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October 1999 Deregulation Series
Utilities Mull Marketing Strategies
What Role Will Regulators Play?
Who Will Protect the Poor?
More Options for Small Business
Pepco Will Auction Off Its Plants
Environmental Impact Uncertain
An Example of What to Expect
States Deregulate, Congress Debates
Columnists
Cash Flow
Albert Crenshaw says its the same old song. Big business and large-volume users will benefit, while homeowners will likely lose out.

Investing
Investing in utilities used to be easy. Fred Barbash points to where the better investment bets can be found in a more complex, deregulated market.

Color of Money
With deregulation spelling the likelihood of more phone solicitations, commercial ads and legal fine print, Michelle Singletary is tense with anticipation.

Environmentalists, Industry Air Differences

By Sandra Fleishman
Washington Post Staff Writer
Sunday, October 17, 1999; Page H07

The bottom-line environmental question in electric utility deregulation is this: Will deregulation mean cleaner or dirtier air?

That's an extremely simplistic summing up of an extremely complicated debate. Enough material has been published on the subject to probably merit its own environmental-impact statement.

But, in general, environmental groups and states with existing air-pollution problems fear the worst as the rules change. The chief federal laws governing utility emissions for the past 25 years, the Clean Air Act and its amendments, was engineered to address a system of regional monopolies with state regulators. Grandfathered in — and exempt from some emissions controls — were many coal-fired plants built before 1978 that were expected to be phased out. In the new era, utilities can compete nationwide, and there may be more demand to use coal-fired plants. Coal is the cheapest and most plentiful fossil fuel.

Environmental groups see this likely demand for older coal plants — and the overall potential increase in energy consumption and emissions as power costs drop — as a probable loss for clean air, renewable energy and energy conservation. Already, according to a new study by the U.S. Public Interest Research Group, electricity generation from older coal plants has risen 15 percent since wholesale electricity production was deregulated in 1992.

Natural Resources Defense Council senior scientist Daniel Lashof said many of the older, coal-fired plants are exempt from the toughest air-pollution standards, and other regulatory standards vary. This contradicts "what industry says is fair competition," he said. "It's not fair competition if different power plants are playing by different rules with respect to how much pollution they emit. That's why [older coal plants] end up with a competitive advantage."

As a result, environmental groups are pressing states and Congress for specific environmental protections against increased pollution, financial incentives for energy efficiency and renewable energy, and federal pollution guidelines to be part of the overall deregulatory effort.

The utility industry, meanwhile, says its studies and those done by others predict little or no increase in air pollution from deregulation. The utility industry will still be heavily regulated under the federal Clean Air Act, even as individual states move forward with deregulation plans.

"Right now there are 19 [Environmental Protection Agency] regulatory programs that are on the books or that are strong possibilities over the next decade" addressing new and old plants, said Paul Bailey, vice president for environment for the Edison Electric Institute.

Bailey said utilities believe improvements to the Clean Air Act should be discussed in upcoming reauthorization debates rather than in deregulation legislation.

For more neutral analysts, the answer to whether the future holds cleaner or dirtier air is "nobody knows." The Congressional Research Service says deregulation would tend to tilt in favor of old coal plants, therefore exacerbating pollution. But it adds that "it is also possible that the economic and environmental advantages of new technology may be sufficient in some cases to overcome the existing plant's advantages."

And the CRS says the situation could be mitigated by measures before Congress and the states: "cap-and-trade" programs among utilities to prevent increases in pollution levels; "green pricing" to encourage consumers to use less polluting sources; and state or federal standards requiring a percentage of electricity coming from renewable, non-polluting sources.

Since the electric industry is a major source of air pollution as well as of "greenhouse" gases, any change in regulation sets off alarm bells.

"Many in the environmental community are concerned," said Dirk Forrister of the Environmental Defense Fund, "that if you don't pay close attention to the environmental aspects of what you are doing in deregulating, you could end up increasing production from old, dirty power plants that are currently underutilized.

"That said, if you do it right, you could meet the prospects of environmental protection and increase the prospect of renewable energy and energy efficiency," he continued.

The Clean Air Act assumed that existing plants would be retired after about 30 years and replaced with new, less polluting equipment. But coal is so cheap, and the cost of building a new power plant of any type so high, that it is predicted that many deregulated providers will gear up older plants.

The EPA has tried to increase regulation of pre-1970 plants but the efforts are "tied up in a court challenge by utilities," said Lashof.

The older, coal-fired plants would feed carbon dioxide/greenhouse gas emissions, which are not currently regulated, the CRS points out. Greenhouse gases are cited as a key contributor to global climate change.

A nationwide emissions cap on sulphur oxides, the main contributor to acid rain, "seems secure," according to the CRS.

But deregulation could complicate the effort to control nitrogen oxides that contribute to ozone pollution. Ozone problems in the Northeast have been blamed on emissions blowing in from coal-fired plants in the Midwest. Efforts to reduce the Midwest's nitrogen oxide emissions are underway, but the CRS says that "how this regional, state-implemented process would be affected by restructuring is not certain."

Forrister said environmental groups are focusing on state legislatures, which are adopting retail competition legislation, and on Congress, where the Clinton administration and House and Senate Republicans are offering competing bills to set federal guidelines for retail competition.

California, said Forrister, has led the way in developing incentives such as a "public benefits fund" that rewards the power producer that provides the most renewable energy for a given amount of money. The state also adopted a consumer right-to-know law forcing electricity firms to list fuels used to generate power.

Forrister applauded Texas Gov. George W. Bush and the state legislature for setting a statewide target for renewable energy production. "We were impressed that the legislature and the governor sought such a strong renewable program," marveled Forrister, since the state "is pretty low on the totem pole now" for renewable fuels.

While the Clinton administration backs public-benefits funding and targets for renewable energy and energy efficiency in its restructuring proposal before Congress, proposals by House and Senate Republicans are "too weak," said Forrister.

© 1999 The Washington Post Company

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