FEATURE
Electric Power Deregulation: Will It Mean Dirtier Air? When U.S. utility restructuring arrives, it may bring more polluting power production, critics say. RONALD BEGLEY s Congress and the states move closer to deregulating the electric power industry and creating an open retail market for electricity, voices in government, academia, private organizations, and Northeastern electric power companies are warning that deregulation will result in increased air pollution. Power companies and lawmakers favoring deregulation—or restructuring, as it is also called—say there is no logical basis for such claims and that additional mandated control measures would be counterproductive and less effective than free-market economics at keeping emissions down. Electric power restructuring is a complex process that has already begun—five states have passed laws that end power-generating companies' monopolies and allow them to compete with one another for customers. Several bills before Congress would make a similar change nationwide. Whatever final system results, conventional wisdom is that electric power deregulation of one kind or another is a fait accompli, although no bill may be passed until next year. Depending on which version of deregulation is eventually enacted, the two steps after generation of electricity—transmission through the high-voltage grid and distribution through smaller lines into homes and businesses—may or may not continue to be controlled by local utility companies under the existing system of regulation. Under the most basic restructuring plan, local utilities will continue to control transmission and distribution, and generating companies nationwide will market themselves directly to consumers. California, Massachusetts, Pennsylvania, New Hampshire, and Rhode Island have passed deregulation laws. In the national arena, power companies in the Midwest are the biggest supporters of restructuring, whereas those in the Northeast favor it but are calling for a cautious approach. Industry and government officials in states such as New Jersey and Massachusetts fear that deregulation and a competitive, cost-conscious marketplace will lead midwestem companies to increase reliance on cheaper and
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dirtier coal-fired plants, which have been grandfathered into national regulations and are exempt from New Source Performance Standards. The concern is they will produce more air pollutants that will be carried into the northeastern states. Northeastern state officials are arguing that restructuring legislation must include environmental regulations preventing this risk, whereas midwestem companies are opposed to the added cost of new regulations. The Clinton administration, armed with a slew of studies that predict more power generation from cheap, dirty coal plants, is sending strong signals that it wants restructuring to be accompanied by guarantees that deregulation will not exacerbate air pollution. The administration has not yet proposed its own restructuring legislation.
Free-market push to cheaper, dirtier? The studies represent variations on the theme that free-market competition will result in the displacement of clean, expensive technologies by dirty, cheap ones. Electricity in the United States is produced predominantly by coal (57%), nuclear power (21%), and hydropower (12%). A study by the Harvard Electricity Policy Group predicted that, in a free-market, profit-focused power marketplace, cleaner but more expensive nuclear power facilities would be retired and older, higher emitting coal-burning plants would increasingly be used (i). Resources for the Future said last year that interregional power transmission in competitive electricity markets would increase national emissions of nitrogen oxides by 350,000 tons and carbon dioxide by 114 million tons by 2000 (2). In April, an unusual alliance among the Natural Resources Defense Council, the Newark, NJ.-based Public Service Electric & Gas Company (PSE&G), and the Mid-Atlantic Energy Project of New York's Pace University released a study concluding that power companies need to invest in more pollution control equipment to meet current standards (3). The report claimed to document for the first time the degree to which emissions limits are unequal, because 0013-936X/97/0931-462A$14.00/0 © 1997 American Chemical Society
of different fuel mixes, different requirements in ozone attainment and nonattainment areas, and varying emissions limits imposed by the states to comply with the Clean Air Act. When newer emission standards were imposed under the Clean Air Act, older power plants— especially in the Midwest and Southeast—were grandfathered in, giving them an unfair cost advantage over newer units, according to the report (see figure). These older coal-fired plants, built in the 1950s, 1960s, and 1970s, emit NO^. at a rate of 2-3 times that of newer coal plants and 20-30 times that of new natural gas generators, the report says. The researchers found correlations between high ozone readings in the Northeast and strong wind flows from the Midwest and Southeast, and between low northeastern ozone readings and wind flows from the North. These connections have been affirmed by the recent Ozone Transportation Assessment Group process, launched by the 1990 Clean Air Act Amendments. The benchmarking study examined newly available emissions data that found wide regional disparities and, the research groups say, a need for tighter controls. They looked at the 50 largest electricgenerating companies in the 37 eastern states and
found that each one needs additional controls to meet air pollution goals in the region. The study also claimed that deregulation will lead to cheaper, higher polluting facilities moving into new markets unless further controls are put in place. The data used in the study, which became available late last year, were the result of the Clean Air Act Amendments' continuous emissions monitoring requirement. An uneven playing field David R. Wooley, executive director of the Pace University Mid-Atlantic Energy Project, said, "Uneven levels of emissions control mean that some companies would enter the new competitive market with an artificial advantage and capture a larger part of the market, while cleaner plants would be shoved aside. As we enter this new era of head-to-head competition between power plants, it's essential they all meet the same emissions requirements, or else the markets will be out of whack." The report calls for restructuring legislation to be accompanied by remedies to these inequities. It recommends comparable emissions standards for all electric-generating facilities and says companies should decide whether to meet the standard through VOL. 31, NO. 10, 1997 / ENVIRONMENTAL SCIENCE & TECHNOLOGY / NEWS • 4 6 3 A
Regional disparity in U.S. utility emissions Power plant N0 X emissions in the eastern United States vary by an order of magnitude. The disparity is attributed to differing fuel mixes and pollution control requirements, depending on whether a plant is built in an area that meets federal air quality standards or whether it was built after the establishment of federal New Source Performance Standards.
controlling or replacing older units, adding cleaner plants, or purchasing pollution control credits under a credit-trading system. EPA and Massachusetts have proposed credit-trading plans of their own. Lawrence R. Codey, PSE&G president and chief operating officer, said, "Pollution should not enhance the bottom line. We have the brains and the technology to reduce emissions while reducing costs." In New Jersey, which has stricter air quality controls than most of the nation, retail competition will begin next year, allowing 2 million electric customers to choose their own power suppliers by 2001. Codey's firm reduced NOx emissions by 60% from 1990 to 1995, aiming for an 80% reduction by 2000 using many technology changes. Two older facilities have been repowered with natural gas-fired combined cycle equipment; and, Codey said, "We have demonstrated the efficacy of some of the most advanced NOj reduction burner technology and NOx reduction techniques, such as catalytic and noncatalytic reduction, water injection, and co-firing with natural gas at our coal-burning plants." PSE&G would like to see electricity marketers disclose the electricity sources they sell. George Koodray, a spokesperson for die gas company, said PSE&G believes that old, idled, and mothballed coal-fired plants may resurface in the wake of restructuring. As a result, it must be accompanied by new environmental controls, he insisted. "Without the proper safeguards, dirtier plants will displace cleaner generation." Codey called for implementation of EPAs proposed seasonal NO^ cap of 650,000 to 1 million tons for electric generators in the eastern half of the United States—involving 37 states—through a NO^. generation performance standard. It would limit NOx emissions based on kilowatt hour of electricity produced. 4 6 4 A • VOL. 31, NO. 10, 1997 / ENVIRONMENTAL SCIENCE & TECHNOLOGY / NEWS
Additionally, NOx emissions credit trading would bring market prices for electricity in line with production costs, Codey said, because generators who meet the standard amass credits that they can sell to generators not meeting the standard.
Setting utility "performance" standards proposed Deregulation legislation in Massachusetts calls for similar measures. In February, Republican Governor William Weld's administration introduced legislation that opens the sale of electricity to retail competition. The legislation also calls on the Department of Environmental Protection to develop generation performance standards to go into effect in 2003, based on tons of pollutant per megawatt hour of energy produced. These standards would base pollution limits on the amount of electricity generated by a retail supplier of electricity. Those suppliers who perform better than the standard could generate tradable pollution credits that they could sell to suppliers who exceed the standard's limits. The requirement would apply equally to all electricity suppliers to the state, whether within or outside of Massachusetts. The bill also requires electric suppliers to provide information on their air pollution emissions. This spring, the Washington, D.C.-based Center for Clean Air Policy released a study based on computer modeling (4). According to the study, lower cost midwestern coal-fired plants would take advantage of their beneficial cost position to market their electricity in the Northeast, taking away market share from the costly but cleaner generating plants there. Without new controls, the environmental cost would be greater NOx emissions. Restructuring advocates in the Midwest and some in Congress adamantly oppose joining restructuring with new environmental mandates. Columbus, Ohiobased American Electric Power (AEP) is singled out in the Center for Clean Air Policy's report as being likely to increase NOx emissions by 53,000 tons in 1999. AEP is one of the largest U.S. electricity producers, serving 7 million residents of Ohio, Virginia, West Virginia, Indiana, Kentucky, Michigan, and Tennessee. Eighty-eight percent of its capacity is coal fired. Dale Heydlauff, AEP vice president for environmental affairs, said, "It is highly speculative for anyone to suggest they know what the unleashing of market forces in this industry will result in. Changes in other deregulated industries were not predicted by anyone. No one knows who the players will be in the new market. If they don't know that, how can they predict environmental impacts?" Heydlauff termed "a red herring" arguments that power from midwestern dirty coal plants will enter northeastern markets and displace power from cleaner northeastern plants. He said there is no ex-
cess capacity in the Midwest and no new capacity planned for such market expansion, and transmission charges to move power from the Midwest to the Northeast make such marketing uneconomical. "There is not a power plant in the Midwest that does not have emission control requirements imposed on it," Heydlauff said. He added that industry restructuring will not loosen existing air regulations at all, and EPA is already pursuing additional emissions reductions, so no further controls are needed in restructuring legislation.
New federal controls proposed Several electric power restructuring bills are before Congress, and some legislators insist that they contain provisions to address environmental concerns. In April, 14 members of Congress, led by Senator Frank Lautenberg (D-N.J.), sent a letter to President Clinton asking that the administration's restructuring bill contain provisions to ensure the goals of the Clean Air Act are met. Senator Jim Jeffords (R-Vt.) introduced a bill in May imposing a new charge on power companies to create a fund that promotes renewable energy sources and efficiency. The bill (S687, 1997) would cap emissions, forcing older coal plants to meet tighter air quality standards or shut down. It establishes a credittrading system, sets generation performance standard limits on NO-,., SOx, and C0 2 , and caps emissions of mercury and other pollutants. Jeffords's bill also requires all generation facilities to demonstrate that a percentage of their annual sales represents renewable energy sources, or to purchase credits from those that do. The requirement begins at 2.5% in 2000 and rises to 20% in 2020. A disclosure provision requires that consumers be told about generation source, emissions, and price of electricity being marketed to them. Renewable fuels provisions are also contained in restructuring bills (S237 and HR655, 1997) introduced by Senator Dale Bumpers (D-Ark.) and Congressman Dan Schaefer (R-Colo.). On the other side of the issue is Congressman Thomas Bliley (R-Va.), chairman of the House Commerce Committee, through which restructuring legislation must pass. Virginia mines low-sulfur coal, and Bliley has declared restructuring one of his top priorities, citing polling data that show Americans are willing to pay more for environmentally friendly sources of electricity. He concludes that the free market, not government regulation, is the way to ensure environmental protection.
Market solutions, not more mandates Congressman Bliley cites a Heritage Foundation report issued in January that concluded restructuring would empower consumers to d e m a n d compliance with tighter pollution standards from their power suppliers (5). "Competition breeds innovative solutions and alternatives to less efficient production methods in use today, which can only benefit the environment in the long run," according to the report. "Competitive markets, not more mandates, are the best way to encourage greater energy efficiency and the growth of alternative fuel sources." The Department of Energy and EPA have signaled that the administration will address environ-
mental concerns from restructuring, either in its own restructuring bill or through some other vehicle. Mary D. Nichols, until recently EPA assistant administrator for air and radiation, said that federal efforts to restructure the electric industry "must contain environmental protection provisions that adequately address generating plant emissions." Nichols argues that it is pointless to debate the potential for increased emissions from restructuring, because emissions are already too high. "The proper focus must be on the need to reduce the current, unacceptably high level of power plant emissions by eliminating the disparities in emissions req u i r e m e n t s that will exist between competing electricity generators." She notes that the electric power industry will "almost certainly" have to red u c e C 0 2 e m i s s i o n s for the United States to meet its obliga" H o w can you tions under the United Nations Framework Convention on Clipredict impacts mate Change. Nichols would like to see an w h e n you don't inefficient "patchwork quilt" of federal and state rules avoid reg- k n o w w h o t h e ulating source-by-source, pollutant-by-pollutant. "It seems only players w i l l be in appropriate that we integrate and streamline the environmen- t h e n e w m a r k e t ? " tal protection that we expect this evolving electric power indus—Dale Heydlauff, try to provide." She advocated a American market-based cap-and-trade emissions system, similar to that Electric Power used to control acid rain emissions in the 1990 Clean Air Act Amendments, and consumer disclosure of "the environmental characteristics of the energy they consume." Just how the debate over deregulation's environmental impact will result is an open-ended question. Key members of Congress and state officials are committed to restructuring electricity marketing in the United States. Because of all the attention being paid to the potential environmental impacts of deregulation, it seems likely that such impacts will be assessed and considered in final legislation, but it is uncertain that such considerations will lead to new, stricter regulations.
References (1) Center for Science and International Affairs and the Harvard Electricity Policy Group. Electricity Restructuring and the Environment, Cambridge, MA, November 1995. (2) Resources for the Future. Electricity Restructuring and Regional Air Pollution; Washington, DC, May 1996. (3) Natural Resources Defense Council, Public Service Electric and Gas Company, and Pace University's Mid-Atlantic Energy Project. Benchmarking Air Emissions of Electric Utility Generators in the Eastern United States; Washington, DC, April 1997. (4) Center for Clean Air Policy. Air Quality and Electricity Restructuring: A Framework for Aligning Economic and Environmental Interests under Electricity Restructuring, Washington, DC, March 1997. (5) Heritage Foundation. Energizing America: A Blueprint for Deregulating the Electricity Market, Washington, DC, Jan. 23, 1997.
Ronald Begley is a freelance journalist based in Arlington, Va. He is former Washington Bureau Chief at Chemical Week magazine. VOL. 31, NO. 10, 1997/ENVIRONMENTAL SCIENCE & TECHNOLOGY/NEWS" 4 6 5 A
