Testimony of Robert LaCount, Jr.
Air Quality Manager
PG&E National Energy Group
Before the
Senate Environment and Public Works
Committee
November 15, 2001
Mr.
Chairman and Members of the Committee, I am pleased and honored to appear
before you this morning to represent my company, PG&E National Energy Group
(NEG), and our coalition, the Clean Energy Group (CEG).
The
Clean Energy Group members are Consolidated Edison, Inc., KeySpan, Northeast
Utilities, Exelon, PSEG Power, Sempra Energy, Connectiv, and
my company, PG&E National Energy Group.
We share a commitment to providing clean energy and promoting
environmental policies that are sustainable from both environmental and
economic perspectives. We believe the
best way to accomplish this goal is by working cooperatively with government,
industry, consumers, labor, and the environmental community.
First,
I want to thank you and the Members of the Committee for your leadership in
tackling a complex but important set of issues. We are fully aware of the very pressing issues facing the country
and the Congress at this moment. We want to thank you for taking the time to
engage in discussions that can lead to a meaningful consensus on a question of
national importance – how best to foster energy security, reliability, and
economic growth, while protecting the environment and improving air
quality. We believe that the time to
begin discussions on these critical issues is now, because our industry is
facing a series of regulations that could be more efficiently and economically
addressed in an integrated and comprehensive manner. By developing an integrated program to improve air quality and
begin to address climate change, CEG believes that not only the environment
will benefit, but industry and consumers will, as well. This is because the power sector will be
able to plan investments in a way that maximizes efficiencies, minimizes costs,
and provides greater benefits for the environment, in which we all live.
Our
industry is in the process of a fundamental change: not only regulatory changes
impacting the environment, but changes impacting the very manner in which the
electricity marketplace functions. CEG
supports and embraces the transformation of the electric power industry into a
competitive marketplace – one that is not confined by the boundaries of a
service territory or a state line. We
also recognize that the generation of electricity has a significant impact on
the environment (both air quality and climate changeglobal warming)
– again, one which is not confined by the boundaries of a service territory or
a state line. We agree with those who
believe this impact must be reduced if the nation is to achieve its air quality
and environmental protection goals. We
also share a common concern that the economic benefits of a competitive energy
marketplace, and the public health benefits of improved air quality, will not
be achieved unless the relationships among national energy policy, air quality
and climate change are rationalized.
While
CEG has supported several of EPA’s past regulatory initiatives, such as the NOx
SIP Call, to reduce emissions traditionally associated with the industry, –
nitrogen oxide (or NOx) and sulfur dioxide (or SO2) – we also
share concerns that compliance delays and litigation during a period of such
unprecedented change and challenging economic times has contributed to, and
continues to contribute to, significant business uncertainty. that is
becoming more difficult to manage, thereby, delaying needed infrastructure investments. We also recognize that
uncoordinated, regulatory emission reduction programs greatly increase compliance costs and reduce operational flexibility.
The
Clean Energy Group believes there is a common sense policy solution -- an
integrated air quality strategy -- to control and reduce emissions of nitrogen
oxide (or NOx),
sulfur dioxide (or SO2),
as well as, mercury, and carbon dioxide (or CO2). We believe that a coordinated approach will
deliver significant and timely emissions reductions and provide members of our
industry regulatory certainty about the amount of and timetable for these
reductions, which can be factored into investment decisions and emission
control strategies.
Mr.
Chairman, we commend you and Senator Lieberman for developing and introducing
legislation that addresses air quality and climate change in an integrated
manner. Although CEG is in general
agreement with the scope of the emissions addressed in S. 556, and the
integrated manner in which reduction targets are set, we are not in agreement
with the levels of emissions reductions, the timelines for achieving these
reductions, and the limits placed on flexibility in meeting the specified
targets. Also, we believe that the
“birthday” provision is unnecessary and that an integrated air quality program
must address some of the current deficiencies in the New Source Review
program. CEG has spent considerable
time in analyzing how to balance these key provisions so that both environmental
and economic results may be optimized.
In that regard, we look forward to working with you in the coming months
on development of an effective integrated air quality approach.
Toward
this end, CEG has developed what it believes is an effective proposal to
improve air quality, begin to address climate change and modify the NSR
program, and to do so in a way that results in reasonable cost and resource
impacts versus a piecemeal approach.
The basis of our approach is that it sets defined targets for emissions
reductions on a national basis and uses a market-based approach to achieveing these
reductions. We
believe It is our belief that only a national
program implemented under authority of legislation enacted by Congress will
provide the scope and compliance certainty necessary to facilitate a fair
competitive market, achieve necessary environmental objectives, and provide our
industry with the regulatory certainty essential for sound business planning
and rational investment decision-making.
The
emission reduction targets and timelines set out in our proposal are shown in
this chart. Essentially, the timelines
and targets were established to maximize the co-benefits associated with
implementing emission reduction technologies, to provide the industry adequate
time to make investment decisions, and to allow time for the commercialization
of new technologies. The dates for the
first level of reductions coincide with the dates by which
the existing NOx SIP program will have run the course
of its first compliance period, the second phase of the
Acid Rain program will have been implemented, the
current mercury MACT regulations
are to be implemented, and
the PM 2.5 rules will have been promulgated.
We believe it is important to (1) build off of existing, proven
programs, (2) allow time for those entities that have already invested in
capital improvements to comply with these programs begin to recover those
costs, and (3) to rationalize future emissions reduction programs by
coordinating timetables and implementation approaches.
We
in the power sector are trying to plan for promulgated federal regulations (including Phase II Acid Rain and the NOx SIP Call), those current regulatory
initiatives
authorized under the existing Clean Air Act (including Mercury, PM 2.5 and Regional Haze regulations), that we know will occur anyway over the next eight to ten years
(Phase II Acid Rain, Mercury MACT, PM 2.5, etc.), as well as those initiatives
we predict will occur over the next ten to fifteen years (carbon regulations and additional
SO2 and NOx requirements) (carbon
regulations, additional SO2 and NOx reductions, others Rob?). By coordinating emissions reduction targets,
encouraging early reductions, and providing a phased approach to achieving
ultimate reduction targets, the Clean Energy Group believes that its proposal
will exceed the environmental benefits of individual programs and do so at a
lower cost.
The emission reduction targets and timelines set
out in our proposal are shown in the attached chart.
Essentially, the schedule was established to maximize the co-benefits associated
with implementing emission reduction technologies, to provide the industry
adequate time to make investment decisions, and to allow time for the
commercialization of new technologies.
The first level of reductions, starting in 2008, builds off of the existing NOx SIP Call and Acid Rain Program, coincides with the compliance schedule
for EPA’s mercury regulations, and complements the expected timelines associated with PM 2.5 and regional haze rules. We believe it is important to (1) build off
of existing, proven programs, (2) allow time for current compliance
schedules to be fully implemented, and (3) rationalize future
emissions reduction programs by coordinating timetables and implementation
approaches.
With
regard to carbon dioxide, CEG believes that comprehensive legislation must
include all four emissions in order to achieve the necessary business certainty
for our industry. To this end, CEG
advocates a unique approach, one that we believe will lead to reasonable cost
and resource impacts, while encouraging renewable development and energy
efficiency investments, and ensuring maintaininged
fuel diversity. Our program is based on
three underlying principles: (1) timelines for reductions must be reasonable;
(2) flexibility is required; and (3) verification of reductions is
essential. In short, the program
established by the CEG proposal provides for early reduction credits, creates a
processboard to
for developing verification
standards for verifying reductions,is built
builds upon EPA’s
successful Acid Rain Trading Program on a strong allowance
trading program, encourages investments in renewable development
and energy efficiency programs, allows for both on- and off-system reductions,
and can be easily adapted to any future multi-sectoral or international
program. CEG does not believe it is
necessary to wait for an economy-wide greenhouse gas reduction program to be in
place for the power sector to take advantage of reductions that can be achieved
both within and outside
of the power sector now. Instead, we
believe it is important
for this industry to play a leadership role to the advantage of this
industry toin spearheading a greenhouse gas reduction program because of our significant
contribution to U.S. greenhouse gas emissions, and because of the strategic advantages gained by providing time for a gradual transition to a less carbon-intensive electric
generating fleet.
With
regard to NSR, the Clean Energy Group proposal does not advocate eliminating
the NSR program. As a matter of
principle, CEG supports the goals and objectives of NSR. However, CEG believes that the existing NSR
program must be changed to ensure that it complements the integrated program by
facilitating expedient emissions reductions, promoting clean energy sources,
and encouraging efficiency improvements without imposing unnecessary costs and
delays.
I
stated before that we believe that our proposal will impose
reasonable cost and resource impacts on the power sector and the economy, as a
whole. CEG is currently finalizing an analysis modeling
of our proposal using one of the models that EPA employs to assess
impacts of various air and climate programs on the industry and the economy. The analysis compares the economic and emissions impacts of our proposal
with a business as usual scenario.
We believe this analysis differs from the EPA and EIA analyses presented
at the previous hearing, in two main ways.
First, the CEG analysis employs a business as usual scenario that
accounts for both current regulations as well as those authorized under the
Clean Air Act for future implementation.
And, secondly, the CEG analysis includes significant flexibility for
complying with carbon requirements including the use of offsets generated
outside of the power sector. This
provides dramatic cost-savings compared to the other analyses that only modeled
CO2 reductions within the power sector.
In terms of impacts on national average residential energy prices, Ourour proposal would result
in price increases modeling
shows that the incremental costs of our
proposal as compared to a business as usual scenario, which
accounts for those regulatory initiatives on the books today,
is on the order of 5% by 2010 and less than 5.756% by 2015. On average, tThis translates into
an increase of about $5
per/ month
in the average on a residential
customer’s bill by 2015. With regard to
fuel mix, the CEG proposal would result in a shift of about 5% from coal to
natural gas use, while the impact on natural gas prices would be an approximate
increase of 6% over the 2005 to 2015 period.
In terms of coal production under both our business as usual and policy cases under
the CEG proposal, Rocky Mountain and Midwestern coals become more economically competitive and gain market
share as many
coal-fired units install scrubbers to comply with new SO2 and mercury
limits. So,
essentially, under the CEG proposal, significant emissions reductions can be
achieved in reasonable time framess and our
industry can begin transitioning to to take responsibility for
our less
carbon-intensive operationscontribution to global
warming for reasonable cost and resource infrastructure impacts,
beyond what are already expected to occur.
The
Clean Energy Group believes that taking a national, coordinated, and
comprehensive approach to addressing air quality and climate change now is the
most responsible course of action that Congress can take. Again, our industry is facing serious
regulatory challenges that will continue over the course of the next decade
while, at the same time, additional challenges are being placed on our industry
in terms of becoming more competitiveness, more reliabilityle,
and more
secureity.
And these challenges are not just occurring as a result of federal
activities. In fact, some of the
greatest pressures are coming from states, in terms of environmental
initiatives and market dynamics.
For
example, Massachusetts has already imposed regulations requiring emissions
reductions in SO2, NOx, mercury and CO2, while Illinois
passed legislation setting in place a framework by which to do so; New
Hampshire and Michigan also proposed legislation to do the same. Legislation is
pending in North Carolina to significantly reduce emissions of SO2
and NOx, while Connecticut has adopted regulations requiring significant
reductions in SO2 and NOx. New York has draft regulations
pending. New Jersey is moving forward
with programs related to mercury, while Wisconsin is currently debating rules
on mercury reduction. The Texas Natural Resources Commission recently suggested
that the state should implement its own multi-emissions approach, which would
address CO2, while Oregon has a CO2 mitigation fund in
place. The point is that states are
moving and will continue to move in the direction of requiring additional cuts
in emissions from power plants.
Although environmental benefits will result from these various state
actions, we believe that only a coordinated, national approach will maximize
environmental benefits and minimize costs.
The worst result for the industry, and the nation, would be to have in
place fifty different programs, with fifty different sets of rules, and fifty
different trading regimes.
This
is particularly true for companies such as PG&E National Energy Group that
have operations in multiple states (we currently operate generating assets over
a dozen states and will operate assets in approximately a half-dozen more by
2005). In fact, we operate two large
coal-fired facilities in Massachusetts.
We will be meeting some of the toughest emissions standards in the
country for all four emissions (SO2, NOx, mercury, and CO2)
at these facilities. and will do so in a manner that minimizes the
cost impacts to the consumers of New England. However, we believe
that if a national program were in place, we would have been able to do so even more
efficiently and cost-effectively.
As
we have stated, in order to achieve this sort of efficiency, programs must pay
attention to the timing of emissions reductions required as well as the
sequencing of these reductions. We have
heard discussions about this in past hearings and debates. There is truly a continuum of legislative
options with regard to air quality and climate change policies. CEG understands this and has crafted what it
believes is a program that carefully weighs and balances economic and
environmental impacts. Drilling down
too quickly or too far on any one environmental concern, while not addressing
another, is not sustainable and inserts extreme uncertainty into our planning
and investment processes – that is where we believe we are headed now. At the same time, drilling down too far and
too quickly inserts significant uncertainty into the reliability and security
of the system. However, there is a happy medium along that continuum where we
can achieve both significant air quality and climate change benefits, provide
industry with the certainty it requires, and do so at minimal cost and resource
impacts. That is why we believe that it
is imperative that Congress enact legislation that sets a balanced framework
for reducing emissions of SO2, NOx, mercury and CO2.
Again, I am honored by the opportunity to make this statement and I would like to thank the Committee for moving forward in a thoughtful manner on such an important issue. An integrated and coordinated approach will inject certainty and rationality into business planning and investment decisions and maximize environmental benefits. I look forward to responding to your questions.
Thank you.
CEG Pollutant Caps and
Schedule
Pollutant
|
National Tonnage Cap |
Reduction Target |
Schedule |
NOx |
2.11 million tons |
Roughly a 50% reduction from current commitments (including implementation of the NOx SIP Call in the eastern U.S.), resulting in an average emission rate of roughly 0.15 lbs/mmBtu. |
2008 |
SO2 |
4.5 million tons 3.6 million tons |
50% reduction beyond Phase II Acid Rain requirements, resulting in an average emission rate of between 0.3 and 0.4 lbs/mmBtu. 60% reduction beyond Phase II Acid Rain requirements, resulting in an average emission rate of between 0.2 and 0.3 lbs/mmBtu. |
2008 2012 |
mercury |
Roughly 26 tons Roughly 5-16 tons |
65% reduction (from mercury present in as-delivered coal) 79% to 93% reduction (from mercury present in as-delivered coal) |
2008 2012 |
CO2 |
Stabilization at 2000
emission levels (plus specified flexibility mechanisms) Stabilization at 1990
emission levels (plus specified flexibility mechanisms) Stabilization at 1990
emission levels (plus specified flexibility mechanisms/internationally agreed
upon flexibility measures) |
2008 2012 2015 |