I am President of Southern Company Generation, which provides services to the fossil and hydro generation assets owned and operated by the operating companies of Southern Company in our traditional Southeastern U.S. service area. Southern Company is the largest generator of electricity in the United States including operating about 30,000 Megawatts of fossil-fueled generation in the Southeast. In this area, encompassing more than 120,000 square miles, Southern Company also operates 5800 Megawatts of nuclear capacity and 2700 Megawatts of hydroelectric capacity. We serve 3.8 million retail customers in this area through our operating affiliates: Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Savannah Electric.
About 70% of Southern Company's generating capacity is fueled by coal, which is the most abundant domestic supply of energy for electricity generation. In Act coal is used to generate 55% of the electric energy in the United States and its ready availability and low cost have been key factors in providing an economic supply of electric energy to fuel America's growing economy over the last decade.
Background There are presently over 25 federal programs that regulate air emissions from electric generating plants and some of these programs are over 30 years old. (See Figure 1) The 1977 and 1990 amendments to the Federal Clean Air Act set up a structure for requiring reductions of air emissions along with technology requirements, and very stringent permitting and monitoring requirements. Title IV of the 1990 amendments required a 50% reduction in sulfur dioxide emissions and a 2 million-ton reduction of nitrogen oxide emissions from electric generating plants. Further reductions of nitrogen oxide emissions are occurring under the ozone non-attainment provisions of Title I of the 1990 amendments.
The electric generating industry, and specifically Southern Company, has stepped up to the plate and met the challenge of reducing emissions as required by legislation and the follow-on regulatory programs. We have accomplished this by taking advantage of lower than projected costs for low-sulfur coal and by increased competition in coal transportation. Southern Company has also harnessed the power of the marketplace by playing a leading role in developing an emission trading market in sulfur dioxide and been an industry leader in the development and use of advanced emissions controls.
These reductions in emissions have occurred while the generation of electricity and the use of coal has increased to fuel a growing economy. Figure 2 shows that over the last 30 years America's growth in Gross Domestic Product (GDP) has been almost exactly matched by the growth in sales of electricity. While this has occurred, however, industry wide emissions of sulfur dioxide and nitrogen oxides have gone down. (See Figure 3)
In the case of Southern Company, while our generation is projected to increase by 49% between 1990 and 2010, our emissions of nitrogen oxides and sulfur dioxide are both projected to decline by about 42%. Our emission rate or emissions per unit of product are projected to decline even further.
These reductions include our commitment in Alabama and Georgia to assist in those state's efforts to demonstrate compliance with the one-hour ambient ozone standard. We will spend over $1 billion in those states on control technology for further reductions of nitrogen oxides. This involves the installation of selective catalytic reduction technology at seven units in Georgia and one unit in Alabama as well as burner modifications at numerous other plants. This cost means that in the case of Georgia, 85% of the state's reductions of nitrogen oxides under its recently revised State Implementation Plan will come from power plants while those plants only represent some 40% of the total emissions.
There will also be a steep increase in the use of lower emitting natural gas in Southern Company's future generating fleet. By the year 2010 natural gas will make up 26% of our total fuel mix as compared to 2% in 1998. Coal is expected to fall from 77% of our fuel mix in 1998 to 58% in 2010. This does not represent a decrease in our use of coal but reflects the fact that almost all of the growth in demand over the next decade is expected to be met with natural gas fired technology.
Regulatory Agenda
Even with this record of performance, pressure has built for even more reductions in emissions from coal fired generation. An aggressive regulatory agenda has been advanced by the EPA that appears to be targeted specifically at coal fired generation. There are over a dozen proposed or pending regulatory actions that could drive up the cost of coal fired generation or make it impractical. These include the Regional NOx SIP Call, the adopted (though remanded) new eight-hour ozone and fine particle standards, and a proposal to adopt a radically different approach to applying new source review at existing facilities. (See Figure 4) The possible adoption of the Kyoto Protocol or other mandatory program for the reduction of carbon emissions would also demand a large replacement of coal-fired generation with natural gas or some other less carbon intensive fuel.
An issue that greatly concerns us is EPA's recent actions on New Source Review. For several years EPA has been considering modifications to the existing new source review program in ways that would limit the ability of utilities to perform routine maintenance on power plants to ensure their safety and reliability without triggering extremely costly NSR requirements. To meet EPA's goals in a more cost effective manna,-' Southern Company and other utilities in the Utility Air Regulatory Group (UARG) in the spring of 1999 developed an alternative proposal that would ensure the reduction of generating plant emissions beyond current requirements over time.
EPA never engaged in serious negotiations over the UARG proposal but in November of 1999 filed lawsuits against Southern Company and seven other utilities alleging numerous past violations of new source review requirements. Under EPA's interpretations, new source review would be triggered by many common routine maintenance operations including operations that improve plant efficiency. Trying to retroactively apply a new interpretation to actions clearly considered acceptable in the past has resulted in litigation that is diverting major amounts of time and other resources that could be used more productively in working together to solve problems. In addition, future efficiency and reliability improvements are now being discouraged.
These issues can all be addressed but it is extremely important that it be done in an orderly manner that avoids threatening the continued economic supply of electric energy. The potential requirements, as currently being applied, are often duplicative, piecemeal and do not allow time for the design and installation of multiple additional pollution control systems. In many cases decisions to install pollution control equipment can be rendered uneconomic in just a few years due to future regulations. For example, the decision to install flue gas desulfurization to remove sulfur dioxide may be ultimately be uneconomic with the prospect of some future program to reduce carbon emissions, which could require the retirement of coal units to be replaced with natural gas.
Clean Air Act Reauthorization
You have asked me here today to testify about "incentives" for utility emission reductions in regard to the reauthorization of the Clean Air Act. There certainly are many challenges ahead for the electric generation sector as I have discussed. I am not here today however to tell you that these challenges are due to the Clean Air Act being broken. In fact Southern Company thinks that the foundation for the Act is sound. The goals and objectives are clear and the processes that are set forth for the EPA to follow in adopting standards and regulations are comprehensive and allow for the best decisions to be made to protect the public health and welfare. Deliberations on reauthorization of the Clean Air Act should examine both the strengths and weaknesses of the Act and not focus only on what to "fix".
We believe that most of the problems related to the future regulatory agenda for electricity generation stem from the EPA's failure to follow the proper procedures and appropriately apply available scientific information in implementing the Clean Air Act. They also have improperly revised the historic application of rules to create wholly new interpretations of existing law. Recent court actions have supported this view with several rulemakingsbeing remanded due to EPA's failure to follow proper procedure. Other potential regulatory conflicts we ark facing could have been avoided if EPA had more closely followed the recommendations from the Agency's own scientific advisory committees.
Alternative Approaches
Some parties have espoused changes in the Clean Air Act and other federal laws that would constitute alternatives to the way that emissions from electric generating plants are now regulated. These alternatives deserve inquiry and we agree that the Subcommittee should include them in its deliberations on reauthorization of the Act. The examination of these approaches must include looking at ways to meet clean air goals in the most cost effective and efficient manner possible. The benefits of alternative legislative approaches should be compared against the provisions of the existing Act as intended by Congress.
Some examples of alternative approaches that have been discussed include:
Comprehensive Approach
A proposal to develop a comprehensive package of emission reduction requirements that would combine many of the pending and proposed regulatory programs has been suggested by some in the industry. It is argued that this could provide some efficiency as compared to an unorderly pollutant by pollutant approach. It is also believed that this approach could provide some regulatory "certainty" for a period of time during which capital investment decisions could be made. This general concept has been discussed in several forums and we feel that there are potential positives but also potential hurdles to this approach. Positives include possible cost savings from a multi-pollutant approach compared to command and control for individual pollutants on single generating units at different timelines. Issues to overcome include ensuring that such an approach does not codify requirements that could not otherwise be justified on scientific or economic grounds, that deadlines make sense from a reliability and economic standpoint, ensuring that "regulatory certainty" could in reality be achieved, and reaching agreement on a large number of other details that are likely to be controversial.
Financial Incentives
The adoption of financial incentives to encourage cleaner generation and the installation of emission controls has been urged by some. Examples include:
1. Investment Tax Credits
2. Production Tax Credits
3. Accelerated Depreciation
4. Grants, Low interest loans and tax exempt bonds Individually or in combination such proposals could provide an incentive to early reductions by generating companies or help to mitigate the impacts of regulatory requirements.
Advancement of New Technology: Proposals have been made to facilitate the development and installation of new technologies. At Southern Company we believe that the development and commercialization of advanced technologies holds the key to improving the environmental performance of electricity generation. We have been leaders in the Department of Energy's Clean Coal Technology demonstration program and currently operate DOE's Power Systems Development Facility in Wilsonville, Alabama. The PSDF is the nation's premier testing and development site for the demonstration of technologies that increase the efficiency and environmental performance of coal in the generation of electric energy. Our goal is to demonstrate technologies that ultimately will mean coal fueled generating facilities that are as clean as natural gas fired plants.
Southern Company is also a leader in the development of distributed generation options including fuel cells and micro-turbines. We have developed partnerships with some of our key commercial customers to demonstrate these technologies including the installation of a 250-kilowatt molten carbonate fuel cell at a Daimle~ Chrysler plant near Tuscaloosa, Alabama.
Principles for Clean Air Programs
We believe that the development and implementation of any clean air program that applies to the electricity generation sector should include certain common principles. These principles will help to ensure that improvements in environmental performance will result in real enhancements of environmental quality in the most cost- effective manner possible. Most of these could be incorporated under the provisions of the existing Clean Air Act. They are:
Any new program for controls must be based on sound peer-reviewed science and an accurate assessment of the environmental improvements expected from existing regulatory programs.
Targets and timetables for emission controls should reflect environmental needs and priorities and not controls for controls sake or a "one size fits all" approach.
-- Air quality control programs should consistently utilize unencumbered market based trading systems. The SO2 control program under Title IV of the 1990 Amendments has been very successful in accelerating emission reductions and minimizing costs and we should build on the success of those provisions.
-- Any control program should allow a source to meet reduction requirements in the most cost-effective and flexible manner possible and avoid unit-by-unit technological controls.
-- Compliance with new emission reduction requirements should be timed to recognize the size of the generating fleet and phase in compliance requirements over a long enough period to allow the orderly installation of controls and the avoidance of a supply disruption.
Summary
Southern Company and the electric utility industry have made tremendous strides in improving the environmental performance of electricity generation. Emissions have been reduced and the quality of our air and water have substantially improved. This has occurred even while electricity generation and the use of coal has increased. Southern Company is committed to continuing to improve environmental quality in the areas that we serve. The future regulatory agenda put forth by the EPA however will present great challenges in ensuring that we can continue to utilize coal, the most abundant domestic energy supply in the generation of economic electric energy. This is not due to the failure of the Clean Air Act but the failure of EPA to follow the proper procedures and effectively utilize its discretion under the Act in making regulatory decisions. There are numerous proposals to amend the Clean Air Act to implement alternative approaches to regulating the electric generating industry. All of these concepts should be examined against the benefits of the implementing the existing Act in a proper manner.
Southern Company is committed to playing a constructive role during the process of reauthorizing the Clean Air Act. We will continue to work with Congress, EPA, states, courts and other interest groups to meet the challenges of maintaining a clean and safe environment and an adequate and affordable supply of energy.