Testimony of Robert LaCount, Jr.
Air Quality Manager
PG&E National Energy Group
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).
Clean Energy Group members are Consolidated Edison, Inc., KeySpan, Northeast
Utilities, Exelon, PSEG Power, Sempra Energy, Con
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.
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
– 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.
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, sbusiness uncertainty that is
becoming more difficult to manage, thereby, delaying needed infrastructure investments., regulatory emission reduction
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, sulfur dioxide, 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.
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 achiev
reductions. 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.
in the power sector are trying to plan for
initiatives 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 yearscarbon (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
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 maintain ed
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
standards for verifying reductions, is built
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
of the power sector now. Instead, we
believe it is to the advantage of this
indu stry tospearhead a greenhouse gas reduction program,-.
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.
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 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..
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.
O ur modeling
shows that the incremental costs of our
proposal as com pared 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 5.75% by 2015. On average, this translates into
an increase of about $5 / month
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
the CEG proposal, Rocky Mountain and Midwestern So,
essentially, under the CEG proposal, significant emissions reductions can be
achieved in reasonable time s and our
industry can begin to take responsibility for
our - contribution to global
warming for reasonable cost and resource impacts,
beyond what are already expected to occur.
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 competitive, more reliab le,
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.
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.
CEG Pollutant Caps and Schedule
National Tonnage Cap
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.
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.
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)
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)