Environmental Compliance & Generation Capacity (etc.) NGA Center for Best Practices State Executive Policy Forum on Electricity Restructuring April 4-6, 2001 – Philadelphia, PA Kenneth A. Colburn New 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 Environmental Regulations 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?

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

Pursue Integrated Air Quality Solutions –“Four-Pollutant” Approaches like NH’s Clean Power Strategy Reduce SO 2 by 75% Reduce annual NO x by 70% Reduce mercury by 75% Reduce CO 2 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? Energy Efficiency Path Energy Intensity Path Competitive Advantage Lost to Delay NOW ECONOMIC EFFICIENCY LATER Sustainability