
I thank you for the opportunity to speak to you today and I look forward to taking your questions.