Today, I am testifying regarding some of Xcel Energy's experiences with EPA's implementation of the Clean Air Act. I am also here to express my support for alternative approaches to the current air quality regulatory scheme. Xcel Energy believes that the current regulations and EPA's implementation of them stand in the way of the efforts that will be necessary to ensure that the country will have an adequate, reliable, and reasonably priced supply of energy.
Xcel Energy has experience with the electricity challenges affecting the West. We serve most of Colorado and all of the Denver metropolitan area. Metropolitan Denver, as you know, is one of the fastest growing cities in the country. During the course of the last several years, Xcel Energy has embarked on an effort to build or acquire more electric generating capacity to meet the region's growing energy demands. As a result of this new capacity, we have been able to avoid the power shortages that have had such a devastating impact on California.
However, because of air quality regulation, our resource acquisition efforts have not always gone smoothly. Our CEO, Wayne Brunetti, previously appeared before this subcommittee and described some of the problems presented to us by the new source permitting requirements of the Clean Air Act. For example, in early 2000, we were struggling to obtain a Prevention of Significant Deterioration permit for a new gas-fired "combined cycle" unit at our Fort St. Vrain facility located in Platteville, Colorado. The permit that we proposed would have used the cleanest low-NOx combustion technology available. Despite this fact, EPA demanded that we install additional, expensive emission controls at the facility. We suggested a different approach: In the Denver metropolitan area, approximately 50 miles from the Fort St. Vrain facility, we operate an existing coal-fired facility that has significantly higher NOx emissions than the new gas turbine. We offered to install new burners on this coal-fired plant that would have reduced its NOx emissions by a significantly greater amount -- and at significantly less cost -- than EPA's preferred controls on the new gas-fired Fort St. Vrain unit. Moreover, these reductions would have occurred in the Denver metropolitan area rather than far from the city on Colorado's eastern plains. Both the state of Colorado and members of the environmental community supported this proposal.
Unfortunately, EPA did not. Although some EPA managers expressed great interest in the idea, EPA ultimately stopped it because, in EPA's words, it was contrary to "the integrity of the PSD program." EPA threatened to bring an enforcement action if the state issued a permit to the new Fort St. Vrain unit based on our proposal. Because of our customers' great need for this additional generating capacity, we could not risk the possibility that an EPA enforcement action would prevent or delay construction of the plant. We agreed to install EPA's preferred emission control technology to reduce approximately 200 tons of nitrogen oxides per year at Fort St. Vrain at a total cost of $2.3 million -- approximately one half of the environmental benefit at substantially greater cost than the approach that EPA rejected.
In 2000, we were also engaged in litigation with EPA over a somewhat different permitting issue. Under Colorado's resource acquisition process, Xcel Energy purchases most of the new generating capacity needed to meet its customer demands from independent power producers. These independent entities are responsible for building and operating the new facilities. Their only relationship to Xcel Energy is a power purchase agreement. Although the independent power producers are at most contractors of Xcel Energy, EPA in late 1999 ruled that their facilities were single sources with (and therefore modifications of) existing Xcel Energy power plants located a few miles away. Because of our concerns about the effect of this ruling on our ability to acquire the generating resources necessary to meet customer demands, we challenged the ruling in the 10th Circuit Court of Appeals. Regrettably, the 10th Circuit never reached the merits of our challenge. Notwithstanding the fact that EPA's ruling was issued under threat of sanctions against the state of Colorado and immediately became the settled law controlling hundreds of millions of dollars of investment in new generating plants, the court found that EPA's ruling was not final agency action and therefore not ripe for review.
Fortunately for our company and the people of Colorado, EPA's ruling did not prevent the construction of the new power plants necessary to meet our needs at this time. However, EPA's ruling did prevent some of the plants from locating close to one another near existing transmission capacity. Thus, EPA's ruling has had the effect of separating new power plants from one another and forcing the construction of new transmission lines. The Committee is undoubtedly aware that transmission capacity is an important factor in the ability of utilities such as Xcel Energy to meet customer energy demands.
In sharp contrast to our experience with EPA, we have found that, working with the State of Colorado, we have been able to achieve great environmental progress at much lower cost by focusing on flexibility and certainty. As Mr. Brunetti told you last year, Xcel Energy operates three coal-fired power plants in the Denver metropolitan area. In 1997, after much study of different alternatives, we proposed a voluntary emission reduction program to reduce substantially the sulfur dioxide and nitrogen oxide emissions from those plants. For sulfur dioxide, we proposed to reduce uncontrolled emissions by 70%.
We worked closely with the Colorado environmental community and a diverse group of stakeholders to develop and pass legislation that would allow our proposal to become a reality. That legislation encourages the Colorado Air Pollution Control Division to enter into flexible voluntary emission reduction agreements with stationary sources. It grants such sources a period of "regulatory assurance" during which they will not be subject to additional state regulatory requirements. The act also ensures that regulated utilities (such as Xcel Energy) can recover the costs of the new emission controls from their customers.
In July of 1998, Colorado and Xcel Energy's operating subsidiary entered into an agreement to implement our proposed Denver emission reduction program. Unlike traditional command and control approaches, the agreement allowed us to define the most cost-effective way to reduce emissions from the plants. The agreement grants the company flexibility in complying with its requirements - through annual emissions averages, flexible tonnage caps and trading of emissions between the different plants. It grants us certainty by ensuring that the plants will not be subject to new or different state requirements for a period of 15 years. Finally, it assures that we can recover the costs of these controls in a way that does not put the plants at a competitive disadvantage. As a result of this agreement, Xcel Energy will make dramatic reductions in emissions from these power plants -- reductions that are far greater than would have been achieved through traditional air quality regulation.
The success of this plan was the result of a great deal of hard work by a broad range of parties. We do not believe that, under the current Clean Air Act, we could have reached such an environmentally beneficial result by working solely with EPA. This plan became a reality largely because of the leadership of the state of Colorado.
From our experience working with these issues and struggling to meet energy demands in Colorado, we have learned several things about the kinds of reform that would help the West and the nation resolve the current electricity crisis and prevent its recurrence:
* First, the tremendous growth in energy demand in the country requires utilities to develop new power plants and maintain their existing facilities. In order to protect the air while allowing for the permitting, construction and maintenance of power plants, Clean Air Act regulations must become more flexible. We believe that the history of the Title IV Acid Rain program demonstrates that broad-based emissions trading programs are more effective and less costly than EPA's traditional plant-by-plant command and control approach. Our own experience in the Denver metropolitan area is proof that the right kind of flexibility creates the conditions that lead to an enhanced environment and cleaner, cheaper power.
* Second, and of at least equal importance, the Clean Air Act should provide plant owners with greater certainty in building and maintaining these existing generating plants. This certainty must allow owners of existing plants to maintain their facilities and improve their efficiency without fear that these efforts will be challenged by an EPA enforcement action for alleged violations of the New Source Review rules. They must also allow plant owners to plan rationally and flexibly for the emission reduction requirements that will be associated with their operations for the life of their facilities.
* Finally, the Clean Air Act should recognize that states are uniquely situated to address the concerns of local air quality. We believe that our experience in Colorado demonstrates that states are willing and able to think creatively about Clean Air Act issues and find innovative solutions. Congress should be responsible for setting the broad agenda and national goals for the nation's air quality program. States should implement that agenda and those goals creatively at the local level -- without unnecessary interference by EPA.
Mr. Chairman, any discussion of a reconciliation of our Nation's clean air and energy policies would remain incomplete if we did not discuss the role of nuclear energy. As you and other Members of the Subcommittee well know, nuclear energy has been, and will for some time continue to be, the largest single source of emissions-free, base-load electricity. In 2000, nuclear powered electricity plants set yet another record in this country, generating 755 billion kilowatt hours of electricity.
The role that nuclear energy plants have played in the avoidance of air emissions is without question. Between 1973 and 1999, U.S. nuclear power plants reduced cumulative emissions of nitrogen oxide and sulfur dioxide by 31.6 million tons and 61.7 million tons, respectively. Over the same period, the nation's nuclear plants reduced the cumulative amount of carbon emissions by 2.61 billion tons.
The experience of Xcel Energy matches these industry-wide figures. Approximately 30 percent of the electricity that our customers in Minnesota use is generated by nuclear energy. If we were to replace our two-unit Prairie Island facility with a new, state of the art coal-fired facility, we would need to find clean air credits that would anticipate the emission of some 1,500 tons of sulfur dioxide, 4,000 tons of nitrogen oxide, 50-100 pounds of mercury and 9,000,000 tons of carbon dioxide, annually.
Given the tremendous economic and environmental value of Prairie Island to our company, we would not, in the normal course, be examining issues related to its closure. However, as most of the members of the Subcommittee know, we are facing the very real prospect of prematurely closing this plant due to the federal governments failure to meet its 1998 statutory and contractual obligation to manage the spent fuel generated by the facility. We hope that this issue will also continue to receive attention by Congress.
As Congress considers various multi-pollutant strategies for the utility industry, these principles should serve as a valuable guide. Xcel Energy believes that, if properly designed, such strategies could achieve greater environmental progress at less cost than the current regulatory program. By bringing flexibility and certainty to the construction and operation of power plants, these strategies would also play an important role in a comprehensive, effective and balanced energy policy.
Mr. Chairman, I thank the Committee for taking time to listen to me today, and would be happy to answer any questions that you or the Members may have.