Utility Deregulation Fuels Regional Spat

Midwest power plants could lower Northeast's electric bills, but air quality may suffer

Americans will soon have access to cheaper electricity, but there's a catch: The cheapest electricity is often produced by the dirtiest plants.

Deregulation of the utility industry is set to save consumers millions of dollars on their electric bills by allowing them to buy their electricity from any company, anywhere in the country. But this nationwide competition could create regional problems.

Utilities in the Northeast are cleaner, but more expensive. As deregulation takes hold, industry experts fear that Northeast customers will flock to the cheaper electricity provided by the coal-fired plants of the Midwest. Many of these experts, gathered in Philadelphia this week to deal with the issue, say the environment could pay the forfeit of America's economic gain.

"We are pro-competition," says Ned Sullivan, commissioner of Maine's Department of Environmental Protection. "But we don't want to see our utilities collapse only to see the expansion of generating activity from dirty coal-fired plants upwind."

This balancing act leaves consumers in the eastern United States with one major question: Do they want the cheapest power or will they pay back a little of their savings from deregulated electricity to clear up the ground-level haze during hot, sunny days? This kind of pollution has been linked to human health problems, reduced crop growth, and weakened forests.

The economic stakes for utilities are huge. It costs Northeast Utilities, New England's largest electric utility, about 3 cents to produce a kilowatt hour of electricity at one of its plants. A coal-fired Midwestern facility can create the same power for roughly half that cost, says Chuck Carlin, principal engineer for environmental affairs at Northeast Utilities, based in Hartford, Conn. Worse, even though the Midwestern utilities are responsible for a substantial portion of the smog and other ground-level ozone problems in the Northeast, they have not had to put in the costly environmental controls that Northeastern utilities have.

Why? Because until now, federal regulators have not been able to deal well with the long-distance movement of pollution, known as transport. As evidence accumulated, however, the Ozone Transport Assessment Group (OTAG) was formed to study the issue. Its findings, which should be completed in April, are the most detailed, sophisticated look yet at the "pollute-thy-neighbor" effects of ground-level ozone.

According to what OTAG has found so far, some pollutants, especially nitrogen oxides - known as NOX - can travel from 250 to 500 miles in the northern US. This means that the NOX spewing out of power-plant smokestacks and automobile tail-pipes in Ohio can have a huge affect on the air quality in New York. In fact, NOX has been found to be the single biggest factor behind the Northeast's ground-level haze.

The question now is what to do about it. As OTAG races to finish its research by April, the Environmental Protection Agency is moving along a parallel track to impose NOX limits on individual states. And state regulators and even some utility representatives believe the agency will act from a regional perspective, telling Midwestern states to reduce their NOX output because of what Northeastern states are experiencing.

This has created a tug-of-war between Midwestern and Northeastern utilities. The Midwest power producers are pushing to limit the costs associated with controlling NOX, which could run into the billions of dollars. But according to Mr. Carlin, whose utility installed the first NOX-reducing selective catalytic reduction unit in the US, the overall cost was substantially less than first expected. The unit added only about 0.2 cents per kilowatt hour.

"I think we are going to see 'green' power," says Bob Shinn, commissioner of New Jersey's Department of Environmental Protection. "How can we have the cheapest priced power with the least impact on the public's health? That debate is what's going on now."