APPENDIX 3 THE U.S.-CANADIAN FREE TRADE AGREEMENT AND ELECTRICITY IMPORTED FROM CANADA ARE IN THE NATIONAL INTEREST by Glenn R. Schleede* Coal industry concerns about electricity imports are based in part on incorrect information relating to Canadian imports A statement submitted for the record of Committee on Foreign Mr. Chairman and Members of the Committee: My name is Glenn Schleede. I work for the New England Electric System (NEES) which serves customers in nearly 1.2 million homes, businesses and institutions in Massachusetts, Rhode Island and New Hampshire. I want to start by thanking you for the opportunity to present information that will make two basic points: The U.S.-Canadian Free Trade agreement and electricity imports are in the U.S. national and public interest; and Part of the concerns expressed by representatives of the coal industry about electricity from Canada is based in significant part on incorrect information relating to those imports. More specifically, I will explain: 1. The important role that coal already plays in supplying the energy used by NEES Companies in generating electricity. 2. The importance of diversifying the sources of energy used to generate electricity in New England, which has reduced and will continue to reduce dependence on foreign oil. 3. The role of imported electricity is displacing foreign oil in New England. 4. The advantages to the New England region and the nation of the U.S.-Canadian Free Trade Agreement, particularly as it affects electricity and coal. and the 5. The disadvantages to U.S. residential and business consumers overall economy of protectionist measures which would interfere with low cost imported energy. In addition, I will provide facts about the role or, more correctly, the lack of a role in pricing of imported electricity from Canada that is played by: - Government subsidies to Canadian electricity producers; and * President, New England Energy Incorporated and Vice President, New England Electric System, 25 Research Drive, Westborough, MA 01582. -2 Differing approaches in the U.S. and Canada to the reduction of sulfur dioxide emissions from powerplants and industrial facilities. DETAILS With that brief introduction, let me turn to the detailed information that supports the above summary points. A. COAL PLAYS AN IMPORTANT ROLE IN SUPPLYING THE ENERGY USED BY NEW ENGLAND ELECTRIC SYSTEM (NEES) COMPANIES IN GENERATING ELECTRICITY. Recognizing your interest in coal, I want to start by making clear that coal now plays an important role in supplying the energy used by the New England Electric System (NEES) Companies in generating electricity. 1. Six generating units have been converted from oil to coal, with coal now supplying 45% of the energy we use to generate electricity. Back in 1979, foreign oil supplied 78% of the energy used by NEES Companies in generating electricity. Starting in 1974, an aggressive program was undertaken to obtain permission to convert 6 generating units from oil to coal. Conversion involved a lengthy process to obtain approvals by appropriate Federal, State and local government agencies and an expenditure of about $300 million. The conversion program was completed in 1982 and has been an 2. A unique coal-fired, self-unloading collier carries coal to our generating stations. - A NEES subsidiary is the majority owner of a unique coal-fired million tons of coal. 3. Contracts have been signed with cogenerators that plan to use coal in fluidized bed boilers to generate electricity and steam. The New England region has experienced rapid increases in the -3 Potential sources of supply include independent power producers and cogenerators. NEES Companies now obtain electricity from such sources equivalent to about 250 megawatts of capacity and we have under contract sources equivalent to an additional 420 megawatts of capacity. Among the cogeneration facilities under contract are two planned cogeneration facilities that will use coal in fluidized bed units. In total, these two facilities would provide the New England region with 254 megawatts of generating capacity. B. THE NEW ENGLAND REGION IS DIVERSIFYING ITS ENERGY SOURCES FOR ELECTRICITY AND HELPING TO REDUCE NATIONAL DEPENDENCE ON FOREIGN OIL. The oil supply interruptions and rapid price increases of the 1970's demonstrated to many, including the electric utilities in the New England region, that excessive reliance on any one energy source was not the best way of providing a reliable and adequate supply of electricity at lowest possible cost. Accordingly, actions have been taken to diversify energy sources. 1. Oil supplied 72% of the energy to produce electricity for the New England region in 1972, but is expected to supply only 17% by 1993. The electric utilities making up the New England Power Pool *Based on contracts in place plus planned alternate energy and natural gas projects. Alternates for 1972, 1979 and 1987 are included in other -4– As you can see from the above table, dependence on oil has been reduced substantially since 1972, with increased reliance principally on coal, nuclear energy and imports from Hydro-Quebec. 2. Diversifying energy supply sources has proven to be sensible policy in New England and elsewhere. The progress made in the New England Region and elsewhere throughout the world has demonstrated that reliance on imported oil can be reduced and that diversification of energy sources reduces the potential impact of interruption of any one source. In short, experience has demonstrated that diversification of C. IMPORTED ELECTRICITY IN NEW ENGLAND DISPLACES OIL -- NOT COAL. Concerns have been expressed by some people in the coal industry that electricity from Canada may be displacing coal. That concern is not supported by the facts in New England and appears not to be a serious problem in other areas of the U.S. 1. Lowest cost electric generation is brought into service ahead of higher cost sources. First, it is important to recognize that 93 electric utilities operating in the New England region have organized themselves into the New England Power Pool (NEPOOL). Among its responsibilites, NEPOOL controls the dispatching of all electricity, regardless of who owns the generating capacity or has signed the contract for purchase of power from outside New England. The governing principal in the dispatching of this electricity is that the lowest cost source of supply is dispatched first. Savings achieved by this system of "economic dispatch" are then shared among the participating utilities. 2. NEPOOL entered into agreements with Hydro-Quebec for substantial amounts of imported electricity at low cost. In 1983, Hydro-Quebec and New England officials reached agreement on the first phase of an arrangement under which the neighboring power systems agreed to build transmission facilities that would enable NEPOOL to import 33 billion killowatt-hours of electrical energy from Hydro-Quebec over an 11-year period beginning in 1986. Phase I transmission facilities with capacity to transmit 690 megawatts of power went into service in 1986. In 1985, the parties reached agreement on Phase II which provided for the construction of an expanded transmission interconnection with a total transfer capacity of 2000 megawatts. Purchases from Hydro-Quebec increase the energy diversity of New England's bulk power supplies and are expected to meet nearly 10% of NEPOOL's electrical requirements in 1991. -5 3. Under the NEPOOL economic dispatch system, electricity from Hydro-Quebec backs out oil-fired generation. Electricity from Hydro Quebec takes its place among the potential Except for a short period of time during 1986, coal has been the lowest cost source of fossil-fueled generation, natural gas obtained on an interruptible basis, the next lowest and oil the highest. Under the pricing arrangement for electricity from Hydro Quebec, that electricity is almost always cheaper than oil, and has displaced the highest cost fossil-fueled source which, except for the short period during 1986, has been oil NOT coal. - Attachment #3 to this statement illustrates NEPOOL's Load Duration As you can see from this graph, it is oil and peaking units that are displaced by electricity from Hydro-Quebec. Coal-fired generation is not displaced as long as it remains less expensive than oil-fired generation. D. CANADA IS AN IMPORTANT SOURCE OF LOW COST ENERGY THAT BENEFITS U.S. CONSUMERS AND THE U.S. ECONOMY, AND PROVIDES AN IMPORTANT MARKET FOR U.S. PRODUCTS. INCLUDING COAL. Extensive and detailed information, which I shall not attempt to repeat, has already been made available to the Congress by the Executive Branch on the important benefits of energy trade between the U.S. and Canada. However, I will summarize five key points that appear important to your deliberations: 1. Canada is now the largest purchaser of U.S. coal. First, during 1987, Canada imported nearly 16 million tons of coal country - 2. Canada is the largest foreign supplier of electricity, oil, natural gas and uranium. Second, Canada is the largest supplier to the U.S. of: |