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Rolling blackouts in California, the Kyoto Protocol on global warming, and demands for increasing the nation’s domestic oil supply are just a few of the reasons that energy policy has become a source of intense activity in recent years. Washington lawmakers are grappling with an energy bill that includes proposals that may have long-lasting effects on the environment. On Oct. 23, Legal Times convened leaders of three industry trade associations, an in-house counsel at a major utility company, and a lawyer at a national environmental group for a breakfast roundtable entitled “Energy and the Environment: Can the Conflict Be Resolved?” The panelists discussed, among other things, the difficulties of dealing simultaneously with state and federal regulators and the proposed changes in the New Source Review policy that applies to upgrades to older power-generating facilities. The discussion, sponsored by Covington & Burling, took place at the Mayflower Hotel in Washington, D.C. Covington partner Theodore Garrett introduced the session. (The editors at Legal Times selected the panelists, chose the questions, and edited the transcript.) This was the fifth and final session in the Legal Times 2002 Corporate Counsel Roundtable series. –The Editors Theodore Garrett, partner, Covington & Burling:

In the United States and throughout the world, there is a continuing search for common ground between energy and environmental goals. Despite the great progress made since the early 1970s, there are many remaining challenges. The Environmental Protection Agency’s litigation involving the New Source Review program under the Clean Air Act remains controversial. Industry representatives contend that the EPA’s interpretation is wrong and unfair and will lead to delays in permitting energy projects. However, the EPA’s proposed New Source Review reforms have generated opposition from environmental groups. The complexity of these issues has led to calls for more economic-driven solutions — in particular the development of market-based mechanisms such as emissions trading. The cap and trade program for electric utilities under the acid rain provisions of the Clean Air Act is a prime example. It has been successful in achieving emission reductions in a more economical manner, and perhaps the concept should be applied to other industries and other environmental programs. There is an international dimension to all of these energy and environmental issues. Industrialized and nonindustrialized countries are attempting to address issues such as global climate change. Consider that roughly two billion people in the world are not served by electric power, while other countries rely primarily on nuclear plants. One can appreciate why global climate change issues are complex and politically sensitive. Although the 1997 Kyoto Protocol is still moving toward ratification, the United States remains outside the protocol. U.S.-based companies have to decide whether to get ahead of the curve or whether to wait until the landscape is better defined. Our panel today will help us explore the many facets of these issues. Jonathan Groner, editor at large, Legal Times: People have been saying for decades that our nation’s energy needs are irreconcilably in conflict with the similarly important national need to protect the environment. But lately, some have been arguing that this is not necessarily an irreconcilable conflict. How accurate do you think this perception is that there is an irreconcilable conflict and that America has to choose, as it were, between keeping the air and water clean and having a viable energy policy that allows for energy growth and energy independence? G. William Frick, vice president and general counsel, American Petroleum Institute:

There doesn’t have to be a conflict, and there can’t be a conflict. We need both. If we’re going to be a growing economy, we have to have energy. To keep people fed and clothed and warm, you have to have energy. It’s an integral part of our society. At the same time, we are doing a lot more in terms of protecting the environment. The companies that I represent, as well as other industries, are spending enormous amounts of resources on every project that they’re building. Whether it’s changes at the refineries, whether it’s the makeup of fuels, whether it’s access and development of new resources, we’re spending billions of dollars to protect the environment. We have made enormous strides from a technological standpoint, and I think that’s one of the areas the public doesn’t see as much. It takes much less land to produce the same amount of energy than it did 20 years ago. The footprint is much, much smaller, so we are doing much better. All of the indicators are showing that there is improvement. So I think we can have both, and we just need to keep working on that. Groner: Does this same sort of thing happen, Michele, in the industry that you represent? Has there been a technical stride that has changed things significantly in the last 20 years or so? Michele Joy, general counsel, Association of Oil Pipe Lines:

Absolutely. There’s a very strong focus on implementing good strong environmental policies in connection with the growth of our business. It costs us much, much more to have an environmental problem than it does to do things correctly the first time around and, in our instance, to keep the oil in the pipe. Once we have a fault in the pipeline and we’re not operating, it’s costing us a lot of money in terms of environmental cleanup, so there’s a real incentive to operate in an environmentally sensitive way. In addition, our industry is very much focused on having a strong environmental performance in order to have greater acceptance of our facilities in local areas. Basically, citizens don’t want a system that’s going to cause them problems and neither do we, so we have a real incentive to do a good job. Groner: Scott, I understand that your company has been trying very hard to become environmentally proactive in basically the same way that Michele was describing in terms of the pipelines. Can you describe some of that? R. Scott Brown, vice president and director, policy development, Exelon Corp.:

Being a company that has to both generate and deliver energy, we’re really at the crossroads of the question that you asked about the balance between the environment and the business side. At Exelon, we think that there doesn’t have to be a contradiction, that there can be solutions that represent a balance between the environment and the economy, and we see our role in working toward that. Getting these issues out and having them debated in forums like this is very important. For our industry, one of the keys is getting certainty, bringing some of these issues to a close, getting the rules in place that have that balance between the environment and the economy. But also understand that we are an economy that consumes a lot of energy, and we need to deliver that every day if we’re going to be successful. Groner: Are you willing to engage in dialogue with environmental groups and with environmental regulators and enforcers? Brown: We spend a lot of time with environmental groups having that debate at both the federal and the state level, because these issues flow through the laws and regulations that are in place there. And we, like many large companies, have an environmental department that has to focus on these issues. Those issues flow up through our policy positions. We, as a company, have just recently come out in support of some new legislation in the emissions area. The Clean Air Planning Act of 2002, we think, is a step in the right direction to bringing balance between the need for certainty and, at the same time, making a commitment to control environmental emissions. I think that’s one example of where environmental policy shows up in our everyday business. * * * Groner: John, everyone is saying that they are in favor of dialogue and conversation. As a former EPA attorney and as a current leading advocate with your organization, how do you see the ability and the willingness of industry to engage in dialogue? John Walke, senior attorney and director, clean air programs, Natural Resources Defense Council:

I think today’s remarks are reflective of the views of the American public, that there must be compatibility between public health and the environment on the one hand and our energy needs on the other. Unfortunately, what I see in Washington is the popular will of the people being subverted by the policies that are being advanced by the present administration at the urging and with the support of many within the industry. There is a radical difference between the inside-the-Beltway doings and what the public wants. The current energy bill, for example, is radically biased in favor of supply-side solutions to the detriment of demand-side solutions. We have a vice president who has denigrated conservation as a personal virtue, and I think that that mind-set, as well as the placement of many top energy executives in key positions throughout the environmental branches of government, reflects an imbalanced view of environmental policy when it comes to energy. At my organization, we think it is our responsibility to make the public aware of those imbalanced policy choices and the way in which this administration, in particular, is acting at odds with strong environmental statutes that have enjoyed bipartisan support through the decades, support that unfortunately appears to be unraveling within the administrative branch of the government. Groner: The concept of New Source Review — is that one of the examples you’re referring to when you say there is a planned rollback of environmental protections that have had support for decades? Walke: Certainly that is a prime example. The New Source Review program rooted in the statute requires companies, when they increase emissions as a result of changes at their facility, to clean up. This was a bargain struck in the 1977 Clean Air Act that allowed existing sources to be grandfathered from the Clean Air Act’s modern control requirements. That bargain is fundamentally being violated with this administration. Through administrative means, they are unlawfully subverting the statutory requirements. And we expect that in addition to the public outcry that has occurred over the past year, there will be litigation to challenge the administration’s fundamental departure from the Clean Air Act. Frick: I think on the energy legislation, John argued that it was very much biased on the supply side. I don’t have the numbers in front of me, but when we’ve looked at that, if you look at some of the incentives that are in there, I think almost half of the incentives, just about an equal amount, were actually for conservation. There’s a huge amount of conservation and demand-side issues in there, such as renewables and other kinds of things. So I think it’s maybe a little wrong to say that it was strictly biased in favor of the supply side. Secondly, on the issue of New Source Review, that is a good example of an area where I think there is a tension between doing a better job and supplying energy consistent with our environmental issues, because these are mainly procedural regulations. They’re portrayed often as hugely substantive requirements, but, in fact, these are procedural requirements. Many of the projects that a refinery or other industrial unit would use to improve efficiency, to produce more with less energy, projects that we would consider to be very modest changes that are part of running your system efficiently, get caught up in the delays. And, ironically, people don’t seek those changes because of the costs and delays that would be associated with that. They’re unrelated to the project to improve efficiency. So here is a good example of where there is a conflict between the environmental objectives that are sought by these procedures and actually doing a better job in terms of providing fuels and other energy in a more efficient way. Groner: Connie, you must have a position on this, given the industry that you represent, obviously with coal mining being such a significant part of NMA. Connie Holmes, senior economist and director, international policy, National Mining Association:

Yes. The companies in our industry think that there can be no conflict between the need for affordable energy and the need for environmental protection. To go back to your original thought, all of our companies incorporate environmental protection as a top consideration within their business plans. So there’s no question in our mind that affordable energy has really made our environmental protection possible. It’s made technological development possible, and it’s made our very high level of environmental protection in the United States possible. And we are very, very supportive of continuing to balance the needs for affordable energy with the needs for environmental protection. To respond as well on the energy bill, we agree with Bill Frick that the energy bill is quite balanced. It may not have been when it first started out. It may have been a little bit biased in favor of the supply side. But as it has come out of both the House and the Senate and as you take the better portions of the energy bills, we believe that the bills do support production. They support increasing supplies of domestic energy, which they have to, because we need more of our domestic energy, whether it’s coal, whether it’s oil, whether it’s nuclear power or renewables. But we also need conservation and increased efficiencies, and we think that the bill will certainly encourage the country to move in all these directions. We are definitely involved with the issues that you’ve brought up on New Source Review. They don’t affect our industry directly. They affect us indirectly. If a utility company cannot build a new technologically advanced coal-fired power plant, clearly our companies will not mine coal. And so we are very anxious to have the New Source Review regulations revised, if you will, to allow utility plants not only to build new coal-fired power plants and new electric-utility generating capacity, but also to make the improvements that they have to make to increase efficiencies and lower emissions. * * * Brown: Let me bring up another policy issue. That’s the idea of a standard wholesale electric market design that the Federal Energy Regulatory Commission is undertaking, attempting to establish a consistent set of market rules in the wholesale electric market. It’s key to have that kind of system in place if you are going to see the ideas of demand-side and supply-side solutions come to their full maturity. The problem we have now with our balkanized transmission systems in the United States is you don’t have a consistent set of rules, so you don’t have the opportunity and you don’t have the certainty for new ideas in the demand-side area and new ideas in the generation area to be able to connect and distribute that benefit to the consuming public. At Exelon, we feel very strongly that if we don’t move forward with that, if we don’t have those discussions and get those rules in place, we will continue to talk about why can’t new technologies and why can’t different approaches to meeting demand take root. Groner: Michele, I know that balkanized transmission systems are something that you have an opinion about. Joy: That’s correct. Oil pipelines by their very nature are long-line facilities that cross multiple jurisdictions. And in order to build new facilities and to expand facilities, we need to meet the environmental and permitting requirements of multiple jurisdictions. What we find is that we do not have consistency across jurisdictions either in terms of routing or permitting requirements. We are requested to meet different permitting requirements and often conflicting permitting requirements before the actual construction, so that it takes us much longer to get the pipelines built than if there were a coordinated permitting approach. For instance, one of the issues we ran into in one state is that each county had siting authority for that particular pipeline and each county had its own environmental requirements, and the counties were not required to coordinate. So that the place where one county wanted the pipeline to exit and the place where the other county wanted the pipeline to enter were not at the same point. It takes the pipeline a tremendous amount of time to resolve some of these conflicts. In addition, you have to meet federal requirements. We see the population of the United States shifting. A lot of people are moving to the Southwest, and the energy demand in that area is growing. As we try to build facilities to meet that demand, we’re having a tremendous amount of trouble getting permits because of these conflicting regulatory demands. And once we get the facilities built, we also have to continue to meet the safety and environmental requirements of those different jurisdictions. On safety matters, we have federal pre-emption. But on environmental matters, sometimes we have the state imposing its requirements, for instance, on our tankage facilities. At other times, it’s EPA requirements. We don’t always have consistency in those environmental demands, so we find that it’s very difficult to ensure that we’re in compliance with the overall environmental goal of the different jurisdictions. Groner: So you’re suggesting that if the different jurisdictions got their act together, there would be the same level of environmental protection for the public, but it would make things easier for you. It would be a win-win situation. Is that what you’re suggesting? Joy: That’s correct. And what we’ve encouraged the states to do is to look at some of the long-line facilities as a regional goal and to coordinate their permitting and to coordinate their policies across the region, among the various states, so that we would have one group to go to and say, “This is our project. What do you want us to do?” And then they would develop a coordinated permitting policy that we could then use to get our facilities built in a reasonable amount of time meeting all of the requirements of the various jurisdictions. Garrett: I have one general comment on some of the themes that we’ve been hearing this morning. Back in the 1970s when these environmental programs were started, we had a command-and-control model where single statutes focused on single sets of problems and either the federal government or individual states dealt with the issues. What we’ve seen as these programs have evolved is that there’s a need for balance and for crosscutting approaches that will allow one to develop flexible and environmentally protective programs. The EPA is now looking at ecosystem planning, basin planning, and multistate approaches. Ozone transport has shown that pollutants cross state lines, and we need to deal with such issues in an effective way. As we move forward over the next 30 years of environmental control, we need to balance energy and environmental needs, we need to figure out ways to move across statutory programs and various jurisdictions of the EPA, and we need to break down some of the barriers between the EPA and individual states and look at broader approaches to solve problems so that we focus on goals and don’t get bogged down in process. Photos by Stacey Cramp/Legal Times.

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