Chairman Adolph, Chairman George, distinguished members of the House Environmental Resources and Energy Committee, good morning. My name is Doug Biden and I am President of the Electric Power Generation Association (EPGA). EPGA is a regional trade association of electric generating companies with headquarters in Harrisburg, Pennsylvania. Our member companies include:
- Allegheny Energy Supply
- Cogentrix Energy, Inc.
- Edison Mission Group
- Exelon Generation
- FirstEnergy Corp
- Mirant Corporation
- PPL Generation Group
- Reliant Energy and
- UGI Development Company
These companies own and operate more than 122,000 megawatts (MW) of electric generating capacity in the United States. Approximately half of this capacity is located in Pennsylvania and surrounding states. Our comments today represent the views of EPGA as an association of generating companies, not necessarily the views of any particular member company with respect to any specific issue.
At the outset, EPGA would like to express its appreciation to Chairman Adolph and the Environmental Resources and Energy Committee for holding this hearing and for granting EPGA this opportunity to present its views on mercury emissions management in Pennsylvania.
As EPGA views the subject of today's hearings there are two policy questions before this Committee, one of substance and one of process. The substance question is essentially "Should Pennsylvania adopt a ‘go-it-alone' approach to regulating mercury emissions from power plants or follow the requirements of the federal Clean Air Mercury Rule (CAMR)?" The process question involves whether this type of policy issue, with potentially significant economic consequences for the Commonwealth, should be run through the General Assembly up front or at the back end, as is currently happening.
Before I address those questions, I want to emphasize that the EPGA's members support strict regulations that would require Pennsylvania power plants to reduce mercury emissions by 86 percent. This will be a significant challenge, given the current state of technology for mercury emissions reduction, but as an industry we are committed to meeting it.
I suspect that most of your constituents and perhaps many of your colleagues in the General Assembly are not aware of federal environmental regulations and what they require of power plant owners. The Clean Air Interstate Rule (CAIR) and Clean Air Mercury Rule (CAMR) work in tandem to achieve emission reductions more cost-effectively than in the past. CAIR requires an additional 70 percent reduction in SO2 emissions, and more than 60 percent reduction in NOx emissions (from 2003 levels) in two phases, with phase 1 in 2010, and phase 2 in 2015. CAMR requires a 20 percent reduction in mercury emissions by 2010, and a 70 percent reduction by 2018. But for Pennsylvania, CAMR requires a 64 percent reduction in mercury emissions by 2010, and an 86 percent reduction by 2018. Pennsylvania has more stringent requirements than the national average because Pennsylvania coals contain a higher mercury content than the national average.
The Phase 2 compliance deadline for CAMR is intentionally later than CAIR to allow for "co-benefits", and for the development of technology that is not commercially available today. The emissions control equipment plants are using to comply with CAIR, e.g., scrubbers and selective catalytic reduction technology, also reduce mercury emissions, hence the term "co-benefits." Power plant owners will have sufficient time to determine how much they can reduce their mercury emissions under CAIR before meeting their final emission reduction requirements under CAMR.
Achieving these emission reductions will be challenging, particularly for mercury, because they are steeper for Pennsylvania under CAMR than for any other state. Consequently, Pennsylvania's power plants face the highest marginal cost of compliance for mercury control under CAMR, thus Pennsylvania would be the greatest beneficiary of an interstate trading program, and has the most to lose if interstate trading is not allowed.
The DEP is opposed to mercury emissions trading because of concern about "hot spots" around plants that choose to buy emission credits rather than install control technology. This concern is misplaced, particularly in the case of Pennsylvania's power plants.
As previously stated, Pennsylvania faces an 86 percent mercury emission reduction requirement. According to calculations by CONSOL, this equates to 94 percent removal efficiency from the mercury content in the coal we burn in Pennsylvania. Given that no technology available today can achieve, much less exceed (necessary to create tradable credits) a 94 percent mercury removal efficiency, we firmly believe that every affected plant in the Commonwealth will have to install some mercury removal technology or be shut down by 2018. For this reason, the DEP's concern about "hot spots" is completely misplaced. Furthermore, scientific evidence provided at the DEP mercury workgroup meetings by US EPA, the Electric Power Research Institute, and the Brookhaven National Lab suggest that the "hot spot" issue is not a concern, and certainly not a sufficient reason to rule out a market-based approach to controlling mercury emissions.
In her written response to the legislative members of the EQB, to EPGA, the Pennsylvania Coal Association (PCA), the United Mine Workers of America (UMWA), the International Brotherhood of Electric Workers (IBEW), and in remarks before this Committee, Secretary McGinty has repeatedly pointed to CAMR's favorable treatment of western sub-bituminous vs. eastern bituminous coal as a source of competitive disadvantage for Pennsylvania and a reason why we need a Pennsylvania rule. She has also mentioned on several occasions that we need a state rule to protect Pennsylvania coal related jobs.
EPGA remains opposed to a state rule because we believe it will only compound the competitive disadvantages for Pennsylvania. Given that any state rule can be no less stringent than a federal rule, the only way Pennsylvania can redress the disparate treatment of western vs. eastern coal is to allow generators to participate in the federal emissions trading program, and to purchase, at their own expense, the mercury emission allowances that the Secretary notes were over allocated to western states. Indeed, that will likely be part of the compliance strategy for some Pennsylvania sources to remain competitive under CAMR.
In addition to the competitive disadvantages Pennsylvania sources face due to disparate treatment of western versus eastern coal, and the highest mercury emission reduction requirements in the nation, Pennsylvania faces a third disadvantage. Our plants must compete in the wholesale electricity market against regulated generators whose public utility commissions allow them to pass the costs of their investments in emissions control equipment on to their captive ratepayers. Generators in electric choice states like Pennsylvania must recover these investments by raising their bids in the competitive market. Thus generators in choice states like Pennsylvania face higher risks of non-recovery and greater capital investment costs. Some states in regulated jurisdictions are going as far as to "securitize" their utility generators' investments in emissions control equipment, much like our state did with utility "stranded costs" following Pennsylvania's electric restructuring. The point is that while some other states appear to be taking steps to help their generators lower their compliance costs and be more competitive in the wholesale power market, we appear to be going out of our way to make our competitive disadvantages worse.
By forbidding emissions trading, DEP would be deliberately introducing a fourth and, in our view, more damaging source of competitive disadvantage, preventing Pennsylvania sources from minimizing their already high marginal costs of compliance, and unnecessarily maximizing the negative impact on power plant output, jobs and local energy costs.
Mercury, in certain circumstances, can cause health impacts, and we support federally-mandated mercury reductions in the United States and Pennsylvania. We firmly believe that an 86% reduction in Pennsylvania's mercury emissions is an appropriate risk mitigation strategy for Pennsylvania citizens. However, we object to using misinformation as the basis for a costly and overly-regulatory environmental control program in Pennsylvania. There is absolutely no medical or scientific evidence to support the claim by some that thousands of babies are born each year in the United States with increased risk of brain development issues and other health problems or that any children in Pennsylvania have been or will be impacted by mercury emissions from Pennsylvania power plants. These people are irresponsibly and grossly extrapolating impacts observed in a study of a North Atlantic island population that consumed large amounts of pilot whale meat with high mercury content. In fact, the national Centers for Disease Control and Prevention have recently found that the blood of 100 percent of the women and children studied had mercury levels significantly below the threshold for any known risk.
Regarding the process question, this issue originated in a petition filed by PennFuture and others to the Pennsylvania Environmental Quality Board (EQB). DEP formed a Working Group in which EPGA and three of its member companies have been participating. We respect that Secretary McGinty has convened these meetings before submitting a proposed rule, that she has permitted industry to present expert analysis, and that she has reviewed and replied to letters submitted by EPGA and others expressing our strong opposition to a Pennsylvania-specific mercury rule. But that said, to date, we have heard no compelling evidence why the Commonwealth should adopt its own mercury rule.
If a state mercury rule - with such profound impact on the Commonwealth's economy - is such a compelling idea, why then didn't the petitioners introduce legislation to achieve their purpose? If the members of this Committee had attended the DEP mercury work group meetings, you would have discovered why. There is not a good case to be made for a piecemeal, balkanized, state-by state approach to regulation of mercury emissions.
And we must further ask, why did some of the petitioners, after the legislative members of the EQB voted against a state rule, find it necessary to hold press conferences throughout the state accusing those legislators of being against protecting the citizens of the Commonwealth from mercury pollution, as though there was no federal requirement for specific mercury reductions to be made beginning in 2010, which requirement those legislators fully endorsed? Is this how we're going to make important environmental policy in this state – through petitions to the EQB supported by misleading attacks on any legislative leader who dares to oppose the policy? What kind of message does this send to the investment community regarding regulatory risk in the Commonwealth? We respectfully submit that this entire process is backwards and just plain wrong.
At this time we do not know where the DEP rulemaking process will lead us. We just heard some of the concepts and proposed details this week. We have not seen anything in writing so we have not had the opportunity to fully digest it in its entirety. However, we do welcome this Committee's involvement in this process and believe you should play a key role. If Pennsylvania is to adopt its own mercury rule, the General Assembly should be fully involved up front. There should be hearings like this one so that the relative merits of a state-specific rule vs. the federal rule can be fully explored before a rule is promulgated. This matter involves energy, environmental and economic issues far too complex and important to the welfare of this state to be left to a petition process before the EQB with input from the General Assembly relegated to the back end of the regulatory review process.