ASSEMBLY POLICY AND REGULATORY OVERSIGHT COMMITTEE
HEARING ON THE ENVIRONMENTAL IMPACTS OF ELECTRIC
RESTRUCTURING ON NEW JERSEY
Trenton, New Jersey
March 2, 1998
REMARKS OF BLOSSOM A. PERETZ, ESQ., DIRECTOR
DIVISION OF THE RATEPAYER ADVOCATE
Good morning Assemblywoman Heck and members of the Committee. Thank you for inviting me to speak at this hearing. My name is Blossom Peretz, and I am the Director of the Division of the Ratepayer Advocate. This committee will undoubtedly hear many conflicting stories about what may or may not happen to our environment as a result of the introduction of a competitive retail electric industry in New Jersey. We all share concerns for the health, safety and welfare of New Jersey residents. Although my office maintains a close watch on the available evidence, and considers its weight and balance in formulating positions, I cannot take a position on the statistics or the science that will be introduced to support one position or another. I would, however, like to share with the committee some conclusions I have been able to draw from the restructuring activities around the country, especially as they pertain to the issues of identifying pollutants and their sources, how to use this information to protect the environment of New Jersey, while serving the overall goal of supporting competition and reducing electricity rates for our residents, businesses and industries.
The Ratepayer Advocate supports the introduction of competition in the retail power market because it promises lower prices and innovative research and development. "Consumer choice" continues to be the primary driver of the movement toward competition. We believe that providing consumers with accurate, reliable and meaningful information about the environmental consequences of their power supply options may encourage consumers to select a power source which is consistent with New Jersey's environmental goals. Many consumers, including some of New Jersey's largest companies, have indicated that they would pay more for power produced by "environmentally-friendly" power plants than for cheaper "dirty" power. Of course, we must keep in mind that the original impetus for deregulation came from large electricity consumers who wanted the cheapest power they could get. In New Jersey, this seeming paradox is particularly acute because we must address the two most extreme problems facing our electricity industry- high prices and low air quality. Our challenge, then, is clear: reduce the prices paid for electricity in New Jersey while improving our air quality. There is nevertheless significant potential for adverse environmental impacts on our State due to the reality that, for the immediate future, coal-fired plants in states to our west will generate some of the cheapest electricity available to our region.
Roughly one-third of all air pollutants are attributable to fossil fuel electricity generation, chiefly coal, to a lesser extent oil, and even less to natural gas. The three most notorious pollutants are nitrous oxide (NOx), sulfur dioxide (SO2) and carbon dioxide (CO2) emissions, and these should be the focus of our efforts. Each of these compounds has certain hazards attributable to it: NOx is a precursor to the formation of ground level ozone, which causes or aggravates a number of lung conditions; NOx and SO2 are the primary sources of acid rain; and CO2 is one of the primary global warming gases. Since the levels of each pollutant vary from fuel to fuel and from plant to plant, understandable, credible environmental facts are critically important to informed consumer choice.
Market research around the country has shown that consumers are concerned with the environmental impacts of their energy choices. For example, a survey of customers in Nevada revealed that over 82% of customers favored making environmentally-friendly power available to people who would pay for it. Three Dallas utilities also found that over 80% of their customers wanted future electricity needs to be met by a combination of energy efficiency programs and solar and wind power generation. In Massachusetts, 31% of customers in their pilot program chose suppliers offering "green" options at a slightly higher price than conventional generation. The term "green" power is one New Jersey consumers are likely to hear more and more as competition is phased in, but it is a term that defies a single definition. It can be used to describe electricity produced only by renewable energy sources, or it could be used in reference to any power source that meets federal emissions standards- such as nuclear plants, or coal plants with advanced pollution control technology. "Renewable" refers to electricity generated by renewable energy resources, such as solar, wind, and biomass, that are so named because the source of energy does not deplete a finite natural resource. Some of these methods for generating electricity produce minimal or no pollution, and although some cost much more than conventional fossil fuel generation, they are becoming more price-competitive all the time. Many energy marketers have identified this trend, and attempt to sell their electricity based on its "green" characteristics. However, New Jersey has virtually no renewable energy generating capacity at this time. Therefore, many of the "green" claims heard in New Jersey will involve fossil fuel generation, with an emphasis on pollution control, or nuclear generation. In New Hampshire's pilot program, some conventional fossil fuel power was marketed with "green" incentives such as tree-planting programs, donations to the Sierra Club, or promises to invest in renewable energy in the future. These claims may be persuasive, but have the potential to mislead customers. To avoid such problems, and verify such claims, a system of identifying and verifying the sources of electricity must be a part of the restructuring process.
The Ratepayer Advocate favors a strategy already being tested in California and Massachusetts. The disclosure of certain information important to consumers and the environment can be done by using a format similar to the simple and familiar "nutrition label" found on food products. A simple, informative, easily understood and widely available label is fundamentally important to the effectiveness of environmental disclosure. Listing fuel sources such as nuclear, coal, oil, natural gas, and renewables, along with their percentage of the overall fuel mix, would enable consumers to compare "apples to apples." The use of simple graphics, such as a pie chart, to describe the various fuel sources used by an energy supplier would make such comparisons even easier.
To supplement such information and make it more meaningful, a second label could simply describe the pollutants caused by the energy supplier's generation mix. Again, the idea is to provide consumers with uniform information that allows for easy, meaningful comparisons independent of marketing hype. Listing pollutants produced per kilowatt/hour, for example, and comparing it to a reference point such as a regional average for all generators gives consumers and regulators vital information about the energy choices available.
Skeptics will rightfully point out a potential flaw with such a labeling system- verification. Since electrons cannot be tracked, it is impossible to say that a certain plant produced the electricity used by a certain end user. This issue has great ramifications for those consumers who choose their power supplier based on the type of electricity generation that particular supplier markets. In short, restructuring must include a mechanism that ensures consumers are getting what they paid for. Labels alone do not provide such assurances.
Two surrogates for explicit tracking of electricity flows are being investigated at this time. One strategy is known as the "settlement approach" and relies on the paper trail of buy and sell transactions from the original generator to the final end user. This approach will rely on the regional coordinator, or "independent system operator" (ISO) to obtain records and make reports. The ISO will monitor the "money trail" to see that it reflects an energy marketer's supposed portfolio of electricity supply and emissions averages. While complicated, this approach makes sense to consumers, who view it as relatively trustworthy.
The other alternative is called the "tagging approach." Similar in some ways to the federal "emissions credit" approach, it too relies on the ISO to monitor each energy marketer's portfolio of supply and pollutants, but there is an important difference: instead of relying on a string of contracts, energy marketers will obtain and trade "tags" independent of their electricity. These tags will have fuel and emissions data that reflect actual supply somewhere on the regional system, but that supply does not have to be owned or run by the holder of the tag. The tradability of tags would create a tremendously liquid market for both electricity and environmental characteristics. For example, if a firm wished to market 100 percent hydropower electricity, it could simply buy hydro tags in the tag market. Whether or not that firm owned or contracted with any hydro plant would be irrelevant- the power it sold would be produced by a hydro plant somewhere in the system. The ISO would periodically "call in" all the tags and audit the system to ensure the accuracy of the tags. The problem is that consumers may distrust a system where the marketing claims are not directly linked to the generating source.
Both the settlements approach and the tagging approach are capable of verifying the generating mix and emissions data used by energy suppliers to market their products. Another option involves a "portfolio standard" that could require firms to include a percentage of renewable generation, along with energy efficiency programs, in their resource mix. Some combination of approaches may yet yield an even better system. Ultimately, any system of verifying the sources of electricity generation and its concomitant pollution must be accurate and dependable, yet flexible and responsive to the demands of the marketplace.
In addition to labeling and verification, strong consumer protection mechanisms must be in place. Restructuring must provide for the licensing of energy suppliers who wish to market electricity in our State. Environmental disclosure requirements must be crafted, perhaps by the Board of Public Utilities and the Department of Environmental Protection, and these requirements should be part of the licensing procedure. Administrative penalties should include fines, suspensions and license revocation for violations of disclosure requirements or other acts of fraud or misrepresentation.1
Consumer information and adequate verification of marketing claims may not be enough to protect New Jersey's environment. The only guaranteed way to reduce the emissions associated with electricity generation may be to use less electricity. The recent report of the Environmental Disclosure Subcommittee of the Consumer Protection Advisory Task Force described energy efficiency as "the top of the hierarchy of methods for addressing pollution." Currently, the utilities are required to run Demand Side Management (DSM) plans that seek cost-effective reductions in energy consumption. Originally conceived with the purpose of decreasing the end-user's need for electricity (and reducing the capacity needs of utilities) through the installation of advanced motors, lighting, heating and cooling systems, and other efficiency measures such as timers, these programs require up-front investments that recoup their value and more over time. However, in a competitive retail environment, there will be a positive disincentive for energy suppliers or distribution companies to offer DSM programs. Increased consumption will be the only sure path to profits without strong incentives for DSM plans to continue in some form. In the near term, the simplest way to maintain energy efficiency programs is to continue the responsibility of the distribution companies- the remaining monopolies- to conduct cost-effective DSM programs.
Some examples of "core" conservation, or DSM, programs to be provided by each electricity supplier or electricity distribution company in New Jersey include:
Mercury emissions are not commonly monitored at this time, but the adverse impact of such emissions on the quality of New Jersey's drinking water is undeniable.
These "core" requirements advance public benefit goals by providing for programs of an informational, educational and/or technical assistance character by requiring efforts towards the goals of efficiency. They will also raise the sophistication of New Jersey consumers, enabling them to make better energy-buying decisions.
In conclusion, restructuring the electricity industry offers the consumers of New Jersey an opportunity to positively benefit the environment of our State. There will be more environmentally friendly energy choices available to more consumers than ever before. There should, however, be more data about our energy choices available than ever before. If we educate our electricity consumers about the impacts of their energy choices, make better alternatives available, and continue to invest in the most cost-effective energy efficiency programs and products, the restructuring of the electric power industry can both lower energy prices for New Jersey and improve the quality of the water we drink and the air we breathe.
Footnote
1) New Jersey must put in place a separate system of monitoring our environment to help state agencies track the environmental impacts of restructuring. The need for such a system is highlighted by the story in last Thursday's Trenton Times about mercury contamination in the Kirkwood-Cohansey Aquifer System. Even though the contamination was attributable to a number of sources, it was clear that coal-fired electricity generation is one of those sources. Back
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