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A conversation with physicist Alex Casella

Deregulation & the environment

by Peggy Boyer Long

Alex Casella, who teaches physics and environmental studies at the University of Illinois at Springfield, is the Illinois coordinator of the Union of Concerned Scientists. That group, based in Washington, D. C., and Cambridge, Mass., is actively involved in a range of environment-related issues, including the move to deregulate the power companies. Casella has taught and lectured throughout the world on energy and the environment. He also has served as a consultant to many national and local government agencies, political leaders and private industry.

Q. Environmentalists worry that as the large utilities fight to protect their investments and profits under deregulation, they'll push to reduce environmental safeguards. What are the concerns?

A. Efforts by utilities to cut expenses and compete on a short- term price-only basis could eliminate or minimize social and environmental costs as factors in decisions about energy supply. That's because market price doesn't include all the costs . associated with pollution or resource depletion. Utilities could cut back or dump renewable energy, fuel efficiency and some air quality programs.

Q. Let's talk about air quality first. You've suggested that deregulation could encourage utilities to keep their old plants running. Why is that a problem?

A. The cheapest power plants are frequently the oldest and dirtiest. As a result, in the medium term, industry analysts expect to see increased use of old plants.

Currently, quite a few older, coal- fired generators in the Midwest are generating well below their capacity limits. And these generators generally have operating costs well below current electricity prices in many parts of the country. The opening up of the transmission grid will provide these Midwestern generators with increased access to distant markets, encouraging them to run more intensively.

Recent and ongoing research suggests that increased generation from these plants is likely to increase nitrous oxide emissions. A typical older coal-fired plant emits from two to five times the nitrogen oxides and sulphur dioxide per kilowatt hour as a new plant. These increased emissions could contribute to air pollution problems in the Northeastern states and other regions.

Q. You also suggest that restructuring could set hack fuel efficiency. Why?

A. Due to competitive pressures, utilities may have an incentive to sell as much energy as they can and not help users become more efficient.

In fact, this is already happening to some degree in central Illinois. QST Trading Co. has been established by Cilcorp Co., which is the parent company of Central Illinois Light Co. They are offering customers a plan called a "No-Chill Bill" to purchase natural gas. Under this plan, the gas customers would have one flat monthly payment no matter how much they use, up to 150 percent of their average yearly natural gas usage.

The "No-Chill Bill" is basically a gamble that the customer takes on the winter weather. Customers can use up to one and a half times their average yearly gas usage with no additional cost — either because it's a colder winter, they use less efficient furnaces or other appliances, or they decide to turn up the thermostat. This type of billing is a disincentive to be efficient and conserve energy.

Q. What do you think would be the disincentive on renewable energy?

A. Since real competition is usually based on short-term costs and prices, the long-term economic and environmental benefits of renewable fuels, such as solar, biomass and wind, may be ignored and undervalued, and their development could be slowed. Thus, the market may not provide an adequate incentive to switch to less polluting but more capital-expensive energy sources, such as renewables.

This comes at a time when the policy-makers at the federal Environmental Protection Agency are proposing even more stringent air quality standards due to the considerable evidence that current standards are not adequately protecting the public.

Q. What suggestions do you have for Illinois policy-makers?

A. Policy-makers need to develop a variety of measures to get producers and consumers to take environmental costs into account by reducing energy use and investing in cleaner generating technologies or pollution abatement equipment. To achieve these goals, they have many options that fall into two broad categories. Command and control regulations require that polluters meet specific emission-reduction targets. The federal Clean Air Act is an example of such an approach. The other route would set incentive-based regulations, which would attempt to give polluters an economic reason to account for the damage their pollution causes. This could involve levying taxes for pollution, allowing utilities to trade permits to emit pollutants or rewarding firms that reduce pollution.

We could also require utilities to purchase a certain percentage of their energy needs from renewable resources. And we should revive some of the efficiency incentive programs of the 1980s. 

20 / January 1997 Illinois Issues