State and federal command-and-control regulation of emissions from fossil-fuel electric power generating plants.

• Author: Reitze, Arnold W., Jr.

1. INTRODUCTION

   In 2001, the public was fed a steady diet of news stories concerning electrical energy shortages and escalating prices. California received the most attention after experiencing power blackouts, rationing, and staggering increases in annual electric power costs. (1) Some industry interests attempted to use the perception of electricity shortages to reduce the stringency of environmental laws. This effort could have been buttressed by the report of the President's National Energy Policy Group (NEPG), headed by Vice President Dick Cheney. (2) The group made at least fourteen recommendations that could impact environmental laws applicable to the fossil-fuel electric power industry. (3) However, shortly after the report was issued, Senator James Jeffords (I-Vt) left the Republican Party, which thereby lost control of the Senate. (4) The administration's ability to implement a change in energy or environmental policies was compromised by the split in the control of Congress and Senator Jeffords's position as the chair of the Senate Environment and Public Works Committee. (5) Nevertheless, environmental laws, especially the Clean Air Act (CAA), (6) will continue to be active battlegrounds because the imposed compliance costs can be an important component of the total cost of electric power. Since these costs are not necessarily imposed on the members of the electric power industry equally, their ability to compete in a deregulated market may be significantly affected by existing requirements and proposed changes to the air pollution control program.

   This Article will examine the major CAA command-and-control provisions applicable to fossil-fuel electric power generators and will discuss the major initiatives designed to more stringently regulate this industry. It will not cover economic-based regulatory approaches involving emissions trading of sulfur dioxide (S[O.sub.2]) and nitrogen oxides (N[O.sub.x]), (7) and will provide only a brief discussion of global warming issues, which may result in carbon dioxide (C[Osub.2]) reduction requirements being imposed on electric power plants. (8)

2. BACKGROUND ON THE ELECTRIC POWER INDUSTRY

   Environmental protection requirements imposed on fossil-fuel electric power generators by the United States Environmental Protection Agency (EPA) are subject to ongoing review because this is the industry most responsible for conventional air pollutant emissions and is a significant source category of hazardous air pollutants. Fossil fuels are used to generate about 68% of the electricity in the United States; coal is used to generate about 44% of the electricity. (9) In 1998, electric utilities emitted 67.2% of the nation's S[O.sub.2], 24.9% of N[O.sub.x], and about 10.6% of the small particulate (P[M.sub.10]) emissions,(l0) Moreover, sixty-seven hazardous air pollutants potentially are emitted from fossil-fueled electric power generating plants, and EPA predicts a 30% increase in these emissions by the year 2010. (11) In addition, about 40% of C[O.sub.2] from United States sources comes from electric power industry (utilities and nonutilities combined), (12) and domestic C[O.sub.2] emissions increased by 2.5% in 2000, which is a significant increase from the 1.3% average annual growth from 1990 to 2000. (13) The United States's emissions of C[O.sub.2] are responsible for an estimated 25% of the world's C[O.sub.2] emissions from fossil-fuel burning and cement manufacturing. (14) Moreover, increases in generating capacity are projected to increase C[O.sub.2] from the electricity sector by 14 to 38% by 2007 from the 1998 level. (15) In 1999, coal was used to generate 52.8% of the electricity generated in the United States; petroleum was used to produce 2.56%; and natural gas was used to produce 10.78% (16) The use of natural gas is projected to increase, coal use will increase more slowly, and petroleum use is expected to continue to decrease. (17) Most of the nation's coal-burning plants were constructed between 1950 and 1980, and these plants are the nation's most significant stationary source of air pollution. (18) New electric power plants almost always use gas-fired turbines because such plants are less expensive to construct, have a higher thermal efficiency, and produce far less pollution. This offsets the need for gas, which is more expensive than coal. (19)

   In 2001, there were more than five thousand electric power planks in the United States. (20) However, the field is dominated by a small number of investor-owned and publicly-owned utilities. In 1995, investor-owned utilities accounted for more than 75% of retail electric power sales and revenues. Ten companies accounted for 32.61% of the revenue from investor-owned electric utilities, over $53 billion dollars. (21) Publicly-owned electric utilities accounted for about one-eighth of the revenue from electric power sales; nearly half of the publicly-owned generation sales came from ten utilities. (22) Because the electric power industry is such an important stationary air emissions source, and because it represents the most cost effective target for major reductions of N[O.sub.x] and S[O.sub.2] emissions, much of the CAA program for stationary sources is aimed at controlling this industry. (23)

   The electric power industry is changing rapidly. Two laws--the Public Utility Regulatory Policy Act of 1978 (PURPA) (24) and the Energy Policy Act of 1992 (EPAct) (25)--started the move toward increased competition in the electric power industry. EPAct removed constraints on ownership of electric power generator facilities and encouraged competition in the wholesale electric power business. Consequently, on April 24, 1996, the Federal Energy Regulatory Commission (FERC) issued two orders that encourage wholesale competition in the sale of electricity. FERC Order No. 888 (26) opened access to transmission networks by requiring any public utility that controls electric transmission facilities used in interstate commerce to provide transmission services to generators based on a tariff filed with FERC, and Order No. 889 (27) requires utilities to establish systems to electronically share information on the availability of transmission capacity. (28) In 2001, changes in FERC's composition moved the agency to a more aggressive position aimed at controlling market power in wholesale markets. (29)

   Many state legislatures have moved to allow competition in the retail sale of electric power. As of March 2002, restructuring legislation had been enacted in. about half the states and the District of Columbia. (30) Other states have either pending public utility commission regulation or legislation to allow restructuring. (31) This deregulation movement slowed, at least temporarily, in the summer of 2000 when California residents experienced a massive increase in electric power costs with prices increasing from approximately $30 per megawatt hour to over $1000 per megawatt hour. (32) Initially, some people attributed this problem to environmental protection requirements. (33) However, the problem is a complex one driven by demand that can exceed supply. The market is influenced by an inadequate electric power transmission system, aging generating equipment with increasing maintenance needs, high natural gas prices, possible market manipulation by gas and electric companies, unseasonably warm weather, below average rain and snow that reduced hydroelectric supply in the Pacific Northwest, and improvident government decisions. (34) As these electricity supply problems became more acute in 2001, the movement toward deregulation was countered by demands for government intervention. After California's unfortunate experience, six states--Arkansas, Nevada, New Mexico, Oklahoma, Oregon, and West Virginia--that had begun deregulation placed the process on hold. (35) Other states, such as Delaware, Maryland, New Jersey, Pennsylvania, and the District of Columbia, continue to move toward deregulation but with additional government restrictions. (36)

   Deregulation has been a factor in mergers of electric utilities, mergers of electric power companies with gas companies, utilities merging with non-electric businesses, and acquisition by utilities of assets in states and countries other than the utility's service area. (37) Non-utilities are emerging as a vibrant component of the electric generation industry moving from a 7% share of total electric capacity in 1992 to a 17% share in 1999. (38) This is being accomplished by new capacity additions and by acquiring divested utility assets. (39) Between 1998 and 1999, non-utilities installed more new capacity than utilities. (40) Nevertheless, reserve margins decreased from 33% in the early 1980s to 12% in 1999. (41) Non-utilities primarily use simple cycle gas turbines to provide electricity during peak load periods or use combined cycle untis. (42) To the extent that natural gas replaces coal as the fuel used for electric power generation, the environment benefits. Modern gas-fired turbines have no S[O.sub.2] or mercury emissions; they emit only about 15% of the N[O.sub.x] of a well regulated coal-burning plant, (43) Moreover, combined cycle gas-fired generators are more fuel efficient and achieve efficiencies of 50% compared to coal-fired plants that are about 34% efficient. (44) Deregulation is expected to have a profound effect on electric power production and its impact on the environment. (45) Moreover, the market may not become more competitive, but may result in fewer than a dozen companies generating most of the nation's electricity. (46) Thus, the government may seek to play a more aggressive role to protect the environment. (47)

   In a regulated market, the costs of complying with environmental laws are passed directly through to the customers or are incorporated into the rate base of the utility. In the competitive market, the costs of compliance, which can be a significant portion...