Electric Utility Environmental Issues in the 1990's

ELECTRIC UTILITY ENVIRONMENTAL ISSUES IN THE 1990s J. R. SMITH Manager, Air Resources, Environmental Department Houston Lighting & Power Company Houston, Texas ABSTRACT the World be Here for Our Kids?"), and in a U. S. News and World Report the title 0 The 1990s have been referred to as which just about sums it up -­ the "Decade of the Environment". "Environmental Activism, Here We Go President Bush as well as Congress have Again". made strengthening the Clean Air Act a national priority. Reauthorization of the Yet the new activism is slightly Resource Conservation and Recovery Act is different from that of the 1960 and 1970s expected in short order. Other it's about people, and not just "ecology" environmental issues such as global in general. The issues are "people" warming and pollution prevention are issues, and notably not restricted to receiving increased attention and have endangered species. These issues possess already triggered congressional activity. the potential to change the way we This paper examines the myriad of new generate and dispatch electrical energy, environmental laws and regulations on the the way we plan and operate, and the way horizon and their potential impact on the we interact with our customers, the media, electric utility industry. and our government. Some of these major environmental issues which will serve to ...NTRODUCTION mold electric utility generation Plannin~, operations, and compliance strategies wi ·1 In 1969, Congress passed the National be examined. Environmental Policy Act and the nation began to clean up its environment. AIR QUALITY Numerous federal, state, and local laws and regulations were aimed at cleaning up For at least the present, it appear our air, water, and land, and maintaining air quality issues will set the tone for those resources into the future. As with our approach to environmental quality in other industries, the electric utilities the 1990s. Our recently-elected were affected by these environmental laws President, promising to be the and regulations, spending enormous sums of "Environmental President" has made money for pollution control equipment, strengthening the Clean Air Act a nation 1 cleaner burning fuels and additional priority and has introduced a reauthoriz d operations and maintenance expenses. Clean Air Act (CAA) proposal that is one Tremendous reductions in pollution from a of the most complex and hotly-debated variety of sources throughout our society legislative proposals ever introduced. were achieved. Because clean air legislation In the 1990s, however, the electric entangles industry more than any federal utilities find themselves in a nation more statute except the tax code, few in conscious of environmental quality than Congress are immune from this pressure ever before. Solving environmental from companies at horne. Some lawmakers problems, particularly those related to see it as their duty to protect oil or air quality, was a key element of the Bush petrochemical plants in their districts; campaign, and not by accident. It was a others to prevent more electric rate deliberate response to what was perceived increases in their districts than as the inattention to the environment (comparatively) in other districts; oth~rs during the Reagan years, and designed to to watch out for coal jobs, an automobille reach a specific segment of the population factory, a refinery; a few to advance 1 that was believed to be sensitive to the environmental causes. This constellati n message. of forces has split Congress regionally and ideologically for a decade, blockin~ A quick look at a number of revisions of the Clean Air Act despite he circulation periodicals indicates the inability of certain areas of the count y widespread basis of environmental to achieve and maintain national ambien~ concerns. Articles have appeared in air quality standards for criteria air I National Geographic ("Will We Mend our pollutants. This is precisely the reas9n Earth?"), Sports Illustrated ("A Kinder why everyone can say, "I want clean air,., Environment"), Money Magazine ("Tanker No one wants dirty air. After ten years from Hell"), Ladies Home Journal ("Will of debate over reauthorization of the 189 ESL-IE-90-06-33 Proceedings of the 12th National Industrial Engery Technology Conference, Houston, TX, June 19-20, 1990 ELECTRIC UTILITY ENVIRONMENTAL ISSUES IN THE 1990s J. R. SMITH Manager, Air Resources, Environmental Department Houston Lighting & Power Company Houston, Texas ABSTRACT The 1990s have been referred to as the "Decade of the Environment". President Bush as well as Congress have made strengthening the Clean Air Act a national priority. Reauthorization of the Resource Conservation and Recovery Act is expected in short order. Other environmental issues such as global warming and pollution prevention are receiving increased attention and have already triggered congressional activity. This paper examines the myriad of new environmental laws and regulations on the horizon and their potential impact on the electric utility industry. ...NTRODUCTION In 1969, Congress passed the National Environmental Policy Act and the nation began to clean up its environment. Numerous federal, state, and local laws and regulations were aimed at cleaning up our air, water, and land, and maintaining those resources into the future. As with other industries, the electric utilities were affected by these environmental laws and regulations, spending enormous sums of money for pollution control equipment, cleaner burning fuels and additional operations and maintenance expenses. Tremendous reductions in pollution from a variety of sources throughout our society were achieved. In the 1990s, however, the electric utilities find themselves in a nation more conscious of environmental quality than ever before. Solving environmental problems, particularly those related to air quality, was a key element of the Bush campaign, and not by accident. It was a deliberate response to what was perceived as the inattention to the environment during the Reagan years, and designed to reach a specific segment of the population that was believed to be sensitive to the message. A quick look at a number of circulation periodicals indicates the widespread basis of environmental concerns. Articles have appeared in National Geographic ("Will We Mend our Earth?"), Sports Illustrated ("A Kinder Environment"), Money Magazine ("Tanker from Hell"), Ladies Home Journal ("Will 189 the World be Here for Our Kids?"), and in a U. S, News and World Report the title 0 which just about sums it up -- "Environmental Activism, Here We Go Again". Yet the new activism is slightly different from that of the 1960 and 1970s it's about people, and not just "ecology" in general. The issues are "people" issues, and notably not restricted to endangered species. These issues possess the potential to change the way we generate and dispatch electrical energy, the way we plan and operate, and the way we interact with our customers, the media, and our government. Some of these major environmental issues which will serve to mold electric utility generation plannin , operations, and compliance strategies wi ·1 be examined. AIR QUALITY For at least the present, it appear air quality issues will set the tone for our approach to environmental quality in the 1990s. Our recently-elected President, promising to be the "Environmental President" has made strengthening the Clean Air Act a nation 1 priority and has introduced a reauthoriz d Clean Air Act (CAA) proposal that is one of the most complex and hotly-debated legislative proposals ever introduced. Because clean air legislation entangles industry more than any federal statute except the tax code, few in Congress are immune from this pressure from companies at home. Some lawmakers see it as their duty to protect oil or petrochemical plants in their districts; others to prevent more electric rate I increases in their districts than (comparatively) in other districts; oth~rs to watch out for coal jobs, an automobi e factory, a refinery; a few to advance environmental causes. This constellati n of forces has split Congress regionally and ideologically for a decade, blockin~ revisions of the Clean Air Act despite he inability of certain areas of the count y to achieve and maintain national ambien~ air quality standards for criteria air 1 pollutants. This is precisely the reas n why everyone can say, "I want clean air" No one wants dirty air. After ten years of debate over reauthorization of the Clean Air Act, it has not been possible to agree on the measures necessary to achieve clean air. Thus, clean air debates have inevitably reverted to the language of economics -- of lost jobs, closed factories, and recently, avoided health care costs. studies and evidence on both sides are developed striving for the elusive "cost-effective controls" for clean air goals. Now the battle is joined by President Bush and congressional leaders, who appear willing to support drastic steps to combat smog, curb the emissions of toxic Bubstances blamed for high cancer rates in industrial corridors, and stop acid rain damage to lakes and forests of the Northeast. For the electric utility industry, a big part of the CAA proposals focuses on acid rain. As you know, rain is acid. Naturally occurring conditions would produce rainfall with a pH of about 5.0. Nevertheless, the environmental community chose the name well, and our industry has been on the defensive every since. In the early days of this issue, it was defined as the acidification of lakes in the Northeast by emissions from high sulfur coal units in the Midwest. Lately there has been some attempt to link acid rain to health effect concerns by raising the question of acid aerosols. In the final analysis, however, there is no longer a particular debate over the cause, the effect, or even the science of the issue ­ - it now has taken a life of its own. In fact, the scientific results to date, also supported by the National Acidic Precipitation Assessment Program (NAPAP), indicate that acid rain is a legitimate environmental concern. However, acid rain does not support a case for catastrophic environmental or health effects response. Studies indicate that improvements in the environment resulting from a 10 million ton reduction in S02 may not even be measurable against natural variations. Research results are significant in that they do not provide a case for urgent action on emission controls without carefully evaluating the effectiveness of technological options. In any event, the President's proposal calls for so emissions to be cut virtually in half by the year 2000, with a total annual reduction of 10 million tons. One important provision of the administration plan purports to give utilities some freedom of choice in reducing emissions through a system of emissions trading of allowances. This approach is the manifestation of the much talked about concept of using market forces to control and enforce an emissions reduction policy, somewhat as tax law has been used to guide other social policies. There is uncertainty that the proposed market system would be workable under any scenario of analysis, much less whether or not the market would be efficient. The administration plan would also put in place a new emission limit for sulfur dioxide by "freezing" the allowable emission rate for low emission units at the actual rate of emission that occurred during 1985. Specifically, the new emission rate is calculated by dividing the total amount of sulfur dioxide emitted during 1985 by the total heat input of the unit. Take, for example, a gas unit capable of burning oil. Dividing the small amount of sulfur emitted during limited oil firing by the large total heat input from both gas and oil results in a very small value for the allowable emission rate. The effect is to inhibit the ability to fire sulfur bearing fuels for either longer periods of time, or in different units than you chose to dispatch for this type service during 1985. Similar inequities occur in other units operating at low-sulfur dioxide emissions rates in 1985 which are influenced by the particular operating circumstances in the arbitrary year or years selected for "baselining" emissions or the amount of a particular fuel consumed. Further, to account for the vagaries of equipment and fuel sulfur content, an operating compliance margin is maintained between actual emissions and the regulatory limit. By forcing the new regulatory limit to be no more than a previous year's actual emission rate, additional efforts and expenditures will be required to restore the operating margins. The administration plan places a cap on the amount of sulfur dioxide emissions allowed into the air. That is, if a new oil or coal fired unit is to be constructed, emissions from some other source must be reduced. If that is not feasible, a utility may need to bUy down sulfur emissions from another utility by paying them to reduce their emissions under the complicated allowances system provided in the legislation. As you can readily see, this immediately biases future fuel selection away from oil, coal, and lignite to natural gas, thereby weakening fuel diversification strategies. In other words, it is a fuel use act in reverse. Further, encouraging natural gas use can increase the curtailment problems some of us now occasionally face, along with contributing to price escalation. Given that some utility systems may have more latitude to use local coals at an 190 ESL-IE-90-06-33 Proceedings of the 12th National Industrial Engery Technology Conference, Houston, TX, June 19-20, 1990 Clean Air Act, it has not been possible to agree on the measures necessary to achieve clean air. Thus, clean air debates have inevitablY reverted to the language of economics -- of lost jobs, closed factories, and recently, avoided health care costs. Studies and evidence on both sides are developed striving for the elusive "cost-effective controls" for clean air goals. Now the battle is joined by President Bush and congressional leaders, who appear willing to support drastic steps to combat smog, curb the emissions of toxic substances blamed for high cancer rates in industrial corridors, and stop acid rain damage to lakes and forests of the Northeast. For the electric utility industry, a big part of the CAA proposals focuses on acid rain. As you know, rain is acid. Naturally occurring conditions would produce rainfall with a pH of about 5.0. Nevertheless, the environmental community chose the name well, and our industry has been on the defensive every since. In the early days of this issue, it was defined as the acidification of lakes in the Northeast by emissions from high sulfur coal units in the Midwest. Lately there has been some attempt to link acid rain to health effect concerns by raising the question of acid aerosols. In the final analysis, however, there is no longer a particular debate over the cause, the effect, or even the science of the issue - - it now has taken a life of its own. In fact, the scientific results to date, also supported by the National Acidic Precipitation Assessment Program (NAPAP), indicate that acid rain is a legitimate environmental concern. However, acid rain does not support a case for catastrophic environmental or health effects response. Studies indicate that improvements in the environment resulting from a 10 million ton reduction in S02 may not even be measurable against natural variations. Research results are significant in that they do not provide a case for urgent action on emission controls without carefully evaluating the effectiveness of technological options. In any event, the President's proposal calls for SO emissions to be cut virtually in half by the year 2000, with a total annual reduction of 10 million tons. One important provision of the administration plan purports to give utilities some freedom of choice in reducing emissions through a system of emissions trading of allowances. This approach is the manifestation of the much talked about concept of using market forces to control and enforce an emissions 190 reduction policy, somewhat as tax law has been used to guide other social policies. There is uncertainty that the proposed market system would be workable under any scenario of analysis, much less whether or not the market would be efficient. The administration plan would also put in place a new emission limit for sulfur dioxide by "freezing" the allowable emission rate for low emission units at the actual rate of emission that occurred during 1985. Specifically, the new emission rate is calculated by dividing the total amount of sulfur dioxide emitted during 1985 by the total heat input of the unit. Take, for example, a gas unit capable of burning oil. Dividing the small amount of sulfur emitted during limited oil firing by the large total heat input from both gas and oil results in a very small value for the allowable emission rate. The effect is to inhibit the ability to fire sulfur bearing fuels for either longer periods of time, or in different units than you chose to dispatch for this type service during 1985. Similar inequities occur in other units operating at low-sulfur dioxide emissions rates in 1985 which are influenced by the particular operating circumstances in the arbitrary year or years selected for "baselining" emissions or the amount of a particular fuel consumed. Further, to account for the vagaries of equipment and fuel sulfur content, an operating compliance margin is maintained between actual emissions and the regulatory limit. By forcing the new regulatory limit to be no more than a previous year's actual emission rate, additional efforts and expenditures will be required to restore the operating margins. The administration plan places a cap on the amount of sulfur dioxide emissions allowed into the air. That is, if a new oil or coal fired unit is to be constructed, emissions from some other source must be reduced. If that is not feasible, a utility may need to bUy down sulfur emissions from another utility by paying them to reduce their emissions under the complicated allowances system provided in the legislation. As you can readily see, this immediately biases future fuel selection away from oil, coal, and lignite to natural gas, thereby weakening fuel diversification strategies. In other words, it is a fuel use act in reverse. Further, encouraging natural gas use can increase the curtailment problems some of us now occasionally face, along with contributing to price escalation. Given that some utility systems may have more latitude to use local coals at an economic advantage, the offset strategy could ultimately affect economic development, load growth, and perhaps load retention as well. It could also be structured to aid the growth of independent power producers and/or co­ generators, even further complicating the system management and dispatching functions. Annual cost of the administration plan would be $5.0 to $7.1 billion annually. Using Edison Electric Institute (EEl) proposed concepts, which achieves like reductions, the cost is about 25 to 30 percent lower in the earlier years, and about 40 percent lower in the later years because the EEl proposal has no new unit offset requirement. The nation is entering a period of significant progress in emission reduction technology. Legislation needs to recognize the research and development progress made to date at a significant investment by government and industry. Cost-effective solutions to perceived environmental problems should be sought.