III. Is it likely that this project will displace upwind coal generation, thereby reducing local or statewide air pollution?

A. Would the plants displace upwind coal generation?

It is highly speculative that the proposed power plants would displace significant amounts of coal generation. The net effect of the proposed plants on air emissions in a large geographic context is uncertain. These proposed plants certainly could displace some upwind coal generation but only to the same extent that any new gas-fired generation in New England would do so. First, any natural gas-fired generation in New England may help displace coal generation farther west, beyond the New England Power Pool. The reason is that the compounding effect of transmission rates causes coal power from the Midwest to be more expensive than if it were generated locally. This could happen regardless of whether the plants are built in Vermont or elsewhere in New England. However, imports of coal-generated electricity from the Midwest are currently severely limited by transmission constraints. Thus, initially, only relatively small amounts of coal generation currently purchased from New York and points west could be displaced by new gas-fired generation in New England.

Secondly, more transmission capacity to points west could in theory allow for more displacement of coal generation there by increased gas-fired generation in New England, but it might also have the effect of lowering transmission costs and make the same coal-fired generation more competitive in New England. The net effect of these two considerations is uncertain. In general, coal generation west of New England will remain abundant and relatively inexpensive, unless further regulatory or economic restrictions are placed on coal to reflect its full environmental cost. This is most important in the context of acid-rain inducing sulfur emissions and other pollutants that are primarily associated with coal (such as mercury), and that affect large areas.

Third, new natural gas-fired generation is not likely to back down coal generation within New England. Coal as a fuel is too inexpensive for this to happen, and the effect of higher transmission costs seen in the context of the economics of Midwestern coal generation vs. New England generation is absent here. Coal generation will be dispatched before gas-fired generation by the New England power market because the owners of coal plants will always be able to underbid gas-fired plants due to lower fuel costs. For example, coal-fired generation might cost 1.5 cents/kWh, while gas-fired generation costs about 2.0 cents/kWh, for fuel only. Additional regulatory constraints on coal through market mechanisms might change this. Even in that case, displacing coal generation locally in New England is not dependent on VEPH's proposed plants. All new generation built in the region in the foreseeable future will be gas-fired, aside from renewable energy generation built for environmental reasons. Therefore, the decision to build the proposed plants in Vermont should, probably, not be linked very directly to the issue of displacing coal-fired generation in New England.

B. Would local air pollution be reduced?

No. Local air pollution would grow worse with the proposed plants because emissions of nitrogen oxides would grow substantially. Consequently, it is likely that local smog and acid-rain levels would rise somewhat. The proposed 1,350 MW of new capacity could yield 660 tons of nitrogen oxides annually. This is more than 2 percent of all NOx emissions in the state currently. In addition, of course, any new gas-fired generating units would emit large quantities of CO2, a gas that is causing climate change.

There seems to be a severe constraint on Vermont's ability to increase its NOx emissions without violating its local and federal commitments for emissions control. Vermont is party to the Ozone Transport Commission (OTC). Under this arrangement, Vermont has a set NOx quota for large sources, currently in the amount of only 56 tons. Vermont will not have an explicit obligation under the OTC until 2003 when its quota will be limited to 30 tons annually; or to emit NOx at a rate no greater than 0.2 pounds per million BTU. Although this applies to summer months only, it is bound to become an issue in the context of the substantial NOx emissions from the proposed plants. It would also be politically "challenging" for the state to allocate most or all of its entire OTC NOx growth quota to a single new entity. In the event that Vermont exceeds such allotments, the state must obtain "offsets" for new emissions by reductions elsewhere. The lack of interstate trading mechanisms for NOx emissions is another hurdle, making it necessary for Vermont to reconcile its emissions accounts within the state. Also, the economic value of NOx offsets may be high, thereby increasing the cost of electricity from the proposed plants.

The Governor has asked for a waiver from this requirement to allow for general economic growth, presumably on the premise that Vermont is in attainment with the Clean Air Act and some increased NOx emissions would be relatively benign for the region. The NOx quota that has been requested amounts to 1,000 tons annually. But one must ask the question: Is it appropriate for Vermont a state that has challenged the mid western states ability to emit NOx as harmful to Vermont--itself request a NOx emission increase? Even if one believes the answer to that question is yes, is issuing the NOx waiver to benefit this particular project the best use of the waiver?

Even if the NOx waiver is granted, Vermont might better serve its economic interests be reserving emissions quotas of NOx for new high-value-added economic activity, such as manufacturing that generates more new jobs than does electricity generation.