Pollution Could Get Big Boost from Deregulation
EPA Warned of Dangers
of Unfettered
Electric Power Market
By Martha M. Hamilton, The Washington Post
 Air pollution control officials from northeastern states warned federal
policymakers last week that without proper controls, introducing competition
into retail markets for electric power could result in more pollution from
coal-fired plants.
Smoking gun: regulators in the Northeast
are worried that
pollution from the Midwest is headed
their way.
In a two-year period after the deregulation of wholesale markets for
electric power, several large power companies in the Midwest increased their
short-term sales to customers and used their highest-polluting coal-fired
power plants more, according to Northeast States for Coordinated Air Use
Management. The increased use of the coal- fired plants caused increased
emissions of pollutants that contribute to smog and acid rain, the organization's
analysis found.
The report by the air quality officials from eight northeastern states
comes at a time when the Clinton administration is crafting its version
of how the $200 billion market for electric power should make the transition
from regulated monopoly utility companies to competition.
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"We have asserted, and continue to believe now, that environmental
concerns must be addressed nationally as part of electric utility restructuring,"
the group wrote to Environmental Protection Agency Administrator Carol Browner.
"We have asserted,
and continue to believe now, that environmental concerns must be addressed
nationally as part of electric utility restructuring."
The reasoning behind that concern is that customers shopping for electric
power will turn to the cheapest sources, which could create an advantage
for coal-fired power production compared with electricity produced by cleaner
fuels such as natural gas and nuclear power.
The state environmental officials said there appears to be no publicly
available analysis by the EPA or the Federal Energy Regulatory Commission
of the impact on air quality of the 1996 deregulation of wholesale markets
for electricity.
The group's own analysis looked only at a fragment of what has occurred
since then, focusing on utilities in the Midwest that depend heavily on
coal and that include power plants that were not initially covered by the
strict Clean Air Act requirements imposed on newer power plants.
John McManus, manager of environmental strategy for American Electric
Power Co. of Columbus, Ohio, one of the nation's largest utilities, said
the older plants will be required to meet Clean Air Act standards by 2000.
He also said that he believed the analysis by the state environmental officials
may have missed "the big picture."
"If our generation picks up because we're selling to others, it
means their generation goes down," he said. "You could find that
increased generation from coal plants in one company is displacing coal
generation from another."
McManus also said he doesn't believe efforts to introduce competition
into the industry should include environmental concerns. "The whole
restructuring debate is very complicated to begin with," he said. "The
environmental issues are very complicated and contentious. If you link them
together, it makes the whole movement toward competition more difficult
to achieve."
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For Sale: Environmentally
Correct Electricity
By Ross Kerber
The Wall Street Journal
(This article is excerpted from one that originally ran
July 23, 1997)
When Mary Ann Sterry got to choose her supplier of electricity, she
didn't shop for the cheapest deal.
Instead, Ms. Sterry, an office manager for a wildlife sanctuary in Worcester,
Mass., selected a unit of Northeast Utilities that draws most of its power
from hydroelectric dams. She estimates that her office pays between $80
to $110 a month for electricity-about $10 more than it might have paid for
suppliers that rely on coal and nuclear generation. But getting power from
hydroelectric dams, Ms. Sterry says, "fits our environmental concerns."
Come Jan. 1, 1998, customers in California and parts of New England
will be able to choose their electric supply much as they now select long-distance
telephone service. And many suppliers, including Enron Corp., Central Maine
Power Co. and Green Mountain Power Corp., are plunging into the new era
of competition with a delicate marketing tactic: wooing "green"
consumers with energy billed as environmentally friendly.
"People want the oppor-tunity
to steer their money away from highly-polluting resources to ones that have
far less impact."
"We see branding the power as 'green' as the only meaningful differentiator
in the whole energy sector," says Warren Byrne of Foresight Energy
Co., in Oakland, Calif. He estimates that 11 million California households
might pay perhaps $5.50 extra a month for electricity generated from a mix
of gas plants and renewable sources like geothermal and hydroelectric facilities.
"People want the opportunity to steer their money away from highly-polluting
resources to ones that have far less impact," adds Mr. Byrne. Eventually,
he says, higher electric rates would enable utilities to build more renewable-energy
facilities.
For now, though, it isn't easy being green-in part because the supply
of renewable energy is extremely limited. Solar, wind, and geothermal power
account for less than 3 percent of total U.S. generation, compared with
50 percent from coal sources.
Nor is it easy for consumers to verify where their electricity comes
from, since it is usually blended from different sources by transmission
grids. Criticism over some of the marketing tactics during a pilot test
in New Hampshire has prompted the Federal Trade Commission to consider establishing
rules on what environmental claims utilities may make.
Moreover, one consumer's environmentally correct source of power may
be another consumer's environmental blight. Nuclear reactors, for instance,
create no air pollution but raise safety concerns and require expensive
storage for radioactive waste. Large hydroelectric dams don't pollute, either,
but they can disrupt wildlife patterns both upstream and downstream.
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Such issues notwithstanding,
utility deregulation is eventually expected in most states and the two New
England experiments offer a preview of electricity marketing techniques.
In the name of environmentalism, some utilities in Massachusetts and New
Hampshire have hawked everything from bulk purchases of clean energy to
pledging contributions to the American Lung Association. For its "green
option," a unit of Enova Corp. announced plans to raffle off an electric
car to its customers, even though the company still gets power from the
same mix of sources-57 percent nuclear, 21 percent coal, and 14 percent
oil-as general suppliers in the region.
Although it's cheap, coal may be too
dirty to win in the marketplace.
"It's difficult to make the perfect offer for ecological power,
because ideally you could almost say, 'don't use electricity'," says
Lou Pai, chief executive of Enron's E-Service retail marketing division.
"But there's still opportunity to get a cleaner mix of generation."
In theory, environmentalism should sell. Electric generation accounts
for 36 percent of U.S. emissions of carbon dioxide, the dominant greenhouse
gas, and some early evidence suggests households are willing to pay to reduce
emissions in general. Every year in Sacramento, Calif., about 600 customers
volunteer to pay the municipal utility an extra $4 a month for rooftop solar
panels. Also, of 4,745 households in the Massachusetts experiment, 1,457
signed up for offers that included some environmental benefits at a cost
16 percent higher, on average.
One customer who chose a green offer, Leo Varsano of Northampton, Mass.,
says he was drawn by a company's pledge to avoid supply contracts with coal-burning
plants though it might buy the power as a back-up source. The provider is
a unit of San Francisco-based Working Assets Inc., best known for supporting
liberal political causes. "You have to be sympathetic to the idea of
promoting alternative energy sources," says Mr. Varsano.
Reprinted with permission of The Wall Street Journal.
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"Human activities
are disrupting the climate globally. The disruptions are now measurable
and costly. In fact, without any additional emissions of heat-trapping gases,
we are going to move beyond relatively small predictable changes into a
realm where surprises are the rule. At that point, we can look forward to
ever more costly, devastating disruptions such as changes in oceanic currents
and glacial melting that brings sudden changes in sea level of feet to yards.
An early start by establishing a progressive tax on fossil fuels in the
United States is necessary and appropriate both as a national contribution
to correcting a dangerous trend and as a sign to the world that the problem
is serious."