My name is Anthony J. Alexander, and I am president of FirstEnergy.
FirstEnergy is a diversified energy services holding company headquartered in Akron, Ohio.
Our four electric utility operating companies comprise the nation's 10th largest investor-owned electric system. We serve 2.2 million customers within 13,200 square miles of northern and central Ohio and western Pennsylvania.
We are in the process of merging with Morristown, New Jersey-based GPU, Inc., a transaction that will make FirstEnergy the fifth-largest investor-owned electric system in the country, based on serving 4.3 million customers.
FirstEnergy owns and operates more than 12,000 megawatts of generation. Of this, 62 percent is coal-fired, 32 percent is nuclear and the rest is natural gas, oil, or pumped-storage hydro.
Last year, more than 60 percent of our generation was produced by nuclear and scrubber-equipped coal-fired units.
Since passage of the Clean Air Act in 1970, we've spent a total of $4.6 billion on environmental protection to ensure that our plants meet all federal, state and local environmental laws and regulations.
Just since the Clean Air Act was amended in 1990, we've spent nearly $1.5 billion in environmental protection. During that same time, we've reduced emissions of nitrogen oxides by 60 percent and sulfur dioxide by 57 percent.
As electricity deregulation continues to evolve - along with regional problems associated with tight generating supplies - we must strike an appropriate balance between meeting the electricity needs of our customers and our responsibilities to the environment.
We need to recognize that the rules of our industry have changed. Under deregulation, the competitive market will determine how much capacity is built, what types of sources are used, and what the price of electricity will be. And, as utilities are relieved of their obligation to supply power, the economics of making investments further change.
The impact of environmental regulations on the supply and price of generation needs to be considered, especially since consumers will no longer have the protection of regulated rates when transition periods end.
If supplies remain tight, or become tighter in order to retrofit environmental equipment, the impact certainly will be reflected in customer prices - and perhaps, even in service reliability.
This is not to say that competition and environmental regulations are mutually exclusive. In fact, I believe the opposite is true.
Environmental regulations must be an integral part of a successful competitive electricity market.
FirstEnergy believes that the following five principles are important to developing a comprehensive energy policy that addresses both environmental and market issues:
1. Encourage the production of electricity from increasingly clean and diverse fuel sources, 2. Recognize the significant role coal plays in meeting the nation's growing electricity needs, 3. Implement environmental regulation fairly and consistently across broad geographic regions, 4. Provide the regulatory flexibility and certainty to meet emission reductions, and 5. Encourage energy efficiency efforts to limit energy demand and usage.
Let me briefly address each of these five principles.
* First, the production of electricity from increasingly clean and diverse fuel sources should be encouraged. A balanced portfolio of generation - including coal, nuclear, natural gas, solar, wind and hydro - will minimize the risk of price fluctuations affecting any single generation source.
* Second, there must be recognition of the significant role coal plays in meeting the nation's growing electricity needs. Policies that would eliminate coal as a viable fuel source, or that would discourage ways to burn it more cleanly and efficiently, are counterproductive.
Natural gas generation will continue to play a key role in minimizing price spikes in the electricity market - as long as the price of natural gas doesn't become cost prohibitive. However, it cannot replace coal, which provides more than half of the electricity we use in this country, and more than 90 percent of Ohio's use.
* Third, environmental regulations must be implemented fairly and consistently across all geographic regions so that, in the competitive market, all participants are subject to the same rules. Otherwise, selective enforcement will ultimately undermine the development of retail competition.
In the recent initiative by U.S. EPA claiming decades of routine work at power plants constituted major modifications that triggered New Source Review, the Agency targeted specific regions of the country - the Midwest and South, and only certain companies in those regions - in what amounted to a radical reinterpretation of existing law.
It is impossible for a capital-intensive industry such as ours to operate effectively under unclear, ever-changing rules and regulations. Such actions can only have a negative effect on future development of generation.
As the national energy policy is crafted, we hope that Congress supports Senator Voinovich's proposal that new, second-generation environmental laws include cost-benefit considerations that balance the full spectrum of public needs and interests. That's especially important considering that consumers will bear the costs in a competitive energy marketplace. New laws should not add needlessly to the future cost of electricity or adversely affect available supplies.
* Fourth, future environmental legislation must allow for adequate regulatory flexibility and certainty. That will encourage development of innovative, more cost-effective control technologies, and provide more options for existing facilities when meeting new regulations.
As part of that effort, we support market-based allowance trading that provides trading credits to all sources of electric generation - not only to those sources that burn fossil fuels. This would help create an economic incentive for the use of low- and non-emitting sources and produce ongoing environmental benefits. I would point out that today's best-available control technology - or BACT - requirements significantly limit the generating industry's flexibility in balancing the environmental and energy needs of the public.
Under the U.S. EPA's current interpretation of BACT, for example, we could not use a new control technology to help achieve NOx or SO2 reductions, even if it was almost as effective as the best available, and achieved reductions of other substances as well. Yet, if that new technology were used throughout the industry, far more emission reductions could be achieved than through selective BACT deployment. This kind of regulatory inflexibility doesn't make business sense and, more important, doesn't make environmental sense.
I believe Congress should determine the appropriate reduction requirements and time frames, then allow the industry to meet them in the most cost-effective ways possible. The command-and-control approach will only serve to drive up costs and curb innovation.
* Finally, we need to encourage energy-efficiency programs. Conservation and a shift to more off-peak consumption can be achieved by providing customers with real-world price information. Ultimately, that means retail prices will need to track more closely with wholesale prices. While this will be a difficult adjustment, there's no other way to truly achieve a dramatic reduction in the consumption of electricity, or an improvement in the efficiency of its use.
In short, environmental regulations must work within - not against - the competitive electricity marketplace. They should provide flexibility, uniform performance obligations and compliance schedules. They should also encourage fuel diversity, energy-efficiency and continued use of coal and other abundant natural resources to ensure that we maintain a clean, reliable, affordable supply of electricity.