Page images
[ocr errors]


Market Mechanisms Should be implemented to the Extent

Market-based environmental strategies will produce more cost-effective environmental improvements than government micromanagement. For example, the sulfur dioxide allowance program in the acid rain title of the Clean Air Act Amendments of 1990 caps nationwide sulfur dioxide emissions, but allows sources to buy, sell, trade, and bank "rights" to emit sulfur dioxide on the open market. The cap and allowance program thereby ericourage sources to take economic and other considerations into account in their compliance planning.

In NEESPLAN 3, we are exploring market opportunities to offset or counteract greenhouse gas emissions, away from our energy sources. We believe the market approach will yield far more cost-effective control of greenhouse gases.


Narrow-Based Programs to Address Environmental Externalities
Are Costly to Consumers and Ineffective for Controlling

Greenhouse Gas Emissions

Some state public utility commissions' Integrated Resource Management (IRM) proceedings require that "environmental externalities" be weighed in resource selection to limit greenhouse gas and other emissions from new utility plants. The shortcomings of the externalities process are welldocumented." For example:


The evaluation process is inconsistent among the state public utility commissions that include externalities in their IRM proceedings.

. 10

The process does not recognize that some costs are already "internalized" (e.g., cap/allowance programs, required offset programs).

There is no scientific basis for substituting highest or marginal "cost of control" for the "cost of damage".

The process affects regulated utilities, but not their competitors. This increases the cost to regulated utilities and places them at a competitive disadvantage.


The United States Should Not Take Unilateral Action to
Reducing Greenhouse Gas Emissions

The immediate role of the United States should be to support scientific efforts, both national and international, to understand the global climate phenomena, and to seek agreement on implementing a "no regrets" strategy." Now is the time to learn, as we are doing in NEESPLAN 3, how greenhouse gases can be controlled or offset in an economical way. A well-defined action plan, that commits all nations, should be part of any international agreement.

If there is an international agreement which is verifiable, the United States should consider a modest but broad-based tax on carbon dioxide and other greenhouse gas emissions from all sources (e.g., transportation, industrial/commercial, and utilities). This would send a useful long-range signal to energy markets, and should be substituted for counterproductive externalities regulation. A broad-based tax of no more than $2.00 per ton of carbon dioxide-equivalent, rising at a real rate,

[ocr errors]


would begin to implement the "no regrets" strategy. This level
of tax represents prudent estimates of both the "cost of
damage" and the "cost of control" of greenhouse gases.
This would encourage sources to develop and implement
relatively low cost emission reduction programs, consistent
with scientific evidence on the cost of damage. Credits should
be given for emissions offsets. Each affected party could then
assess its control and offset opportunities, and determine the
best economic course of action. The United States should
specifically avoid large carbon emissions taxes that are not
scientifically justified and would significantly increase the price
of domestic fossil fuels and weaken our economy.



Enhance the Success of Utility Energy Efficiency Efforts By
Eliminating Conservation Taxes on Consumers

Congress should enact H.R. 1007 as proposed by Rep. Kennelly and several members of this Subcommittee, or similar legislation, which would eliminate treatment of conservation subsidies as taxable income to the customers who receive them. Taxing customers discourages participation by those who would benefit the most.


There Should be Financial Incentives for Regulated Industries for Environmental Improvements

Regulated industries such as utilities should have a financial incentive for making environmental improvements, such as reducing greenhouse gas emissions, in a cost-effective manner.

. 12

The environmental incentive could be comparable in concept to the energy conservation incentive we currently have in place. This conservation incentive has helped us become the leading conservation utility in the United States.?


The environmental incentive clearly must be tied to cost, to avoid environmental improvements that are not costeffective. The incentive should allow and encourage a variety of options, such as offsets, emission trading, and other innovations.


Thank you for the opportunity to describe our activities, observations and recommendations regarding greenhouse gas emissions.

DH8 dentrowo.ope



The name "New England Electric System" means the trustee or trustees for the time being (as trustee or trustees, but not personally) under an agreement and declaration of trust dated January 2, 1926, as amended, which is hereby referred to, and a copy which as amended has been filed with the Secretary of the Commonwealth of Massachusetts. The principal subsidiaries of New England Electric System (NEES) are The Narragansett Electric Company, Massachusetts Electric Company, Granite State Electric Company and New England Power Company.


In 1990, 67% of NEES energy came from fossil fuels (42% from coal, 22%
from oil and 3% from natural gas). The remainder came from nuclear
(19%), hydro (8%) and non-utility renewables (6%). See attached 1990
Annual Report of New England Electric System, p. 17.


See attached NEES brochure, What Quality Means at NEES. The NEES
Vision states:

The NEES companies pledge to provide our customers
the highest possible value by continuously improving
electric service, managing costs, and reducing adverse
environmental impacts.


See attached NEESPLAN 3 - Environment. Economy, and Energy in the 1990's. NEESPLAN, introduced in 1979, forth objectives to (1) introduce conservation and load management to reduce the need for new power plants and, (2) improve energy supply by reducing reliance on imported oil. NEESPLAN 2, introduced in 1985, emphasized least-cost planning of demand-side and supply-side resources to keep pace with New England's growing energy demands.


In 1991, revenues per kWh for selected New England utilities were:

Commonwealth Energy
United Illuminating
Eastern Utilities
Northeast Utilities
Public Service of New Hampshire
Boston Edison
Central Vermont Public Service
Central Maine Power

Cents per kWh

11.25 11.06 10.64 9.54 9.46 9.29 9.06 8.99 8.43 8.39

« PreviousContinue »