Environmental Compliance & Generation Capacity

(etc.)

NGA Center for Best PracticesState Executive Policy Forum on Electricity

RestructuringApril 4-6, 2001 – Philadelphia, PA

Kenneth A. ColburnNew Hampshire Department

of Environmental Services

First Things First...

• California’s problems were not caused by environmental regulation:– Several plants approved but not

constructed – No supply-side or demand-side response

over two decades of increasing demand?– Price-capped competition? An oxymoron!– Compulsory spot market purchases– Abuse of market power also evident...

• NO!– Most onerous air regulations to date

concern ozone nonattainment, but...– Many new power plants are being

approved and built in ozone nonattainment areas!(e.g., NH, MA, CT, NY, NJ, etc.)

Are EnvironmentalRegulations Stopping

Plants?

• Probably not, under the existing federal Clean Air Act:

• Regulates input; ignores output• Built in “unlevel” playing field• Discourages improvement (e.g., NSR)

Will Restructuring Be Good

for the Environment?

Will Restructuring Be Good

for the Environment?• But it would be, if the interests of

the economy are aligned with the interests of the environment

• Regulate based on output• Insist on Environmental Comparability

(i.e., “un-grandfathering”) to level the playing field & eliminate NSR

• New NAAQS for Ozone• New NAAQS for Fine Particulate Matter• 22-State NOx SIP Call / 126 / NSR Suits• New Regional Haze program• Mercury and other toxic emissions• Climate Change• Acid Rain II?

The Bad News: Environment Will “Keep

Coming”

• Health care costs• Tourism (vistas, water quality, etc.)• Forest and crop productivity• “Place matters more” – Quality of Life• Greater certainty => Less Stranded Costs• Demand peaks => Highest system costs• Reliability comes with efficiency• Smaller energy projects => more jobs• More efficient => More competitive

The Good News: It’s Likely to Be Good for the

Economy

Per Capita Personal Income versus Utility Average Electricity Pricefor the 50 States and Washington, DC

(Data Sources: US Department of Commerce, Bureau of Economic Analysis; andUS Energy Information Administration)

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

3 4 5 6 7 8 9 10 11 12 13

Utility Average Electricity Price (cents/kWh)

Per

Cap

ita

Per

son

al I

nco

me

(19

98)

Green & Gold 2000 - Rankings of StatesData Source: Institute for Southern Studies, 2000

R2 = 0.3398

0

5

10

15

20

25

30

35

40

45

50

0 5 10 15 20 25 30 35 40 45 50

Gold - Economic Ranking

Gre

en - E

nvi

ronm

enta

l Ran

king

LowestRankedStates

HighestRankedStates

• Pursue Integrated Air Quality Solutions– “Four-Pollutant” Approaches like NH’s

Clean Power Strategy• Reduce SO2 by 75%• Reduce annual NOx by 70%• Reduce mercury by 75%• Reduce CO2 10%• Allows trading

– Takes advantage of “co-control benefits”– Provides greater certainty; asset value– “First Mover” advantage

Recommendations

• Get the signals right (e.g., output-based; level playing field, time-of-day pricing?)

• Think ahead (climate isn’t going away) – Provide greater certainty – “Do it right the first time” vs “Do it over”

• Work the Demand Side too (peaks create disproportionate costs)

• Use Environmental Disclosure effectively

Recommendations (continued)

Old or New Energy Path?

EnergyEfficiency

Path

EnergyIntensity

Path

Competitive AdvantageLost to Delay

NOW

EC

ON

OM

IC E

FF

ICIE

NC

Y

LATER

Sustainability