Testimony of Glenn L. McCullough, Jr.

Chairman, Tennessee Valley Authority

April 8, 2003

Thank you, Mr. Chairman and members of the Subcommittee. On behalf of the TVA Board of Directors and our employees, I would like to thank you for the opportunity to appear today to discuss the Tennessee Valley Authority’s views on clean air and more specifically S. 485, the Clear Skies Act of 2003. In our role as both steward of the environment and provider of electricity in the Tennessee Valley, TVA is uniquely positioned to comment on clean air issues facing our region and the nation, and we appreciate the opportunity to share these views today.

TVA, and 158 power distributors, serves the 8.3 million people of the Tennessee Valley by producing affordable, reliable electricity while supporting sustainable economic development and maintaining stewardship of the region’s natural resources. TVA’s unique mission gives us the opportunity to see first hand the importance of finding the best balance between fueling a sustainable and vibrant economy and enhancing the quality of our natural environment. The TVA Board works every day to find that balance as it relates to many issues, and no aspect of that balance is of greater importance than the issue you are considering today -- clean air.

TVA was created by Congress in 1933 to enhance the quality of life in the Tennessee Valley region. We do that by providing flood control and maintaining navigation on the Tennessee River, the nation’s fifth largest river system, and by generating and transmitting electricity in the seven-state area that is the Tennessee Valley. TVA meets the power needs of the region’s homes, businesses, schools, and industries through 158 power distributors and by directly-serving 62 large industries. TVA’s electric power system includes 59 coal-fired units at 11 plant sites, three nuclear plants, 29 hydro-power plants, six combustion-turbine plants, three wind turbines, and 15 solar installations. The President’s National Energy Policy recognizes the importance of diversity in energy supply — including new emphasis on promoting nuclear energy, clean coal technologies, and renewable energy sources. TVA’s mix of fossil, nuclear, hydroelectric and renewable generation not only helps ensure the reliability of the TVA system but also illustrates the value and benefits of such diversity for our nation.

TVA is committed to its stewardship of the environment in the Tennessee Valley. I am proud to say that TVA has reduced sulfur dioxide (SO₂) emissions by 76 percent since 1977. In addition, we have reduced ozone-season emissions of nitrogen oxide (NO_X) by 50 percent in the past eight years. Through 2001 TVA has invested more than $3 billion to achieve these reductions even as the population, the economy and the energy needs of the Valley continue to grow at rates faster than the national average.

Since 1990, the population in the Tennessee Valley has grown by more than 15 percent, gross regional product by nearly 50 percent, and demand for electricity by more than 10 percent. In the past decade TVA has achieved historically high levels of operational performance and reliability in our power system and maintained affordable power rates - all while reducing emissions of sulfur dioxide and nitrogen oxide from our power plants. These actions demonstrate TVA’s commitment to air quality and to finding the right balance between fueling the region’s economy and continuing air quality improvements.

Today, TVA is in the midst of one of the most aggressive emissions reduction programs in the nation. In November 2002, TVA approved plans to construct five more flue-gas desulfurization systems, or scrubbers, to reduce sulfur-dioxide at coal-fired power plants in Kentucky, Alabama, and Tennessee. These scrubbers will cost about $1.5 billion and collectively will reduce emissions of sulfur dioxide by an additional 200,000 tons per year. When construction is complete, we will have installed FGD scrubbers on more than half of our coal-fired generating capacity. This action, in combination with switching to low sulfur coal, will reduce TVA’s total sulfur dioxide emissions by 85 percent since 1977 (see attachment GRAPH 1).

In addition to sulfur dioxide controls, we are investing more than $1.1 billion to reduce nitrogen oxide emissions by constructing controls such as selective-catalytic-reduction systems — or SCRs — on 25 coal-fired generating units. By 2005, TVA will have installed SCRs or similar technologies on more than 60 percent of its coal-fired generating capacity. These SCRs, in combination with low NO_x burners and other controls, will reduce nitrogen oxide emissions by 75 percent during the ozone season (see attachment GRAPH 2). Between now and the end of this decade, we are committed to spending almost $1 million per day to accomplish these emission reductions. By 2010, TVA will have invested nearly $5.6 billion in cleaner air.

We believe this investment to reduce emissions from our coal-fired plants will pay significant dividends while providing a cost-effective return on that investment to continue air quality improvements in our region. We also know, however, that emissions from all sources - stationary and mobile - must continue to be reduced. For that reason I am pleased today to appear before this subcommittee to endorse the Clear Skies Act of 2003.

The current Clean Air Act has done much to reduce emissions and as a result the air quality we enjoy in this country has been improved significantly. However, the current Act is plagued with problems that could threaten the reliability and affordability of the nation's electric power supply. Low-cost, reliable electric power results, in part, from the power industry’s ability to use a variety of energy sources, including coal. Today, the Tennessee Valley region depends on coal for approximately 60 percent of its power supply. Coal is also our nation’s most abundant energy source for the future. Unfortunately, this critical energy resource faces a complicated web of overlapping, duplicative, and unnecessarily costly emission control requirements that do not provide the greatest return on investment and, furthermore, create enormous uncertainty for future investment. For example, there are now more than a dozen separate regulations for sulfur dioxide and nitrogen oxides alone and more regulations are just around the corner. At times, disputes over these regulations have significantly delayed the very air quality progress they were designed to achieve, thereby creating enormous uncertainty for future investment.

TVA believes this piecemeal approach to regulating power plant emissions should be replaced with a set of emission reduction targets and timetables for sulfur dioxide, nitrogen oxides, and mercury. We believe that Clear Skies, a well-designed multi-emission approach, will continue the national trend of better air quality and provide additional benefits. These benefits include a streamlined regulatory process; sustained diversity in the nation's fuel supply; and more flexible, market-based mechanisms for achieving emissions reductions that are fair for both private and public power providers. This approach would also reduce compliance costs; and give the utility industry the certainty it needs to effectively plan and finance emission reductions without unduly burdening ratepayers. Such results have been well demonstrated by the very successful Acid Rain Program and they can and should be replicated elsewhere in the Act. Clear Skies appropriately allows continued use of SO₂ and NO_X allowances that are guaranteed under existing programs. This is an important feature of the bill and should be preserved because companies will be encouraged to reduce emissions early and achieve greater levels of environmental benefit.

We do not believe, however, that Clear Skies or other market-based programs should replace all features of the Clean Air Act that regulate electric utility emissions. The National Ambient Air Quality Standards have been a vital part of the improvement in national air quality and they should be preserved as is done in Clear Skies.

While TVA endorses the Clear Skies Act’s reduction targets and timetables, we believe there are some provisions of the current bill that can be improved to achieve better overall results. Specifically, we urge you to ensure that the interim 2010 mercury target reflect the Administration’s intent of reducing mercury to levels achievable via a cap and trade system through co-benefits with sulfur dioxide and nitrogen oxide control technologies. This would allow TVA and other utilities that have already reduced mercury through investments in sulfur dioxide and nitrogen oxide reductions to realize credit for their early actions. Otherwise, some may be required to install very expensive and as yet unproven mercury-specific controls, such as carbon injection and finishing baghouses.

Before I close, I want to emphasize that Clear Skies is a very aggressive proposal. As I mentioned earlier, TVA knows from first hand experience that extensive resources -- time, equipment and skilled workers -- will be necessary to make the reductions Clear Skies will require. Many of the critics of Clear Skies have never planned, designed, constructed, operated or financed these massive pollution control systems.

At TVA, we will soon have SCR or similar systems on 25 units and scrubbers on 18 units raising TVA’s total investment in cleaner air to $5.6 billion. Achieving the results contemplated by Clear Skies would require us to construct 23 additional SCR systems and install scrubber technology on 40 more units at an additional cost of $4 billion between now and 2018. To do more, sooner than what Clear Skies requires would increase costs considerably while placing an unrealistic burden on the economy of the Tennessee Valley and our ratepayers.

I appreciate the opportunity to talk with you today about this important legislation. We at TVA are committed to improving the quality of life for the 8.3 million people of the Tennessee Valley. The TVA Board is setting a new standard of excellence for TVA’s business performance and in our public service. On our watch at TVA, we are striving to find the best balance between providing the affordable, reliable supply of electricity that sustains a vibrant economy and continuing to improve the environmental quality of the Valley. Thank you again for allowing me to address these issues with you today and I am pleased to answer any questions you may have for me.

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