Mr. Chairman, members of the Task Force, my name is Trip Pollard, and I am a senior attorney with the Southern Environmental Law Center. We are headquartered in Charlottesville, and work throughout the South to protect our natural resources and public health. I thank you for the opportunity to present these remarks on several key environmental and consumer issues electric utility restructuring raises.
As you know, SELC supported increased competition in the electric industry because we believe it can lead to economic, health, and environmental benefits. However, we also consistently warned that, unless done properly, restructuring will harm our environment, our health, and our pocketbooks.
The transition to retail competition called for by the Virginia Electric Utility Restructuring Act marks a sweeping change in the electric industry, a change that will profoundly impact consumers and our environment. The Act, however, expressly left consideration of several critical consumer and environmental issues to a later date. Developments since the Act passed underscore the need for additional consumer and environmental protection. I urge this Task Force to step forward and help provide this protection. In particular, I urge you to ensure funding for programs to promote energy efficiency and conservation -- particularly for low income individuals -- and to encourage the development and use of renewable energy resources.
These are not uncharted waters. Every state that has moved to restructure its electric industry has adopted environmental and consumer protection provisions. Organizations such as the National Association of Regulatory Utility Commissioners have endorsed specific measures such as funding energy efficiency and renewable energy programs to promote restructuring in the public interest. Eurther, SELC has joined Virginia Power and a number of public interest groups to endorse consumer and environmental protection principles which call for funding energy efficiency and renewable energy.
A major concern with restructuring is that it will reduce investment in energy efficiency and renewable energy as utilities adopt a narrow, shorter-term focus in a more competitive environment. This is already happening. Virginia Power, for example, has reduced its planned energy savings by more than 90% in the past few years as it prepares for increased competition. The amount of summer peak reductions they project from demand side programs by the year 2010, for instance, has dropped from 1477 megawatts to 151 megawatts.
The reduction in energy efficiency and renewable energy programs is a serious problem for several reasons.
First, increasing energy efficiency is the best tool consumers have for controlling their electric bills. Residential consumers -- particularly low income, elderly, and rural consumers -- are vulnerable to electricity price hikes. Moreover, as experience in other states is showing, residential consumers are the least likely to see lower rates after restructuring. Energy efficiency measures enable customers to reduce their electric bills by installing equipment that provides essential services -- such as lighting and cooling -- while using far less electricity. For example, weatherization programs have been very successful in increasing the comfort of low income customers while generally cutting their energy use and power bills by about 25%. Virginia needs a meaningful energy efficiency program to help consumers cut their power bills.
It is also critical to support energy efficiency and renewable energy because these measures are among the best, most cost effective ways to address air pollution from power plants, by reducing the need for more plants and by providing cleaner sources of power.
Electric utilities are the largest source of air pollution nationally and regionally. The Environmental Protection Agency has found that power plants release approximately two-thirds of the sulfur dioxide (SO2), and one-third of the nitrogen oxides (NOx), carbon dioxide (CO2), and mercury emitted in the country. This pollution is a primary contributor to acid rain, ground-level ozone, global climate change, and other critical problems. Pollutants from power plants harm the air we breathe, the water we drink, our forests, wildlife, and quality of life. They drive up health care costs, and harm our economy.
These impacts are being felt in Virginia. According to DEQ, as of August 11, health standards for ozone smog have been exceeded 205 times across the state so far this year, exposing millions of Virginians -- particularly children and the elderly -- to unnecessary health risks. Moreover, air quality in Shenandoah National Park is among the worst in the country, with summertime visibility less than one-quarter the natural range, health warnings have been issued to visitors because of bad air quality, streams are poisoned by acid rain, and trees are damaged by ozone pollution. Air pollution is also contributing to the decline of the Chesapeake Bay.
These impacts bring a heavy price tag, increasing health costs for consumers and employers, damaging farms, forests, and fisheries, hurting tourism, and hindering the ability to attract new business to areas with poor air quality.
Restructuring will influence the type of power plants built and operated, and thus it is likely to have a major impact on air emissions. In fact, a recent study shows that the onset of competition nationwide has substantially increased air emissions as dirtier plants have been run more frequently to produce power.
Energy efficiency is the most cost effective way to address this problem. Experience and studies show that one-quarter to one-third of our energy use can be eliminated by installing cost-effective, high-efficiency technologies. Eliminating such a substantial portion of our demand would have a tremendous impact on our pollution problems in Virginia.
In addition to using electricity more wisely, we must develop and acquire renewable sources of energy to effectively address our air pollution problems. Renewable energy resources have decreased in cost to the point where they can begin to affordably meet a significant share of our energy demand. Virginia must aggressively pursue renewable energy development and commercialization to address the environmental problems linked to power production.
Further, investments ~ energy efficiency and renewable energy help to foster development of clean industries which would strengthen the state's economy and would be a nice complement to the burgeoning high tech sector in the Commonwealth. Virginia has already benefited from policies such as the Solar Manufacturing Incentive Grant that helped it attract major manufacturers of solar electricity products.
Investments in programs promoting energy efficiency and renewable energy offer a host of other important public benefits, such as fuel diversity and increased system reliability. The State Corporation Commission has long recognized the value of energy efficiency and encouraged utility investment in conservation and load management.
Energy efficiency and renewable energy investments must not be lost during restructuring. A restructured electric power system should include policies that increase investments in energy efficiency that will not otherwise occur in a competitive market, particularly programs to help ensure that electricity remains affordable to the most vulnerable customers. In addition, restructuring should increase investments in the development and commercialization of renewable energy technologies.
The most promising approach to securing these public benefits is to establish a public benefits fund or some other source of funding to support programs promoting greater energy efficiency and renewable technology development. Although details differ, most states that have moved to restructure their electric utility industry have adopted such a fund.
There are several significant elements of a public benefits fund that I would like to briefly mention. First, these funds are typically generated by a nonbypassable, competitively neutral charge on all users of the retail electric system. Second, they are typically administered by an independent entity to help ensure that there is no conflict between the purpose of the public benefits fund and the interest of the organization administering the fund. For example, a utility owning unregulated generation whose profits are tied to electricity sales would have little interest in investing in energy efficiency. A third common feature of a public benefits fund is that, to harness market forces, investments from the fund is often made using mechanisms such as competitive bidding to the greatest extent practicable. Finally, a number of state's have earmarked a specific portion of their public benefits fund for low income efficiency improvements programs ~o help ensure that electricity remains affordable to the most vulnerable customers.
The public must be protected as we move to electric utility competition. I urge you to close a major gap in the Virginia Electric Utility Restructuring Act by ensuring that the significant public benefits provided energy efficiency and renewable energy investments are not lost due to restructuring.
I look forward to continuing to work with this Task Force to address the serious environmental and consumer issues restructuring raises, and I thank you again for the opportunity to present these remarks.