1 STATE OF NEW JERSEY DEPARTMENT OF ENVIRONMENTAL PROTECTION 2 CLEAN AIR COUNCIL THE IMPACT OF ELECTRIC UTILITY 3 DEREGULATION ON NEW JERSEY'S ENVIRONMENT 1999 PUBLIC HEARING 4 5 6 7 8 9 Transcript of proceedings taken on April 14, 1999 at 9:30 a.m. at the Department of Environmental 10 Protection, 401 East State Street, Trenton, NJ. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 2 1 A P P E A R A N C E S 2 CLEAN AIR COUNCIL MEMBERS: 3 George Currier, P.E. 4 Peter S. Palmer, NJ Association of counties Irwin S. 5 Zonis, public 6 Michael Berry, NJ Department of Health and Senior Services 7 Stephen J. Papenberg, NJ Health Officers Association 8 Farid Ahmad, P.E., NJ Department of Community Affairs 9 Raymond M. Manganelli, PhD, public 10 Pete Anderson, NJ Department of Agriculture 11 Michael Egenton, NJ Chamber of Commerce 12 Jorge H. Berkowitz, PhD., Business and Industry 13 Joseph A. Spatola, PhD., public 14 John Maxwell, public 15 Erin Indelicato, Clean Air Council Liaison 16 17 18 19 20 21 22 23 24 25 3 1 I N D E X 2 3 SPEAKER PAGE 4 Robert C. Shinn 11 5 Richard Bagger 29 6 John Wisnewski 40 7 Glen Weiss 47 8 Carol Murphy 55 9 Hal Bozarth 64 10 Chris Siebens 80 11 Mark Brownstein 92 12 Brian KillKenny 110 13 Cherae Bishop 121 14 Jim Sinclair 129 15 Steve Gabel 138 16 Michele McMorrow 150 17 18 19 20 21 22 23 24 25 4 1 MR. SPATOLA: My name is Joseph Spatola. I 2 want to welcome the general public this morning 3 to our annual public hearing for 1999. The 4 subject of this year's public hearing is the 5 impact of the electric utility regulation on New 6 Jersey's environment. As the general public 7 knows, the regulations of the electrical utility 8 industry resulting from federal actions stands a 9 great competition in the process of offering 10 lower electric rates for all customers. The 11 deregulation, however, there are other impacts 12 expected to occur particularly on the 13 environment. Today we will explore this aspect 14 of deregulation in an attempt to determine how 15 public policy should will be developed to deal 16 this this matter. As chairman of this mornings's 17 public hearing, or today's is Dr. Jorge Berkowitz 18 to my right, and he will be sharing and 19 overseeing this public hearing today. Before I 20 turn it over to him, I would like to have the 21 members of the Clean Air Council introduce 22 themselves. Before that happens, I would like to 23 take this opportunity to pay special thanks to 24 Mrs. Erin Indelicato for all her work and effort 25 to get this public hearing together so we can 5 1 have it this year as we do every year. And also, 2 to thank John Elston who has helped in sharing 3 the department of resources in putting this 4 hearing together as well. So at this point I 5 would like to get introductions done across the 6 board here. 7 MR. MAXWELL: My name is John Maxwell. I'm 8 a member of the public. And when I'm not a 9 member of the public I'm with the New Jersey 10 petroleum council. And I would like to also say 11 special thanks to Joe for being our chair during 12 the last year, he's done a marvelous job. As 13 well as to recognize the other folks who 14 distributed their time and effort to the work of 15 the Clean Air Council. 16 MR. CURRIER: My name is George Currier. 17 I'm vice president in charge of the mechanical 18 engineering. I represent the New Jersey society 19 of professional engineers. 20 MR. PALMER: I'm Peter Palmer, representing 21 the New Jersey association of the counties. 22 MR. ZONIS: Irwin Zonis, I'm a public 23 member and I'm retired. 24 MR. BERRY: Michael Berry, I represent the 25 New Jersey Department of health and senior 6 1 services. 2 MR. PAPENBERG: Stephen Papenberg, I'm the 3 health officer of South Hunterdon Township. I'm 4 also the president of New Jersey local boards of 5 health association. And I'm representing New 6 Jersey health officer's association. 7 MR. AHMAD: Farid Ahmad, I represent New 8 Jersey department of community affairs. 9 MR. ANDERSON: Pete Anderson, I represent 10 the secretary of agriculture, and the department 11 of agriculture. 12 MR. EGENTON: Michael Egenton, representing 13 the New Jersey state chamber of commerce. 14 MR. BERKOWITZ: Good morning, my name is 15 George Berkowitz, I'm a vice president of 16 environmental scientists. And I represent New 17 Jersey business and industry association. 18 MR. MANGANELLI: I'm Ray Manganelli and I 19 represent the public. 20 MR. BERKOWITZ: I'd like to thank Joe for 21 the introduction of today's topic. I'd just like 22 to take a couple of minutes to reintroduce what 23 we're looking for today, as well as some of the 24 ground rules. First of all, I would like 25 to--let's go over some housekeeping details, it's 7 1 probably more important than anything. There 2 will be no breaks today, no scheduled breaks, so 3 you all have to stay here. We have a very tight 4 schedule, a very tight schedule indeed. We're 5 booked up with speakers until 3:30, and knowing 6 us for asking questions, it's going to be a 7 difficult task to stay on that schedule, but I 8 will do my best. Therefore, with three minutes 9 remaining in your allotted time, I will tell you 10 that. And then, with a certain amount of 11 tolerance, I will tell you to please end your 12 discussion or your presentation. If we run very 13 late, which is a possibility, and hopefully not a 14 necessity to do this, the chair reserves the 15 right to cut down the scheduled 15 minute 16 presentations to whatever is necessary. I hope 17 we don't have to do that. I also would like to 18 give a couple of thanks, first of all, the 19 subcommittee of the Clean Air Council who worked 20 on putting this together, Dr. Spatola, Mr. 21 Maxwell and Mr. Egenton, I thank very much for 22 their time and efforts. I also would like to 23 Erin Indelicato for doing just an outstanding 24 job, as well as members from the department who 25 serve us extremely well and with a great deal of 8 1 attention. And Mr. Elston, and Mr. O'Sullivan 2 and people like Sandra and so forth and so on, we 3 are really thankful for all of their efforts for 4 working with the Clean Air Council. We are here 5 to discuss the impacts of senate five, Assembly 6 ten sponsored by Senator Bruso and Assemblyman 7 D'Catano and Barget. I think perhaps the best 8 way to launch into this is really to take a look 9 on the our announcement, because I cannot do a 10 better job of discussing the issues that we seek 11 to explore in today's session. First of all, the 12 Clean Air Council was formulated in 1954 by an 13 act of the legislature. The clean air 14 council--one of the tasks of the Clean Air 15 Council is to make recommendations to the 16 commissioner of the department of environmental 17 protection on topics as they impact clean air. 18 One of the ways that we do this every year is we 19 have an annual hearing on a topic that we think 20 is timely and appropriate, in order to hear from 21 all the representatives of the 22 all--representatives of all the public so that we 23 can assimilate the information, digest it, 24 discuss it, debate it, and then come out with a 25 recommendation report to the commissioner 9 1 regarding that specific topic. That's what this 2 is all about today. The New Jersey citizens can 3 expect to see the deregulation in the state's 4 electric utility industry the summer of 1999. I 5 believe the date is August 1 for electric, and 6 December 31 for gas, if I'm not mistaken. How 7 will these changes affect their environment? The 8 question will be the topic of the New Jersey 9 clean air council's April 14, 1999 public 10 hearing. The purpose of the hearing is to 11 provide information to the Clean Air Council from 12 interested members of the public about the 13 potential environmental impacts of energy 14 deregulation. A transformation of the electric 15 industry is expected to result in deregulation. 16 Many predict that this transformation will affect 17 the type of fuel used in generation of 18 electricity, which in turn will affect the type 19 and amount of pollution New Jersey's air, as well 20 as the pollution transported downwind into New 21 Jersey from other states. The hearing will 22 consider what the environmental impacts may be, 23 evaluate the degree or extent of the impacts, 24 consider what actions state government may take 25 to bring about environmental improvement, and to 10 1 address the consequences. The Clean Air Council 2 recognizes that individual electricity customers 3 may well affect the outcome. Deregulation will 4 allow customers to choose its supplier, and 5 decide whether to take the environmental 6 characteristics of the power into consideration 7 when deciding what power to buy. The hearing 8 will explore the best means to inform the public 9 of the significance of the choice they will 10 make. The Clean Air Council looks for the 11 following questions at the public hearing. One, 12 in 1995, 39 percent of New Jersey's electricity 13 came from coal, four percent from oil, 11 percent 14 from natural gas, 44 percent from nuclear, and 15 two percent from hydroelectric power. How will 16 this change with deregulation? Two, what effect 17 will deregulation have on New Jersey air quality? 18 What other environmental impacts might result? 19 For example, specifically related to mercury 20 contamination. And three, what plan does the 21 state government have? And this is an important 22 issue, and one that is keenly of interest to all 23 the council, but particularly select members on 24 the council. What plan does the state government 25 have to insure that the concerned public is 11 1 provided the information it needs? What 2 information does a citizen need to make an 3 informed choice in selecting an energy supplier? 4 And by the way, we have previewed some attempts 5 at this, and quite frankly, we're still not 6 convinced that anybody has the best way of doing 7 this. Four, how can state government protect New 8 Jersey air from being polluted by emissions from 9 less clean, out-of-state energy sources? Five, 10 what types of conservation and new clean sources 11 including those that rely on renewable energy, 12 should be encouraged in New Jersey, and what can 13 state government do to promote these? Six, will 14 deregulation provide incentives or disincentives 15 for conservation and renewable power? That's 16 what we're trying to do today, trying to 17 understand all these issues. And without further 18 to do, it's my distinct pleasure, and always a 19 pleasure, to introduce you to the department of 20 environmental commissioner, Mr. Robert Shinn. 21 MR. SHINN: Thank you very much. It's my 22 pleasure to be here this morning and address the 23 council. And I'd like to thank all the members 24 for all their good work in dealing with an issue 25 that's really a tough one for New Jersey. I just 12 1 think that looking back ten years where we were 2 in 1988, with 45, one hour ozone violations and 3 where we are in 1998 with four, one hour 4 violations is pretty indicative of the progress 5 we've made. However, that's with a one hour 6 standard, and with the eight hour standard it's a 7 different story. I think we have something like 8 47 violations of the eight hour standard this 9 year, so we've got our work cut out for us. But 10 it appears with some additional reductions of NOx 11 and VOC's, that the one hour standard is somewhat 12 within our reach. As you know, the second phase 13 of the OTC, NOx goes into effect May of this 14 year, which is a 65 percent reduction level. So 15 NOx being one of our targeted precursors, we're 16 going to see additional reductions in NOx. Phase 17 two, the acid rain is the following year, 2,000, 18 so we'll see some additional benefits from SO2 19 reductions following the suit. The discussion, I 20 guess, on the deregulation relative to impacting 21 New Jersey's air quality is something that we've 22 had on our minds for a good number of years, and 23 I think our meetings through the OTAG process, or 24 ozone transport assessment group, with FERC, 25 federal energy regulatory commission, I think 13 1 John had about three of those or so, and I guess 2 we were on two tracks, we never seem to be able 3 to engage FERC on the front end with independent 4 meetings with the emissions issue directly, even 5 though they did an environmental impact study, 6 there were some assumptions in that study which I 7 think were on the positive side from their 8 perspective on what would happen to air quality. 9 So this whole process involved, I think OTAG kept 10 pressure on that process, that ultimately the 11 council of the environmental quality that serves 12 the president on the environment, and Carol 13 Browner and FERC really came to a consensus. 14 OTAG modeling said there was about three million 15 tons of transport, and the consensus was, in a 16 letter to OTAG from the administrator, said that 17 we're going to reduce two million tons of that 18 transport. So the northeast was going to get, 19 essentially, a million tons of net transport. 20 And this decision and letter probably goes back 21 the best part of 18 months or so. So I think 22 that sort of, in a way, set a little bit of the 23 tone for the OTAG process. And as you know, OTAG 24 came to a near consensus vote of thirty-two to 25 five out of the 37 states recommending to EPA 14 1 that regulations be put into effect that reduce 2 air emissions from 55 to 85 percent from the 1990 3 inventory levels. And that was a pretty 4 significant recommendation, that modeling went to 5 EPA. They worked on finer grid modeling, and I 6 think their SIP call is very supportive of the 7 OTAG work and a finer resolution from a grid 8 perspective of what the impacts on individual 9 states really mean. There's a huge controversy 10 on the SIP call, and that will go on for probably 11 another year or so. But I can tell you that 12 we're very satisfied with process, we think it's 13 the beginning of our way to address the eight 14 hour standard. There's a lot of other work that 15 we have to do to address that standard, but 16 certainly the SIP call is the heart of soul of us 17 being able to achieve health base standard in New 18 Jersey. The electric discount and energy 19 competition act is a massive and over arching 20 legislation with significant implications for New 21 Jersey's economists. It deregulates the energy 22 industry and transforms the marketplace from a 23 closed monopoly to an open competitive market. 24 It's broader in scope and will set a motion a 25 transition from a fully regulated industry to a 15 1 competitive power supply marketplace. It will 2 need to do this while preserving reliable power 3 supply and delivery systems at the same time, 4 while providing fair treatment to all 5 stakeholders during the transition. It's a 6 complicated process, and many of you who have 7 spent sometime reading the legislation are 8 probably as confused as I am. But it's the 9 environmental aspects that we're here today to 10 discuss. The part of the deregulation law that 11 is intended to mature the improved energy 12 efficiency and demand side management remain a 13 part of the state's long term energy efficiency 14 strategies for all New Jersey consumers. 15 Important parts of the deregulation law address 16 changes in technology, and the mechanisms to aid 17 in the delivery of cleaner renewable sources of 18 energy within the competitive marketplace. We're 19 here to talk about the piece of the deregulation 20 law that establishes a process to prevent any 21 adverse impact on environmental quality in the 22 state. This act now means that you and I 23 individually, and collectively as businesses, the 24 general public and government will now have to 25 make decisions on how to use energy. In these 16 1 decisions we need to consider the environmental 2 impact and benefits of those decisions. While 3 the entire bill has many aspects, there are four 4 main areas of the deregulation bill that interact 5 with our environmental goals. Environmental 6 disclosure, renewable portfolio standards, 7 emissions portfolio standards and renewable 8 energy technology and energy efficiency funding. 9 And before I discuss these areas and how the DEP 10 can assist the BPU in this process, I want to 11 talk about the marketplace initiatives that we 12 have implemented at DEP. New Jersey has 13 implemented an open market emission trading 14 program for NOx and VOC. And NOx credits 15 currently trade for close to a thousand dollars a 16 ton and VOC credits trade for a little over two 17 thousand dollars a ton. And we probably, last 18 count, have something a little over 22 hundred or 19 is it 22 thousand tons of credits, both NOx and 20 VOC. So people have used the incentive to 21 generate reductions above and beyond their permit 22 levels to generate. We intend to utilize those 23 same market forces to advance the voluntary 24 greenhouse gas action plan. In a non-regulatory 25 approach, the GHG action plan sets a 3.5 percent 17 1 reduction over 1990 levels by the year 2005. We 2 expect to achieve these reductions through what 3 we have termed no regrets options. These options 4 we believe are doable and will be cost effective 5 as well as economically beneficial. Another 6 market force at DEP is a program to promote 7 environmental technologies. The basis for the 8 program is documented through verification by a 9 third party independent entity, the New Jersey 10 Corporation for Advanced Technology. NJDEP 11 certifies the overall performance of a technology 12 to meet the highest environmental standards and 13 minimize any impacts to the environment. With 14 the verification of the performance of 15 technologies to do better than the standards, we 16 will still work within the state and through 17 interstate reciprocity to breakdown regulatory 18 barriers to promote and apply these cleaner 19 technologies. I hope that many of you have the 20 environmental expo on your agendas, you'll see 21 some of these technologies at the expo. And 22 that's April 20 and 21 at the convention center 23 in Atlantic City. I think at this point there's 24 about 85 venders supplying various types of 25 technologies. You can see from the slide that 18 1 was up there a minute ago our basic distribution 2 of sources of emission reduction is pretty well 3 distributed among the six generations of green 4 house gases. And transportation certainly plays 5 a big part of automobiles and fuels. Government 6 has its own impacts and we put the municipal 7 waste category under government. We have a lot 8 of landfills that generate a lot of CO2 methane 9 and VOC's, and we've targeted them as part of our 10 inventory reduction for not only leachate 11 collection and capping and methane gas 12 utilization as well. Agriculture land use, the 13 industrial commercial sites, retail manufacturing 14 and certainly the residential has a major impact 15 as well. So we've distributed the impact I think 16 pretty well in what we call no regret 17 strategies. New Jersey's action plan, which was 18 one in the same with the greenhouse gas program, 19 we look at CO2 as an umbrella pollutant. It 20 impact toxics, as well as our clean air act 21 pollutant. We're in the process of refining or 22 base line inventory and our emissions data and 23 this is a lot of good work. The fellow putting 24 the slides on the screen, Mike Linka, he works 25 under our science and research division. And I 19 1 tell you there's a lot of people who are putting 2 a lot of work into this effort and what we can 3 get in reductions through an effective greenhouse 4 gas program. Again our target is three and a 5 half percent below the 1990 levels by 2005. 6 That's sort of a mid-course level in regard to 7 the international discussion that's going on. 8 The first thing we have to do is get control of 9 our increase of emissions, and the second thing 10 is get reductions. And we think 2005 is a 11 reasonable mid point force to review our programs 12 and our strategies and see how we're doing. 13 Again it is a no regrets reduction strategy, and 14 I guess the definition of no regrets, if we're 15 wrong about the science of global climate change, 16 and we try to stay out of discussions about the 17 science, because we think there's energy 18 efficiency really drives this program and adding 19 a technology component and a recycling component 20 to reach our goals supporting those 21 technologies. I think that's particularly unique 22 to New Jersey. Once in a while I forget that New 23 Jersey has a reputation of being the invention 24 state, and I think this program really challenges 25 that reputation. Again, the innovative 20 1 technology business, we're going to see something 2 very quickly in Atlantic City. We've got, the 3 last count, 27 states and at least four foreign 4 countries attending that event. And we think 5 you'll see some of the cutting edge technologies 6 that we think are a logical part of this 7 program. And of course outreach and educational 8 programs is the key part of any strategy to 9 reduce emissions, and that's something we're 10 going to spend a lot more time on. The 11 marketplace forces of emissions trading programs 12 and our innovative technology program can be 13 coupled with portfolio standards. The renewable 14 energy technologies created by the deregulation 15 law are a double savings for air quality. By 16 promoting renewable energy technologies we get 17 collateral benefits for emissions reductions in 18 all sectors of our economy. Simply put, CO2, 19 NOx, SO2, hazardous air pollutants and discharges 20 are products of inefficient production of energy. 21 We can no longer afford to dump waste products 22 up the stack without extracting their full energy 23 value. We can no longer afford to pass along the 24 costs of that inefficiency on to someone else. 25 Let's quickly overview each of these components. 21 1 Environmental Disclosure, Environmental 2 disclosure is a key outreach and education 3 measure. All consumers of electricity in New 4 Jersey will receive standardized information to 5 allow them to compare and purchase electricity 6 just like any other commodity. Included in this 7 will be information on the environmental impacts 8 of the energy being offered, so consumers may 9 take the environmental information into 10 consideration when choosing their power supplier. 11 Environmental Disclosure Label, a standardized 12 label will include information on: Fuel mix, 13 renewable energy sources; the air emissions of 14 the generating unite, carbon dioxide, oxides of 15 nitrogen, and sulfur dioxide, as reported and 16 verified by each electricity suppliers; the 17 retirement of emission credits and the avoided 18 emissions from energy conservation or energy 19 efficiency projects. You can see how the market 20 forces of NJDEP's Green House Gas Action Plan and 21 OMET tie into deregulation labeling. They are 22 one and the same. The electric suppliers may 23 split up their energy portfolio of power supply 24 to produce energy products with different 25 environmental characteristics and market them 22 1 independently. Low emission products can be 2 thought of as Green Power. To qualify as Green 3 Power product, emissions of all the listed air 4 pollutants would be labeled below a benchmark 5 level. I'll get to benchmarks later. One of the 6 key points in the legislative mandate to prevent 7 adverse environmental impacts is the flexibility 8 built into the law to potentially add any other 9 air pollutant. Both the BPU and DEP must make a 10 finding of need and establish the availability of 11 data in order to proceed. Renewable portfolio 12 standards, let's turn to the second major 13 component of legislation, renewable portfolio 14 standards. The overhead shows the current fuel 15 mix percentage for the Pennsylvania, New Jersey, 16 Maryland control area. Note the high percentage 17 of nuclear fuel usage, 34 percent, and the even 18 higher coal, 45 percent, usage. Oil, gas, 19 hydroelectric, and waste to energy, or methane to 20 energy, the remainder. Over the next 25 years, 21 the decommissioning of nuclear power plants may 22 result in a shift, upward in emissions associated 23 with power generation. If that replacement 24 energy is coal-fired plants, from predominately 25 out-of-state facilities upwind of New Jersey, our 23 1 baseline air quality could be negatively 2 impacted. That is why the OTAG recommendation by 3 the state's and EPA's SIP Call is so critical to 4 New Jersey. Natural gas will also play a 5 significant role with 3100 megawatts already in 6 the permitting process and another 1500 megawatts 7 on the way. I believe this is good news for New 8 Jersey air quality. Still, other alternatives 9 are needed to ensure that the power brought on 10 line is clean power. That's why the Renewable 11 Portfolio Standard is so important. There are 12 incentives in the law to encourage development 13 and implementation of clean, renewable energy 14 sources. The incentives include funding projects 15 through a societal benefit charge. Currently, 16 the BPU, in consultation with the DEP, is 17 undertaking a comprehensive resource analysis to 18 determine the incentive funding levels for Class 19 1 renewables and energy efficiency programs. The 20 goal of this analysis is to insure that we 21 encourage the most effective strategies for 22 obtaining clean power. The law establishes two 23 classed of renewable, and these definitions allow 24 us to align with other states such as 25 Massachusetts and Connecticut. Class 2 24 1 renewables are currently economically available, 2 while class 1 renewable will, in some cases, 3 require assistance to be fully commercialized. 4 This funding for assistance to fully 5 commercialize class 1 renewable technologies 6 starts at 25 percent of the current Demand Side 7 Management funding and will increase over time to 8 up to 140 million dollars per year. There is no 9 funding assistance for class 2 renewables. The 10 renewable energy portfolio standards for class 1 11 and 2 technologies as provided by law reflects 12 the backloading of the more technological 13 challenging class 1 renewables. The standards 14 for class 1 renewables will increase at 0.5 15 percent in 2001 and increase to 4 percent in 16 2012. Assuming energy demand will increase at 17 the current rate in New Jersey, renewable energy 18 will provide 800 megawatts of power by 2012. 19 This is comparable to the total megawatts 20 provided in both Massachusetts and Connecticut 21 deregulation bills, although the actual 22 percentages are different. This funding 23 assistance should help energy suppliers meet the 24 renewable energy portfolio standards. Another 25 incentive, known as net metering, will allow 25 1 small residential and commercial customers who 2 generate electricity, using wind or solar power 3 for their homes and small businesses to reverse 4 energy to the power grid and to be paid for this 5 generation. Emission portfolio standards, the 6 third and final major environment component of 7 the law. New Jersey will be put in a challenging 8 position to attain the new 8 hour ozone public 9 health standard that has been adopted by EPA. 10 Our current attainment state implementation plan 11 shows, even after implementation of the NOx OTAG 12 SIP Call by USEPA, and the Ozone Transport 13 Commission's Phase 2 and phase 3 NOx standards, 14 that obtaining this standard will be difficult. 15 Air quality is improving, and the attainment 16 State Implementation Plan demonstrates attainment 17 with the one hour ozone standard. Our challenge 18 is to achieve the further emission reduction 19 needed to attain the 8 hour standard. As a 20 guiding principle, these emission reductions 21 would ideally be enacted by the federal 22 government on a nationwide basis or at the very 23 least, regionally. New Jersey is committed to 24 move forward with its standards in tandem with 25 its neighboring states. The new legislation 26 1 helps us to do so through the concept of Emission 2 Portfolio Standards. Both Massachusetts and 3 Connecticut have enacted energy deregulation laws 4 and both contain Emission Portfolio Standards. 5 We have been working with those states to develop 6 consistent principles for which regional emission 7 portfolio standards can be enacted. Indeed, the 8 required model Emission Portfolio Standard is one 9 of the options BPU has proposed for the benchmark 10 that will be used for defining Green Power for 11 environmental disclosure purposes. The overhead 12 illustrates this option, and the model emission 13 portfolio standards are compared with the current 14 PJM average. I think we must all recognize that 15 the road ahead will be a challenge for New 16 Jersey. Modifying the current fuel mix will 17 require a major commitment to new clean 18 technologies. Renewables, energy conservation 19 and innovative technologies for cleaner gas, oil, 20 yes, even coal, will require major investments 21 from all of us, government private industry, and 22 the public. I believe we are up to the challenge 23 and when all is said and done, we will enjoy 24 cleaner air and water in New Jersey and will have 25 no regrets about the commitments that we're 27 1 making today. Thank you very much. 2 MR. BERKOWITZ: Are there any questions 3 from the council for the commissioner, please? 4 MR. PALMER: What is the reason that 5 there's a lot more potential from that pipe shark 6 in the commercial area than there is in 7 industrial? 8 MR. SHINN: I think when we--there's more 9 potential unknown than there is known. And when 10 you go into the different areas when we try to 11 put our inventory to match the pie chart, we can 12 schedule a future session we can talk about what 13 the actual reductions. I think we're going to 14 see certain areas of the pie chart where there's 15 a lot more potential, but this concept is really 16 driven by the four elements, energy conservation, 17 innovative technology, pollution prevention, 18 recycling are the four drivers behind this 19 program. Some can be more successful than 20 others. And where the success is resulted in 21 increased reductions, could very well be the 22 commercial residential section because a lot of 23 emissions come from the two categories that you 24 saw on the chart. So if we do a good job on our 25 education program, you'll see better results in 28 1 those areas. It depends what kind of technology 2 emerges, what kind of by-ins we get from the 3 programs and what kind of incentives we can 4 produce to get participation. And tell the 5 public that you can make a difference in your 6 purchases, particularly in the two cycle engine 7 area, and that goes from lawn mowers to weed 8 whackers, to outward motors. There's a lot of 9 emissions in those kind of areas, how we can 10 impact those is still a little bit of a question 11 mark, but certainly they're one of the targets of 12 this program. So I agree with you. I think 13 we'll see some areas that exceed our 14 expectations, and hopefully, none that are lower 15 than our expectations, because I think we've got 16 a pretty balanced approach. And I think 17 depending how we marshal our resources, will sort 18 of determine how we are in 2035 when we look at 19 our mid course direction. But I think if we 20 arrive at our three and a half percent reduction 21 at 2005, I think getting the rest of the way will 22 be relatively downhill, if you will. I think the 23 additional three and a half percent to meet the 24 goal for 2012, we'll be in pretty good shape to 25 achieve. But the connections and the linkage to 29 1 both air toxics and other clean air act mandates 2 are really striking as you go through this 3 inventory and apply the technology piece. So 4 we're pretty comfortable with the program at this 5 point. It's still developing at a pretty 6 comfortable approach. Thank you all. 7 MR. BERKOWITZ: Further questions? Thank 8 you very much for your time. One request, if we 9 can have copies of your overheads, we'd 10 appreciate it very much. Our next speaker is 11 Richard Bagger, prime sponsors of the electrical 12 deregulation. 13 MR. BAGGER: Good morning. I appreciate 14 the invitation to join you at this hearing today 15 to talk about the environmental aspects of the 16 energy deregulation legislation and how it 17 impacts clean air in New Jersey from a 18 legislative perspective. Let me begin by 19 congratulating the Department of Environmental 20 Protection Commissioner Shinn for the steps that 21 have been taken to improve air quality in New 22 Jersey generally throughout the past six years 23 that I believe you've been commissioner. 24 Overall, air quality in New Jersey has been 25 improving. And in 1998, there were fewer 30 1 unhealthful air quality days than there were in 2 previous years. Some years we had more than 30 3 days during the year, the equivalent of a month 4 per year, when the qualities of our air in New 5 Jersey was unacceptable. Last year that number 6 was greatly reduced and our state met air quality 7 health standards throughout 1998 for four of the 8 six major air pollutants, the two exceptions 9 being ozone and total suspended particulates, but 10 the record shows progress as measured in the 11 quality of our air, and that is something that we 12 should be grateful for. That is the result of a 13 coordinated effort on the government and 14 industry, the air pollution from both industrial 15 sources and mobile sources has been reduced as a 16 result of more efficient manufacturing processes, 17 the removal of pollutant source materials, and 18 improved methods for removing containments before 19 they're released to the air. In this decade 20 we've seen significant reductions in industrial 21 emissions in New Jersey of two types of smog 22 forming pollutants, VOC's and nitrogen oxides, 23 NOx. And in addition, federally mandated acid 24 rain controls sulfur dioxide in New Jersey and 25 neighboring states. So progress has been made. 31 1 And progress has also been made in New Jersey as 2 a result of very strong air quality standards 3 that exist for the generation of electricity in 4 our state and they're understandable concerns 5 that exist now and existed as we were fashioning 6 the electric deregulation to make sure that the 7 progress we have made in this state in a totally 8 regulated system for the electricity was 9 maintained in a deregulated environment. That 10 posed quite a challenge for the legislature in 11 fashioning the electric deregulation 12 legislation. Whenever this issue came up, I 13 always took great pains to make sure that people 14 understood that prior to the enactment of this 15 legislation, electricity was competitive at the 16 wholesale level. The result of this legislation 17 is that electricity is competitive at the retail 18 level. The electricity used in any of our homes 19 or businesses or government offices in New 20 Jersey, may already have been generated outside 21 of New Jersey, not subject to New Jersey's air 22 quality standards. Because that power was 23 purchased in the wholesale marketplace at the 24 best wholesale rate available through the PJM 25 power pool. The change that we are making now is 32 1 that there will be retail choice for electricity, 2 because the same issues of so-called dirty power 3 from outside of New Jersey existed in the 4 wholesale marketplace that now we are trying to 5 confront in the retail marketplace. Commissioner 6 Shinn spoke about the provisions of bill that 7 I'll just touch on briefly, and that impact 8 environmental issues and they fall under three 9 categories; consumer disclosure, because of the 10 actual power of consumer choice at the retail 11 level will allow individuals in New Jersey to 12 shop around for clean power, something they 13 didn't have the choice to do before, when the 14 decision was being made strictly in economic 15 terms at the wholesale level and they had no 16 retail choice. The second is the authority that 17 exists under this legislation for the board of 18 public utilities to create emissions portfolio 19 standards. And the third are the mandates 20 imposed by the legislation for renewal energy, 21 and I'll discuss them each briefly. The new 22 legislation requires that everybody who sells 23 power in New Jersey, both the utilities and their 24 competitors, the competitive power suppliers, 25 will be required to disclose on their bills, 33 1 their contracts and their marketing materials, a 2 uniform set of environmental characteristics, 3 including fuel mixes and emissions, so that 4 individual consumers will be able to buy green 5 power if that is what they choose to do. To 6 implement this, because this is harder to do in 7 practice than it sounds, we are requiring and 8 have required the board of public utilities to 9 adopt standards in consultation with the DEP to 10 implement these disclosure requirements, 11 including a methodology for emissions disclosure 12 based on output in to our air of megawatt hour 13 and bench marks to allow consumers to perform a 14 meaningful comparison between suppliers because 15 that can prove to be quit difficult in practice, 16 and a uniform format for disclosing the 17 emissions, which is graphic in nature and easily 18 understandable. What comes to my mine is when 19 you buy a new car, there are standards for the 20 uniform reporting of miles per gallon. And I 21 hope to see a similar easy to understand and 22 uniform measure of environmental quality of the 23 energy that we're purchasing in New Jersey. And 24 we've required the BPU to implement that with the 25 assistance of the DEP is going to be very 34 1 important in making that happen. Second 2 environmental aspect of this legislation involves 3 emissions portfolio standards, and it's two part 4 provision. First, we have empowered the board of 5 public utilities to adopt an emissions portfolio 6 standard for all suppliers of electricity in New 7 Jersey, the utilities and their competitors. 8 They can do that now. Under the legislation, we 9 have authorized the board of public utilities, if 10 they make a finding that emissions portfolio 11 standards are necessary to either meet federal 12 clean air act, or state requirements for air 13 quality, the board is empowered to put in place 14 emission portfolio standards which will set a 15 floor in terms of environmental quality for 16 the--for all the power sold in New Jersey. The 17 second provision in the new law that relates to 18 an emissions portfolio standard is a provision 19 that we borrowed from the Connecticut legislation 20 to deregulate electricity, and that is to 21 encourage regional emissions portfolio 22 standards. Now, our energy region includes 23 Pennsylvania, New Jersey and Maryland, the PJM 24 pool. So this legislation has a requirement that 25 if Maryland and Pennsylvania move to have an 35 1 emissions portfolio standard, then New Jersey 2 must create an emissions portfolio standard so 3 that we have a regional standard for clean 4 power. At potential shortcoming of this 5 provision, and any good sponsor will recognize 6 the shortcomings as well is the other 7 provisions. Pennsylvania probably is not 8 terribly incentivized to create an emissions 9 portfolio standard, because Pennsylvania is a 10 state in which some of the electricity that is 11 generated would not meet those standards. So it 12 is probably not likely that Pennsylvania, New 13 Jersey and Maryland will create a regional 14 emissions portfolio standard. Which, as I'll 15 mention, I think we need to look for stronger 16 federal action to push those states that don't 17 have a strong incentive to raise their standards 18 to have the federal government move states toward 19 a higher standard. The third provision in the 20 legislation that addresses the environment is the 21 renewable energy requirement. And I thought it 22 was a sensible approach in the legislation to 23 separate different forms of renewable energy into 24 class one or class two. Class one is the classic 25 renewable energy sources, the solar, I'll call 36 1 those the pure renewable energy, and those enjoy 2 a favored status under the legislation. And, in 3 fact, the renewable energy from those sources is 4 required to increase by half a percent each year 5 through the year 2,000--excuse me one percent of 6 our energy by the year 2,006. Class two is hydro 7 power and also waste to energy. And that class 8 two, while it's not pure renewable energy, does 9 give a somewhat favored status to the electricity 10 generated by resource recovery facilities in New 11 Jersey, which we're, after all, essentially 12 mandated by the State of New Jersey and the 13 Department of Environmental Protection during the 14 1980s and by assuring a market for the 15 electricity generated by those resource recovery 16 facilities helps with another environmental issue 17 our state is facing and that is our solid waste, 18 crises may be too strong a word, but the response 19 of the state to the overturning of the system and 20 solid waste regulation that have been that place 21 for twenty years. 22 MR. BERKOWITZ: Three minutes Assemblyman . 23 MR. BAGGER: Okay. The last provision of 24 the legislation that pertains to environmental 25 quality is maintaining current funding for energy 37 1 efficient programs and requiring that of that 2 existing funding at least 50 percent be dedicated 3 to new energy efficiently and renewable energy 4 programs. Right now New Jersey residents make 5 the highest per capita commitment to clean 6 energy, any consumers in the country we have the 7 highest per capita charges on our bills for clean 8 power. And this legislation continues those 9 investments at current levels. There were those 10 who asked us to increase the level of commitment 11 in rate payers bills to clean energy, but a part 12 of our effort here was to lower the cost of 13 energy in New Jersey. So we simply maintained 14 the commitment at current levels, which, after 15 all, is the highest level and is about three 16 times the per capita in the state of California, 17 which is the second highest investment of any 18 state in the nation. Let me just conclude by 19 endorsing a call for stronger federal standards 20 in this area. We have very high standards in New 21 Jersey, many of the generation plants in other 22 parts of the country are old and fueled by coal, 23 would not satisfy New Jersey requirements, 24 anywhere close to New Jersey air quality 25 requirements, but yet we already are faced with 38 1 the environmental problems from those plants 2 because the pollutants are carried into our 3 state. With the national movement towards 4 deregulation of electricity, it's more important 5 than ever that the federal government requires 6 standards that match New Jersey's demanding air 7 quality standards, and that they be national 8 standards. I know the New Jersey DEP and 9 Governor Whitman advocated stronger federal 10 standards at the national level. This passed 11 September the environmental protection agency 12 issued an order which controls midwest power 13 plants. That's an important, very significant 14 step in the right direction. And we just need to 15 if continue to be vigilant in persuading the 16 federal government to make a clean air standards 17 for all states that meets New Jersey's existing 18 high standards for air quality. Thank you very 19 much for the opportunity to speak this morning. 20 MR. BERKOWITZ: Any questions from the 21 council? 22 MR. MANGANELLI: I have one. 23 MR. BERKOWITZ: Dr. Manganelli. 24 MR. MANGANELLI: I gather in the bill that 25 a municipality can pull together the energy 39 1 requirements of the town and it seems trying to 2 get better prices, as well as, I just read 3 recently, that some school districts also intend 4 to do this. I was wondering whether there was 5 conflict of that. And the second part of my 6 question is, you also have in your bill about 7 public education program, I'd like to hear a 8 little bit about how that's going to work. 9 MR. BAGGER: Those are two different 10 issues. The first is demand side aggregation, 11 the legislation permits, essentially any 12 association or government entity to be an 13 aggregator, to pool together voluntarily groups 14 of consumers to get the buying power and the free 15 market of a large consumer. So the aggregator 16 could be a municipality for its own facilities 17 and for participating residents in the 18 community. It could be, for example, the New 19 Jersey school boards association on behalf of all 20 public school districts in New Jersey. It could 21 be a business association on behalf of all the 22 member businesses and industries. It could be 23 conceivably an association of individuals like 24 the AARP on behalf of a group of individual 25 residents. We have created a system where we may 40 1 have multiple aggregators continuing to sign 2 people up to be in a power pool to get a 3 favorable rate, which I think is one of the very 4 advantageous provisions. The second thing you 5 mentioned is a program that is required of public 6 education because this is a significant change in 7 how all of us have interacted with our utility 8 and how all of us have thought about 9 electricity. So we have directed the board of 10 public utilities to undertake a consumer 11 education program in order to prepare all of us 12 for a competitive environment that is going to 13 begin this August. 14 MR. BERKOWITZ: Any other questions from 15 the council? If not thank you very much for all 16 your efforts and thank you for being here today. 17 MR. BERKOWITZ: We'll skip over 18 Assemblywoman Murphy. John Wisnewski. 19 MR. WISNEWSKI: Thank you. I'd like to 20 first thank you and the council for the 21 opportunity to appear here today and at least 22 make my views known on the impact that energy 23 restructuring, and that's what it really was 24 restructuring, not deregulation has on our state 25 and its environmental quality. It's unfortunate 41 1 that when we looked at restructuring, 2 deregulation, whatever you'd like to call it, 3 that it was looked solely as a means of reducing 4 electrical rates for the people of the state. 5 And a lot of other implications of restructuring 6 were not even primarily considered in the passage 7 of the bill. And in saying that, I do not want 8 to take away from Warren Pune, in any way, the 9 hard work that my colleagues like Rich Bagger, 10 Paul D'Catano, Carol Murphy and a whole host of 11 other member of the assembly had in putting 12 together the energy deregulation restructuring 13 bill, because it was a mammoth task. And 14 invariably, in a project of that size, all of the 15 aspects that should be considered probably 16 aren't. And I, as one member of the assembly, 17 along with many of my colleagues, had urged that 18 the legislature take a much slower approach to 19 restructuring so that many of what the, may 20 become unforeseen issues of restructuring, could 21 have adequately been addressed prior to final 22 adoption of that legislation. Certainly the one 23 issue that brings us here today is the impact 24 that restructuring has on air quality, 25 environmental quality in this state. And 42 1 although the prospects of cheaper power is 2 something that the industrial, the commercial, 3 the business community of this state welcomes, it 4 is something that the environmental community has 5 often held in perhaps somewhat disbelief that we 6 could have cheaper power and at least a status 7 quo in terms of our environment. The whole 8 notion that we can open up or markets to 9 competition for electricity presupposes one very 10 important fact, that there is cheaper power else 11 where that can be purchased and transmitted to 12 this state. Indeed, if that weren't the case, 13 there would have really been no compelling 14 argument to deregulate, to restructure the 15 markets, because it wouldn't have provided any 16 economic good, it would have just simply been an 17 act of legislatures changing the periods and the 18 commas in the law but not providing anything. 19 The issue was driven by the fact that there was 20 cheap power. That cheap power does not come from 21 New Jersey, it comes from out of state. The 22 cheap power coming from out of state is generally 23 generated with far dirtier standards than we have 24 here in New Jersey. Thus, the question that is 25 raised by many critics of the legislation is that 43 1 in trading off cheaper power, are we there by 2 giving up environmental quality that so many 3 people have worked for in this state for several 4 decades? And the answer has to be invariably, 5 yes, that one of the consequences of this will be 6 that by making New Jersey the destination market 7 for dirty power for the midwest, we are going to 8 be adding to the NOx and VOC's in the air that we 9 try to keep out. Now in the legislative debate, 10 we tried, members in my caucus tried to sponsor 11 legislation that would have done a couple of 12 things. Certainly would have required labeling 13 of the power, that was done, you have to know 14 what components your power has. We also wanted 15 to provide an economic disincentive so that dirty 16 power from out of state was no more economically 17 advantageous than clean power within the state. 18 Unfortunately, it had that dirty word attached to 19 it, tax. The members of my caucus and myself and 20 a whole host of other members proposed that dirty 21 out-of-state power should have a higher tax 22 imposed on it so that we can at least put that 23 power on an equal footing with instate power. It 24 would have the purpose of doing a couple of 25 things, providing an economic disincentive for 44 1 that dirty power. But also, putting the New 2 Jersey producers on an equal footing. Certainly, 3 if you can buy power out of state at ten, twenty 4 or thirty percent cheaper than you can get it 5 instate, instate producers are going to be at a 6 disadvantage from those out-of-state producers. 7 And ultimately, if you take those scenarios and 8 play them out, we will be loosing business 9 instate for out-of-state interest. That did not 10 happen. But I think we need to look at ways of 11 making that happen. Certainly, it is true that 12 no matter what we do in New Jersey, those plants 13 will continue to exist. But somebody has to take 14 the first step. And there is a notion out there 15 that if we propose legislation, that if several 16 states were to take the step to do this 17 simultaneously, we would achieve the end of 18 limiting the amount of dirty power. The problem 19 is, is that everybody has a you go first 20 attitude. So New Jersey will say to New York, 21 that's a great idea, you go first, we'll follow, 22 and Pennsylvania, and ultimately it doesn't 23 happen. Somebody has to be the leader. New 24 Jersey, for the last several decades, has been a 25 leader in the northeast on environmental quality 45 1 and environmental standards. I would argue that 2 we should continue to stick by that, and I know 3 that while it may, in the short run, produce some 4 greater costs--or I shouldn't even say that. In 5 the short run it would eliminate some of the 6 savings that people could obtain through 7 deregulation. In the long run, it's going to 8 provide much greater economic good because it's 9 going to not only protect our environment, but 10 it's going to place the producers in this state 11 on an equal footing with the producers out of 12 state, and that means jobs and that means 13 economic opportunity and activity. And that is 14 certainly something that was ultimately the goal 15 of the deregulation bill. Let me conclude by 16 thanking the Council once again for the 17 opportunity to be here today. I always 18 appreciate any effort to share views on this. A 19 lot of people, at the end of the day weren't 20 happy, and many people say if everybody's unhappy 21 with about a bill, it must be a pretty good 22 compromise. I think all things being equal, it's 23 better than where we started, although we have 24 much work to be done. 25 MR. BERKOWITZ: Questions from the 46 1 council? 2 MR. MANGANELLI: This disincentive tax that 3 you will put on, will that provide via 4 disincentive for industry commercial to come into 5 and develop here in New Jersey. 6 MR. WISNEWSKI: Well, it certainly could be 7 viewed as a disincentive to come to this state, 8 but it's not changing any of the requirements we 9 have already. So if you're company that wants to 10 build a merchant plant in New Jersey, that tax is 11 not going to effect you because if you're going 12 to locate to New Jersey, you're going to have to 13 meet all of our requirements to begin with. It 14 may, in fact, have the added benefits of helping 15 you competitively because those competitors out 16 of state that might be able to generate more 17 cheaply are going to be forced to bare some of 18 the costs that you have to bare to meet the 19 environmental standards in New Jersey. Thank you 20 Doctor, thank you. 21 MR. BERKOWITZ: Any other questions? Thank 22 you very much, Assemblyman I appreciate it. 23 There will be a lunch break. I've been informed 24 there will be a lunch break, and that will be at 25 1:00 so you can plan accordingly. Assemblywoman 47 1 Carol Murphy is not with us yet so we'll move 2 along to Elizabeth Murray. Is she present? 3 Chief of Staff for BPU. Is there a member from 4 BPU who wishes to present testimony? 5 (No response) 6 MR. BERKOWITZ: Is Glen Weiss in the 7 audience? 8 MR. WEISS: Yes. Good morning. I'm on a 9 little sooner than I thought. On behalf of the 10 PJM Interconnection Organization, I would like to 11 thank you for this opportunity to testify at this 12 public hearing on the New Jersey Clean Air 13 Council. PJM was founded in 1927 and has evolved 14 over seven decades as the commercial and 15 regulatory environments have changed. PJM is 16 responsible for the operation of the largest 17 centrally dispatched electric system in North 18 America. As the nation's first fully functional 19 Independent System Operator, PJM ensures the 20 delivery of electric power to over twenty-three 21 million people in Pennsylvania, New Jersey, 22 Maryland, Delaware and the District of Columbia. 23 The PJM Open Access Tariff, approved by the 24 Federal Energy Regulatory Commission, has 25 authorized the PJM Office of the Interconnection 48 1 to operate the bulk high voltage transmission 2 system that is owned and maintained by the PJM 3 regional transmission owners. This high voltage 4 transmission grid consists of over 8000 miles of 5 high voltage transmission circuits, which 6 interconnects generators to load centers 7 throughout the PJM service territory and to the 8 eastern half of the United States and Canada. 9 The PJM operations control center administers 10 bid-based wholesale markets, in which 11 participants buy and sell electric energy and 12 generating capacity. PJM coordinates the 13 operation of 540 generating units within the PJM 14 control area for a total of over 58,000 megawatts 15 of generating capacity. PJM's market 16 participants buy and sell electric energy from 17 the generating units located within the PJM 18 service territory and from other areas of the 19 United States and Canada. Through this continual 20 shopping for power in the hourly spot market, PJM 21 facilitates a competitive and robust energy 22 trading market. Thus, some of the energy 23 consumed by New Jersey customers may be purchased 24 from generators in other areas of the country or 25 New Jersey generation could be sold to other 49 1 areas of the country. Participants in the PJM 2 markets now exceed 130 members representing every 3 segment of the electric power industry. 4 Membership includes investor owned utilities, 5 independent power producers, federal power 6 marketers, transmission owners, load aggregators 7 for retail choice and other users of electric 8 power. PJM's market has become one of the most 9 liquid and active energy markets in the United 10 States. PJM is respected throughout the world as 11 a leader in the use of advanced technology to 12 support this robust and nondiscriminatory and 13 competitive energy market. The average monthly 14 purchases and sales within PJM are nearly nine 15 million-megawatt hours. A growing number of 16 these energy transactions are purchases of energy 17 from external generators and sales of energy for 18 consumption outside the PJM territory. In 1998, 19 the marketplace became increasingly deregulated, 20 making it more important for PJM to rapidly adapt 21 to changes and be responsive to the needs of the 22 marketplace. PJM maintained a competitive 23 environment that offered an efficient energy 24 pricing model and equal opportunity for all 25 providers regardless of size. Three of the most 50 1 notable achievements in 1998 were: 1, initiating 2 the nation's first location specific energy 3 pricing system called Locational Marginal Pricing 4 better known as LMP that allocates transmission 5 congestion costs fairly among all transmission 6 customers. Two, facilitating Pennsylvania's 7 Retail Choice program, which helped the end user 8 customers select their electric providers. 9 Three, developing a Visible Capacity Market to 10 give retail choice providers of all sizes greater 11 flexibility in meeting generation capacity 12 requirements to serve their load 13 responsibilities. Expanding on a yearlong 14 customer choice pilot program, most of 15 Pennsylvania's end users gained the right to 16 select their electricity providers as of January 17 1, 1999. This choice included at least--in my 18 notes I have at least one, but it's three, 19 providers of green power. These developments had 20 significant implications for the electric power 21 industry. The PJM Office staff worked closely 22 with members and regulators to facilitate 23 implementation by: One, providing transmission 24 and market access for new companies, enabling 25 smaller utilities to acquire adequate capacity to 51 1 compete. We track dynamic shifts in service 2 responsibilities as consumers exercised their 3 choice to select electric suppliers. And finally 4 we accommodate the needs and views of a rapidly 5 expanding list of PJM members, which included 6 establishment of the End-Use Customer voting 7 sector representation. I hope it's clear from my 8 statements that PJM Independent system operator 9 is about choices. The PJM energy market in the 10 last two years has undergone many changes to 11 allow participant choices for energy transactions 12 on both wholesale and retail basis. How will 13 deregulation change New Jersey's energy mix? 14 Question one in the program. The answer lies in 15 the choices that are available to the end users. 16 In the coming year, PJM, in collaboration with 17 state regulators and market participants, will 18 continue to develop innovative solutions to meet 19 upcoming challenges including the introduction of 20 Retail Choice in New Jersey, Delaware, Maryland, 21 and parts of Virginia. Thank you again for this 22 opportunity. 23 MR. BERKOWITZ: Thank you. Questions? 24 MR. ZONIS: Mr. Weiss, I think that the PJM 25 Interconnection does a marvelous job of meeting 52 1 what it's considered to be. But I also think you 2 don't have anything whatsoever to do with the 3 subject of this hearing, because PJM provides 4 economic dispatch, and I don't think you pay any 5 attention whatsoever to the environmental 6 consequences of the movement of one megawatt hour 7 of power. Certainly, you're necessary so that 8 providers of green power or relatively high 9 quality power can be made available to the high 10 voltage grid that you supplied. But is there 11 anyway for PJM to assist in the subject of this 12 hearing? How can you have a positive impact with 13 respect to the electric utility deregulation on 14 New Jersey's environment? Because it seems to me 15 I am failing to hear any contribution that PJM is 16 making to the basic problem. That you're helping 17 to transport power, no question, I think that's 18 fine and that's a necessary part of it. But the 19 consumer in New Jersey is not going to be any 20 better off. And considering the 540 generating 21 stations that you called upon, how is that going 22 to help those of us who are consumers here in New 23 Jersey make the choice that we might care to 24 make? 25 MR. WEISS: Excellent question. Part of a 53 1 successful retail implementation, I guess in any 2 state, you have to have an infrastructure on the 3 wholesale basis, I think PJM has demonstrated 4 that we have that. And in Pennsylvania, when 5 Pennsylvania came to us and initiated their 6 retail choice program, it made it much easier for 7 them to have choices for their end users to 8 supply electricity. One of the things that PJM 9 did do as far as giving choices to end users, and 10 one of those choices is to select clean power, is 11 to provide a mechanism of doing that. As far as 12 New Jersey goes, there is an initiative right now 13 with the New Jersey BPU. They've come to us an 14 asked if PJM can help become the administrator 15 for tracking generation resource and the amount 16 of pollutants that they put out. We're working 17 with the BPU on that effort. We could possibly 18 became an administrator if the agreements works 19 out for us. 20 MR. ZONIS: That's hopeful. Thank you. 21 MR. MAXWELL: Could you elaborate just a 22 little bit, how would you follow a kilowatt or a 23 watt? 24 MR. WEISS: That's a very difficult thing 25 to do, and that's part of the agreement. The 54 1 question he had is how do you track a red 2 megawatt and a green megawatt, and that's a very 3 difficult task to do. So we're putting together 4 some information right now which was a proposal 5 put before the BPU, I believe just several weeks 6 ago, to try to come up with a plan on how to do 7 that. All the answers are not known, it's very 8 difficult thing to do. I want to mention one 9 thing, a lot of information here I've heard them 10 say that power's always being bought from the 11 midwest. Now that is not necessarily true last 12 summer, we saw a tremendous amount of power on 13 the PJM system being sold to the midwest. In 14 years gone by we saw generations coming in from 15 the midwest. As markets deregulated, there was 16 huge price spikes in the midwest. A lot of PJM 17 generation was there, now one could argue that 18 generation is still returning no matter where the 19 megawatts go, the power plants are producing 20 electricity, and they have smokestacks and the 21 wind carries. We're there as a facilitator for 22 the marketplace and anything we can do we would 23 like to work with the commissions or our member 24 participants. 25 MR. BERKOWITZ: Any questions? Thank you, 55 1 Mr. Weiss, I appreciate your taking your time. I 2 understand Assemblywoman Murphy is here. 3 MS. MURPHY: I've not done this before so 4 you will have to bare with me if I seem to be a 5 little nervous, because I am. And I think what 6 I'm nervous about is the fact that one of the 7 questions you just asked the gentleman from PJM, 8 relative to what happens in other parts of the 9 United States, what other facilities are burning 10 what to develop energy for their constituencies. 11 We have some control over things like that, but 12 we don't have any real control. We can not stop 13 the air. We can not stop the winds, and we 14 certainly cannot stop the economy in any state in 15 which coal development, coal mining and coal 16 burning is an economic benefit for the people who 17 live there. And I would defy anyone to really 18 say that the State of New Jersey is going to pay 19 the salaries for all the people that would be put 20 out of work or would pay the federal government 21 to support all of these families who would be 22 impoverished, or even would expect us to find 23 other jobs, other employment for these people. 24 So I think in the sense of reality, what this 25 bill does is the very best thing it could do, 56 1 this bill encourages other companies, other 2 persons, other concepts to develop means of 3 supplying the energy that we need. This bill 4 also requires that this state support those kinds 5 of systems and those kinds of green power 6 producers that will come along. Does it say that 7 we will throw out the baby with the bath water 8 and we will say to the people of New Jersey we 9 have freed you from high prices only to make them 10 higher? Of course not. We're here to encourage 11 business, to encourage economy to develop the 12 concepts of new strategies and new ideas and I 13 think the bill does all of that very well. The 14 emissions portfolio is quite clear. The concepts 15 are laid out very concisely. We have also spoken 16 very clearly about the kind of things that we 17 would want to see and the fact that we expect 18 people to disclose these things to us so that the 19 consumers, customers can make very well guided 20 choices. But they need to be choices people can 21 afford to make, so is the consequence there isn't 22 any put aside to encourage the development of new 23 ways of finding our energy and replacing our 24 energy needs by other means. I don't think that 25 this bill is exclusive in anyway. It is not a 57 1 bill that went after negative. It's a bill that 2 has gone to positively, positively encourage and 3 support better air in the State of New Jersey. 4 Will it happen overnight? I would defy anyone to 5 say we're going to do that. I really don't know 6 how on earth you would do that, and I don't know 7 how you would measure that cleanliness. I don't 8 know what the measurement and the baseline that 9 we are looking for honestly will ever become 10 because it seems to me that man constantly 11 strives to improve whatever level we have to an 12 even higher level, and so we should. But I do 13 not think we can deny people the opportunity to 14 continue to life in finding good jobs, to using 15 their minds, to create new ideas, to strategies 16 and making them come to be while researching the 17 environment for all of us. But I do think this 18 bill with it's mythology, with its benchmarks, 19 with its kind of portfolios and controls is a 20 very good thing. So, I am delighted that you had 21 a hearing on this today. The issue of 22 deregulation, particularly of an energy industry, 23 which we all the take for granted, and which has 24 probably been the most driving force to creating 25 a movement of life, the like of which we have 58 1 never seen to allow the communication of ideas to 2 go from the written page that someone studied 20 3 or 30 or a hundred years later to the instant 4 communication where four or five people to move 5 forward the ideas and mistakes we made along the 6 way. I would tell you we would not be human 7 beings if we haven't, but they are mistakes we 8 can correct because we are human beings and 9 thinking people. I think the State of New Jersey 10 has gone very far in this bill. I think the 11 State of New Jersey has done some good and right 12 things. I will tell you gentlemen in all of the 13 aspects of this bill I truly think that the State 14 of New Jersey has done a better job than any 15 state before. And I think when the end of the 16 day comes that will be demonstrated here. And I 17 encourage your continued support that the 18 legislation bill has had. I will be happy to 19 answer questions. 20 MR. EGENTON: Assemblywoman, we were 21 reading an article here that mentioned a number 22 of other states attempted this, and in 1998 and 23 it withered, it didn't go anywhere. Do you know 24 any reason? I couldn't find in that article the 25 reason why it happened, what problems they faced 59 1 that we might face. 2 MS. MURPHY: I think one of the biggest 3 things the State of New Jersey did that no other 4 state has done was to address the tax issue. And 5 I think for New York State, particularly, when 6 they were in the middle of trying to do their 7 deregulation, setup their consumer choice or 8 customers choice, the tax issue came up and 9 everything stopped simply because they hadn't 10 looked down the line and taken the worst problem 11 first, if you will, and addressed the baseline, 12 the economic problem, before they went into the 13 deregulation. The State of New Jersey did that. 14 And I think it was one of the greatest things 15 that this state could have done in the order of 16 which we did. It makes our bill totally unique 17 from any other one. Got to watch where the money 18 goes all the time. 19 MR. EGENTON: I just want to make a general 20 comment, statement, and thank you, Assemblywoman, 21 for your leadership in ushering in that 22 legislation. And thank you for being here today 23 with us. 24 MR. MANGANELLI: This council is looking 25 into this, of course. How can we be useful, what 60 1 kind of information should we seek as the council 2 here? 3 MS. MURPHY: I think in terms of 4 deregulation, because I'm, I guess, a bit of a 5 futurist, if you will. I do believe that we will 6 come to the time when our homes will be without 7 wires, without the transmission apparatus that we 8 now have today. The future for sure. I do 9 believe that we will have a lot of things taking 10 place in our state that change the whole way 11 electricity or energy comes to us in the form 12 that it does. I think that for all of you being 13 involved with clean air, that's the thing you're 14 looking at because everything you do has an 15 impact on the air that we breathe. Anything we 16 do that changes what comes from homes of the 17 emissions that come from homes, the kind of 18 things that we develop as infrastructures, these 19 are things that will change the qualities of our 20 air also. I think it's more subtle, but I 21 honestly do believe it to be quite true. I don't 22 know, beyond what you do you should be doing. I 23 think you do a very good job and I think you look 24 at things very clearly. I think you need to stay 25 apprised of the kind of developments that are 61 1 coming from this, they will be vast, they will be 2 great and they will change our economy and our 3 whole communications system. Once again, these 4 changes are so enormous and so fast in our world. 5 MR. BERKOWITZ: I have a question. One 6 could argue that cheaper fuel equates to dirtier 7 fuel. So if you want to drive the energy costs 8 down, what will happen is we will be selecting 9 dirtier fuel. One of the components of the 10 legislation, however, is that the public should 11 be informed as to the consequences of their 12 action. What do you see the legislature's role 13 in watchdogging the efforts to guarding the 14 public education system? 15 MS. MURPHY: I'm going to take issue with 16 you, one of things this bill has done is caused a 17 stale of a lot of the older generation stations 18 that were involved in this state. Deregulation 19 will come to states further west than us when the 20 impotence is there. It is the creation of new 21 means that will change what we're doing. It 22 doesn't have to be solar, it doesn't have to be 23 hydro, this kind of containment, changes what 24 happened in the air. So the question of 25 generation, the question of coal mining, people 62 1 going away is what saves money. Will there be 2 new system in Alaska, they have coal burning for 3 a lot of the electricity and it's quite a 4 different process than is used in this country 5 today because they are newer, newer built. So 6 technology will take the place when the 7 commercial competitive input and the competitive 8 chance is there. Then you will see the 9 technology and the different ways that people use 10 even some of the fuels we have had before. 11 MR. BERKOWITZ: So it's your premise is 12 that the public education premise is not 13 important? 14 MS. MURPHY: Oh, no. 15 MR. BERKOWITZ: So my question again is, 16 how does the legislature plan on watchdogging the 17 efforts of the public education efforts? 18 MS. MURPHY: One very small example, 19 relative to aggregation in the municipalities. 20 And I must tell you there concerns the consumer 21 education package on every single level, not just 22 one part of it, every single bit is what we're 23 concerned about. And I have placed calls how 24 soon it will be released and what type of 25 information. I believe Rich Bagger was here this 63 1 morning to testify. We're clearly very 2 emotionally involved in the entire issue of 3 deregulation. We wish to see it made a success. 4 Communication issues, when it was broken because 5 they didn't know which was the better choice for 6 a hundred different reasons, they didn't have the 7 education. We are committed to making sure that 8 every part of this education is there, every 9 single part, that includes the environment as 10 well as everything else. 11 MR. BERKOWITZ: Any other questions from 12 the council? 13 MR. MANGANELLI: I'd like to ask the 14 Assemblywoman, there was an article in the Ledger 15 a while back about nuclear power that's still in 16 the plans, what did you people see as you were 17 going through details of this? 18 MS. MURPHY: Probably we all saw different 19 things relative to nuclear power. Again, the 20 facility, the ground on which the facility is 21 created is quite valuable land. It brought 22 generation into areas where we will continue to 23 meet generation and the infrastructure, so they 24 are very valuable places. Nuclear power has had 25 a, certainly, a very controversial life. It does 64 1 not contain an emissions. 45 percent of the 2 state's energy is developed from nuclear power. 3 Do we say to people go without because we don't 4 want to use the nuclear facilities anymore? I 5 think, again, you have to try the marketplace on 6 these. Quite often we are prognosticating before 7 we have definition, a very scary place to be, but 8 a very exciting time. So the balance is always 9 fascinating. Thank you. 10 MR. BERKOWITZ: Thank you very much. Hal 11 Bozarth. 12 MR. BOZARTH: Good morning, Dr. Berkowitz 13 and members of the Clean Air Council. I 14 appreciate the opportunity to do this. If I can 15 figure out how this works, I'd be much better 16 off. I'm here today in a dual capacity, one as 17 the executive director of the New Jersey Chemical 18 Industry Council, comprised of folks that you all 19 probably can guess who they would be. Dr. Zonis 20 could probably guess who they are. And secondly, 21 as the spokesperson for the Coalition of 22 Competitive Energy, which was one of the primary 23 movers and shakers, if you will, in the 24 just-finished deregulation battle that the 25 assembly people talked so eloquently about. And 65 1 Assemblywoman Murphy was an amazing asset for 2 everyone in the process to have. She not only 3 has a dynamic personality, but she see really can 4 crystallize points extraordinarily well. I was 5 very impressed with what she just did. She made 6 a couple of points that all I want to do is 7 underline. And that is the benefits of an open 8 competitive marketplace directly related to what 9 you will and we all are about, and that's clean 10 air and environment. But first, why all of a 11 sudden was there a push to free up monopoly 12 systems that have been in place for almost a 13 hundred years? Here's the answer. My friend in 14 public service loves this chart. The states in 15 red are all states with lower prices for energy 16 than New Jersey. The state in yellow is New 17 Jersey. It has rates on average 50 percent above 18 the national average. That's why we went through 19 deregulation. It was clear that one of the 20 competitive pressure points for business in New 21 Jersey was the high price of energy. And so 22 deregulation had at its core the primary function 23 of lowering the cost of this exorbitantly high 24 energy. But there was another benefit to it in 25 an open competitive marketplace, you have to 66 1 remember, this marketplace had been similar to 2 those in Russia and Eastern Europe, closed for a 3 hundred years. No innovations other than the 4 attempted nuclear, no innovations in billing, no 5 innovations in environment improvement. In fact, 6 if you look at the air inventory for our coal 7 fired plants here in New Jersey, you all in the 8 Clean Air Council would be shocked to find out 9 that they are probably as bad as, if not worse, 10 than our bad friends in the midwest that we cry 11 that that their air will be coming over to New 12 Jersey. So that's something that I think is 13 going to change because of the open competitive 14 marketplace. A couple of facts, 89 percent of 15 the midwest coal fired plants now are capacity 16 full, 89 percent. With the addition of 17 deregulation in New York, Massachusetts, 18 Pennsylvania, New Jersey, Maryland, just Delaware 19 three weeks ago, any additional capacity that's 20 going to be utilized in the midwest coal fire 21 plant is going to be taken up by people in the 22 marketplace now, not New Jersey. And guess 23 where, if that air is dirty, it's going to go? 24 It's going to come this way. So the worst case 25 scenario, from my point of view, is to not get 67 1 any regret of these exorbitantly high rates and 2 still after that air, whatever it is, coming in 3 to New Jersey. To me that's a lose/lose 4 situation. You're stuck with your monopoly 5 supplier's charging you the seventh higher rates 6 in the country and the air is not getting any 7 getting any better. Optimistically, here's what 8 a free market will did. We've already seen 9 independent power producers being encouraged in 10 New Jersey, and we know that their technology is 11 at least 20 to 30 percent times better than the 12 existing technology of the monopoly suppliers 13 here in New Jersey. That means if you all did 14 nothing but encourage the existing independent 15 power producers in New Jersey to expand their 16 operations, we can clean New Jersey's air. 17 Here's another thing that you should know, all 18 sorts or new technologies are coming forward 19 Allied Single has something called a turbo 20 generator. It's about the size of up to about 21 here and maybe six or eight feet in. And because 22 of its new technology, it can supply a 23 supermarket, a hospital, take them right off the 24 grid from all those coal fired plants in the 25 midwest, do it cheaper and do it extraordinarily 68 1 cleaner. That's what Mrs. Murphy was talking 2 about, about what happens with new technology 3 when marketplaces are open, good things begin to 4 happen. And one of the benefits here is the good 5 things are going to happen to the environment, 6 because we'll get away from the old coal fire 7 plants that New Jersey is so fond of calling 8 their own. If you came in on 129 today and you 9 looked left, you saw a stack about 200, 300 feet 10 tall. And if you were unlucky today, you saw the 11 emissions from that stack and it was red, 12 reddish/brown, I come that way every morning, 13 it's a coal fire public service plan. If you 14 compare all the existing instate utility 15 emissions to all the emissions instate to 16 chemical companies, which one do you think is 17 larger? It's not the chemical companies. So if 18 we encourage new technology, and if we encourage 19 the divestiture of these polluting coal fire 20 plants here in New Jersey, we can make an 21 immediate improvement in the air. Dr. Manganelli 22 asked what could the Clean Air Council do in 23 order to help, and I have a couple of specific 24 suggestions, I know my time is running short. 25 Number one, for safety idea of imposing a tax. 69 1 Taxes are regressive ways to change behavior that 2 never really works. If you watched your history 3 anywhere in New Jersey, you'll see, number one, 4 people don't like taxes. Number two, they really 5 don't change behavior. So I don't think that's a 6 solution to the air problem as you all are afraid 7 that exists. Second thing you can do is embrace 8 the open market situation, the utility 9 deregulation, write a letter to Herb Tate in the 10 board of public utilities, and demand that the 11 marketplace that they're now in charge of is open 12 as far as it can possibly be. Demand number two, 13 that utilities be forced to invest their coal 14 fire polluting assets here in the State of New 15 Jersey. And three, demand that the shopping 16 credit, which is in the bill, be allowed to be 17 expanded, which they have the authority to do, so 18 that we all can shop for somebody else's power. 19 The bill calls for, after three years, a ten 20 percent reduction in New Jersey rates. 21 Hallelujah, isn't that wonderful. Remember we're 22 50 percent above the national average. Ten 23 percent is good, but remember what our goal is. 24 If the shopping credit is large enough, we'll be 25 able to buy power from a whole bunch of different 70 1 sources. So the benefit for us, financially, 2 could be significantly more than ten percent, 3 that's really good. Here's the next thing you 4 can do. You can make sure that the Board of 5 Public Utilities does everything in its power to 6 oppose what the legislation gives them authority 7 to do, and that is to put something in place 8 called execute. My friends in the monopoly 9 supplier community during the legislative debate 10 said, oh, we can't have all our customers leave 11 because if we give them a real open marketplace, 12 guess who they wouldn't be buying their energy 13 from and so the utility said to keep them in so 14 we don't lose our customers, we have to have an 15 ability to apply an exit fee, so that anybody 16 that leaves our system has to pay us a charge 17 because after all we built these coal fire 18 polluting plants. So I think the legislation is 19 worded in a way that no exit fees are an 20 immediate threat, I think you should write to the 21 board and say, never ever impose an exit fee. 22 Because if you impose an exit fee, then people 23 won't leave the system, they'll be stuck with 24 their extraordinary high cost, number one. And 25 the air won't get any cleaner, number two. So 71 1 you don't want people stuck in the monopoly. You 2 want people to shop, give them the opportunity to 3 buy from Green Mountain Power, give them the 4 opportunity to buy from an independent power 5 producer who's now in the marketplace. Give them 6 an opportunity to put a 20 million dollar 7 cogeneration facility in their industrial plants 8 so that their rates can go down. All those 9 things will increase the quality of air in New 10 Jersey. And that's the benefit of an open 11 competitive marketplace. We're looking at the 12 world from the old paradigm, only one supplier 13 and you only buy your gas and electric from 14 public service, that is the old paradigm. 15 There's been a fundamental shift, as Mrs. Murphy 16 said. And it's more than just a quick little 17 shift like most legislations, this is cataclysmic 18 in the way the world will look five years from 19 now. You will have the choice of buying your 20 energy from whoever you want. You'll be able to 21 shop on price, environmental cleanliness, as long 22 as we make sure there's truth in advertising. Or 23 you can stay with your monopoly supplier because 24 you like the color of their trucks or whatever 25 your reason might be to pay 50 percent above the 72 1 national average. If you want to do that, that's 2 certainly your right in America. But you ought 3 to embrace the content of an open marketplace and 4 the ability to shop and do the right thing for 5 the environment. Thank you very much. 6 MR. BERKOWITZ: Dr. Manganelli. 7 MR. MANGANELLI: I like your map. 8 MR. BOZARTH: Thank you. We had a lot of 9 success with it in the legislature. 10 MR. MANGANELLI: I see there's a yellow one 11 and a white one, too. 12 MR. BOZARTH: Yes. 13 MR. MANGANELLI: But why does New Jersey 14 have this higher rate for energy than anybody 15 else? 16 MR. BOZARTH: That was a question we 17 continually asked in the legislative process, and 18 the answers were pretty much as follows, the 19 devil made me do it, charge higher prices. We're 20 paying too much for sociatial benefits that are 21 included in our costs, and there's truth to 22 that. And we just can't do it any cheaper. One 23 of the problems of the high price of electricity 24 in New Jersey in the last couple of years has 25 been, quite frankly, that the folks who run the 73 1 nuclear plants can't get them to run on the 2 average fifty percent of the time, so they have 3 to buy replacements power for that. So the cost 4 of operation--you have to remember, in a monopoly 5 situation, it's not like a chemical or a 6 pharmaceutical company, people aren't worried 7 about the marketplace, their customers never 8 leave. So consequently, our prices in New Jersey 9 have soared expeditiously. Given the fact that 10 nuclear plants don't seem to be able to run right 11 all the time, that's another hump, plus we put a 12 lot of taxes and I'll certainly admit to that. 13 But it's clear that our neighboring states have 14 significantly lower rates and they're moving to a 15 deregulated energy economy, so their rates are 16 going to go down. This is an old map, New York 17 is now down below nine cents rather than eleven 18 cents. Pennsylvania and Delaware are now 19 significantly lower. So from an economic stand 20 point, we're losing the battle for competition 21 for jobs because energy is such a large part of 22 the component of most manufacturing jobs. All of 23 you are aware that in order to have a vibrant 24 economy, somebody's got to make something. You 25 have to add value to a product to make wealth. 74 1 You can't just service something that's not 2 there. So in order to keep New Jersey's economy 3 vibrant, I submit you must make sure it's people 4 who make things, want to stay here, rather than 5 go to one of these other 49 places where it's 6 cheaper. Constant tug and pull but, Dr. 7 Manganelli, that's basically the point. The open 8 marketplace never existed for th