OFFICE OF SURFACE MINING RECLAMATION AND ENFORCEMENT

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COALEX STATE INQUIRY REPORT - 207

February 1992

Ernest F. Giovannitti, Director

Bureau of Mining & Reclamation

Department of Environmental Resources

209 Executive House Building

P.O. Box 2357

Harrisburg, Pennsylvania 17105-2357 

TOPIC: ENVIRONMENTAL EXTERNALITIES 

INQUIRY: One of the environmental issues to be discussed at the upcoming American Mining 

Congress (AMC) convention is "Environmental Externalities: Indirect Taxes on Electricity". 

California may already have a law dealing with this on their books. Can you locate any existing 

information on this issue or people to contact for information? 

SEARCH RESULTS: Using LEXIS, a number of relevant public utilities cases and articles 

from energy-related publications were identified. Some California Public Utility Commission 

documents and industry position papers were obtained from the AMC seminar organizers. 

The materials attached cover the issue from a variety of perspectives, such as: 

1. Origins and definition of the phrase "environmental externalities". 

2. Articles reviewing recent studies and discussing trends among an increasing number of 

state public utility commissions to include "environmental externalities" in resource 

planning.

3. EPA and Congressional involvement with the issue.

4. Examples of state public utility commissions documents incorporating environmental 

externalities into their energy purchasing. 

Some introductory information appears below. A list of all of the materials included with the 

report appears in the "ATTACHMENTS" section.

GENERAL INFORMATION

"Environmental externalities" or "environmental adders" are costs added to the calculation of 

power prices to account for pollution.

According to the AMC: 
OFFICE OF SURFACE MINING RECLAMATION AND ENFORCEMENT

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"Some state regulatory commissions, including the [California Public Utility Commission], are 

requiring electric utilities to consider certain environmental externalities in evaluating the need 

for new generating units or for operating existing units. Utilities are required to assign dollar 

values to selected environmental externalities and to add those values to the unit costs of each 

supply option responsible for the impact."

"The environmentalists are strong advocates of the internalization of environmental externalities, 

particularly regarding fossil fuel production and consumption, to the exclusion of other social 

and economic externalities. They argue that renewable energy sources such as wind and solar 

power do not have the same external environmental costs of coal, and that coal-fired electricity 

remains less expensive than renewables only because the true social costs of using coal are not 

reflected in its market price."

"The net result of the greater application of so-called environmental externality values could be 

significant rate increases and displacement of energy markets through the artificial inflation of 

the costs of certain fuels, particularly coal."

ORIGIN OF THE PHRASE "ENVIRONMENTAL EXTERNALITIES"

In a January 15, 1991 article in PUBLIC UTILITIES FORTNIGHTLY, entitled "A Lighthouse 

in the Desert", Bruce W. Radford described the origin of the phrase:

Nineteenth century economists spoke about the "lighthouse effect". They claimed that private 

investor capital would never come forward to construct a lighthouse because the benefits of a 

lighthouse were largely indirect ("external") and accrued only to the society at large. The builder 

would assume all the cost without receiving much in the way of compensation. And so 

lighthouse building, fraught with economic externalities, was consigned to government.

Environmental cleanup costs are the modern examples of an economic externality. "But we don't 

trust the government to fix the problem. Instead, we rely on private industry to clean up its act, 

with a push and a shove from our legislators and regulators."

ATTACHMENTS

A. American Mining Congress material on "Adverse Impacts of Increased State 

Adoption of Environmental Externalities" (1992) and other materials relating to 

California's 1992 Electricity Report (ER 92).

1. Memorandum from James E. Gilchrist to Coal Policy Council, "Adverse Impacts 

of Increased State Adoption of Environmental Externalities" (January 17, 1992). 

2. Letter from Charles R. Imbrecht, Chairman, California Energy Commission to Bil 

Tucker, Chairman, Wyoming Public Service Commission (November 5, 1991). 

3. ELCON publication, "Profiles in Electricity Issues: Externalities". 

4. Testimony of James R. Rothwell, BHP-UTAH International Inc., before the 

California Energy Commission, "Comments of BHP-UTAH International Inc. on 

Resource and Planning Assumptions" (October 18, 1991) and related materials. 
OFFICE OF SURFACE MINING RECLAMATION AND ENFORCEMENT

U.S. Department of the Interior

Search conducted by: Joyce Zweben Scall Page 3 of 8

5. Letter from Peterson Zah, President, The Navajo Nation, to California Public 

Utilities Commission (November 19, 1991). 

6. State of California, Energy Resources Conservation and Development 

Commission, Staff Testimony on "Air Quality Emission Values for Out-of-State 

Power" (November 19, 1991). 

7. State of California, Energy Resources Conservation and Development 

Commission, Staff Testimony on "External Cost of Carbon Emission" (November 

18, 1991). 

8. State of New Mexico, House Joint Memorial re: California's decision to use 

environmental adders as part of its electricity bidding policy. 

9. State of California, Energy Resources Conservation and Development 

Commission, Hearing Order, In the Matter of: Preparation of the 1992 Electricity 

Report (ER 92) (December 31, 1991). 

10. California Energy Commission, Staff Workshop on Out-of-State Power 

Assumptions and Forecasts (January 7, 1992). 

11. State of California, Energy Resources Conservation and Development 

Commission, Committee Order for Group 1 Resource Assumptions (January 10, 

1992). 

12. State of California, Energy Resources Conservation and Development 

Commission, Staff Testimony on: "Out-of-State Power Issues" (January 17, 

1992). 

13. State of California, Energy Resources Conservation and Development 

Commission, Staff Testimony on: "Out-of-State Power Issues (Supplemental 

Filing)" (January 24, 1992). 

14. Testimony of Public Service Company of New Mexico re: ER 92 (January 17, 

1992). 

15. Testimony of Tucson Electric Power Company re: ER 92 (January 17, 1992). 

16. Testimony of New Mexico Public Service Commission re: ER 92 (January 7, 

1992) and related documents. 

B. Articles from recent publications retrieved from NEXIS:

1. Public Utilities FORTNIGHTLY, "A Lighthouse in the Desert" by Bruce W. 

Radford, Vol. 27, No. 2 (January 15, 1991). 

2. Public Utilities FORTNIGHTLY, "1991 - Year in Review" by Phillip S. Cross, 

Vol. 129, No. 1 (January 1, 1992). 

3. Public Utilities FORTNIGHTLY, "Independent Energy Contracts and 

Competitive Bidding" by Leonard S. Greenberger, Vol. 128, No. 12 (December 

15, 1991). 

4. Public Utilities FORTNIGHTLY, "Survival Strategies For the 90's" by Randall 

W. Hardy, Vol 128, No. 5 (September 1, 1991). 

5. Public Utilities FORTNIGHTLY, "How Environmental Costs Impact DSM" by 

Steven R. Sim, Vol. 128, No. 1 (July 1, 1991). 
OFFICE OF SURFACE MINING RECLAMATION AND ENFORCEMENT

U.S. Department of the Interior

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6. Public Utilities FORTNIGHTLY, "Correctly Accounting For Externalities" by 

Ernest H. Manuel, Jr., Vol. 127, No. 12 (June 12, 1991). 

7. Public Utilities FORTNIGHTLY, "An Industry Criticism: Have We Been Too 

Pliable?" by Robert S. Briggs, Vol. 127, No. 10 (May 15, 1991). 

8. Public Utilities FORTNIGHTLY, "Beyond the Fossil Age: Part II" by Chris 

Ortloff, Vol. 127, No. 7 (April 1, 1991). 

9. Public Utilities FORTNIGHTLY, "Conservation Program Cost-Benefit Analysis: 

Choosing Among Options" by Lori A. Burkhart, Vol. 125, No. 7 (March 29, 

1990). 

10. The BNA Environment Reporter, "Congress May Consider 'Green' Taxes in 1992, 

But Prospects Slim For Passage Before Election", Vol. 22, No. 21 (September 20, 

1991). 

11. The BNA Environment Reporter, "Alcoa Head Calls For Tax On Energy To Help 

Clean Up Environment, Cut Deficit", Vol. 21, No. 9 (June 29, 1990). 

12. The BNA Environment Reporter, "Pollution Can Be Cut Through Tax Policies, 

Economic Disruption A Threat, Economist Says", Vol. 21, No. 7 (June 15, 1990). 

13. The BNA Environment Reporter, "Tax On SO[2] Emissions From Power Plants 

Considered by House Ways and Means Members", Vol. 20, No. 43 (February 23, 

1990). 

14. The BNA Environment Reporter, "Bipartisan Group Agrees To Develop Acid 

Rain Amendment To Clean Air Bill", Vol. 19, No. 11 (July 15, 1988). 

15. Electric Utility Week, "Solar Industry Proposes 'User Fee' On Utility Bills To 

Fund Renewables" (October 14, 1991). 

16. Electric Utility Week, "Cooper CO2 Offsets Bill Highlights Utility Division On 

Global Warming" (June 24, 1991). 

17. Electric Utility Week, "Proposal To Boose Utility Profits From Conservation 

Broadly Supported" (June 3, 1991). 

18. Electric Utility Week, "Senate Energy Blocks Effort To Tie Least-Cost Planning, 

Externalities" (May 13, 1991). 

19. Electric Utility Week, "NARUC Survey: 17 States Incorporate 'Environmental 

Externalities" In Rules" (July 16, 1990). 

20. Industrial Energy Bulletin, "ELCON Fails To Block DSM Provisions As House 

Panel Marks Up Energy Bill" (August 2, 1991). 

21. Industrial Energy Bulletin, "ELCON To Fight House Energy Panel Amendment 

On DSM, Externalities"(July 19, 1991). 

22. Industrial Energy Bulletin, "Acid Rain Committee Defers To EPA On Least-Cost 

Definition Challenge" (May 10, 1991). 

23. Industrial Energy Bulletin, "ELCON Seeks Regulator Authority to Disapprove 

Imprudent DSM Buys" (December 21, 1990). 

24. Electric Light & Power, "Contracts, programs, policy: Utilities work beyond 

initial challenges" (September, 1991). 

25. Electric Light & Power, "DSM market expands; some voice concern" (March, 

1991). 

26. Electric Light & Power, "Panelists debate externalities; regulators support EPRI" 

(January, 1991). 
OFFICE OF SURFACE MINING RECLAMATION AND ENFORCEMENT

U.S. Department of the Interior

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27. Clean-Coal/Synfuels Letter, "DOE outlines study proposals at National Coal 

Council Meeting" (November 25, 1991). 

28. Clean-Coal/Synfuels Letter, "Study urges use of full costs in assessing fossil fuel 

emission charges" (September 17, 1990). 

29. Inside F.E.R.C., "Utility Bidding Programs Emphasize Price Too Much, Say 

Developers" (July 29, 1991). 

C. Congressional (Bills) and Federal (Federal Register) Material

1. Bill: National Energy Resources Act of 1991, H.R. 3265, 102nd Cong., 1st Sess. 

(August 7, 1991 - Version: 1). 

2. Bill Tracking Report: Federal Energy Management Amendments Act of 1991, S. 

417, 102nd Cong., 1st Sess. (June 26, 1991). 

3. Bill: Federal Energy Management Amendments Act of 1991, 102nd Cong., 1st 

Sess. (February 11, 1991 - Version: 1).

4. 54 FR 50427 (December 6, 1989). Financial Assistance Award - Intent to renew 

grant with the National Association of Regulatory Utility Commissioners 

(NARUC). 

D. State-Related Material: CALIFORNIA*

1. Cal. Pub. Resources Code [Div. 15, Chap. 1] Sec. 25000.1 (Deering 1991). 

2. Cal. Pub. Resources Code [Div. 15, Chap. 7.8] Sec. 25681 (Deering 1991). 

3. Cal. Pub. Util. Code [Div. 1, Part 1, Chap. 4, Art. 1] Sec. 701.1 (Deering, 1991). 

4. 1991 Cal. ALS [Advance Legislative Service] 900; 1991 Cal. SB 1214; Stats 

1991 ch 900. 

5. 1991 Cal. ALS 1023; 1991 Cal. AB 1090; Stats 1991 ch 1023. 

6. "Order Instituting Investigation on the Commissions's own motion to implement 

the Biennial Resource Plan Update following the California Energy Commission's 

Seventh Electricity Report", Cal. Pub. Util. Comm., Decision No. 9106022, 

Investigation No. 89-07-004, 1991 Cal. PUC LEXIS 313, 124 P.U.R. 4th 181 

(June 5, 1991). 

7. "Order Instituting Rulemaking on the Commission's own motion to establish rules 

and procedures governing utility demand-side management; Order Instituting 

Investigation on the Commission's own motion to establish procedures governing 

demand-side management and the competitive procurement thereof", Cal. Pub. 

Util. Comm., Rulemaking No. 91-08-003, Investigation No. 91-08-002, 1991 Cal. 

PUC LEXIS 407 (August 7, 1991). 

8. Independent Power Report, "San Diego G&E Plans To Issue 800-MW 

Solicitation In Second Quarter 1992" (September 13, 1991). 
OFFICE OF SURFACE MINING RECLAMATION AND ENFORCEMENT

U.S. Department of the Interior

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E. State-Related Material: ILLINOIS*

1. "Illinois Commerce Commission On Its Own Motion: Proceeding to adopt an 

electric energy plan for Commonwealth Edison Company", Ill. Commerce 

Comm., No. 90-0038, 1990 Ill. PUC LEXIS 640 (December 12, 1990). [Excerpt] 

2. "Illinois Commerce Commission On Its Own Motion: Proceeding to adopt an 

electric energy plan for Illinois Power Company", Ill. Commerce Comm., No. 90-

0040, 1990 Ill. PUC LEXIS 641 (December 12, 1990). [Excerpt] 

3. "Illinois Commerce Commission On Its Own Motion: Proceeding to adopt an 

electric energy plan for The Peoples Gas Light and Coke Company", Ill. 

Commerce Comm., No. 91-0028, 1991 Ill. PUC LEXIS 716 (December 9, 1991). 

[Excerpt] 

4. "Central Illinois Light Company: Application pursuant to Section 8-406 of The 

Public Utilities Act for a certificate of public convenience and necessity to 

construct, operate and maintain an electric generation station in Hallock 

Township, Peoria County, Illinois. and Illinois Commerce Commission On Its 

Own Motion: Proceeding to adopt an Electric Energy Plan for Central Illinois 

Light Company", Ill. Commerce Comm., Nos. 90-0004 & 90-0041, 1990 Ill. PUC 

LEXIS 639 (December 12, 1990). 

F. State Related Material: NEW YORK*

1. "Proceeding on Motion of the Commission (established in Opinion No. 88-15) as 

to the guidelines for bidding to meet future electric capacity needs of New York 

State Electric & Gas Corporation", N.Y. Pub. Serv. Comm., Case 88-E-244, Opin. 

No. 89-26, 1989 N.Y. PUC LEXIS 44 (August 16, 1989). 

2. Industrial Energy Bulletin, "New York Says On-Site Congeneration Cannot Be 

Considered A DSM Measure" (July 5, 1991). 

3. Industrial Energy Bulletin, "War Of Words Rages Between ELCON and Ottinger 

Over DSM Programs" (April 26, 1991). 

4. Independent Power Report, "N.Y. Energy Plan Calls For 300-MW Auction For 

Renewables Only in 1994" (August 16, 1991). 

G. Other State Related Material

1. ARKANSAS: Public Utilities FORTNIGHTLY, "Environmental Externalities", 

Vol. 129, No. 2 (January 15, 1992). 

2. COLORADO:

a. Electric Utility Week, "Coal Supplier Participating In Colo. Integrated 

Resource Planning Case" (December 2, 1991). 

b. Public Utilities FORTNIGHTLY, "Colorado Plan Broadens Least-cost 

Planning" (September 15, 1991). 
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U.S. Department of the Interior

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3. DELAWARE: "In The Matter Of The Application Of Delmarva Power & Light 

Company For Approval of A 48 MW Power Purchase Agreement With Star 

Enterprise (Filed May 14, 1990)", Del. Pub. Serv. Comm., PSC Docket No. 90-

16, 1991 Del. PSC LEXIS 2 (April 29, 1991).

4. FLORIDA: "IN RE: Amendment of Rule 25-17.008, F.A.C., pertaining to 

Conservation and Self-Service Wheeling Cost Effectiveness Data Reporting 

Format", Fla. Pub. Serv. Comm., Docket No. 891234-EU, Order No. 24745, 1991 

Fla. PUC LEXIS 1234, 91-7 FPSC 153 (July 2, 1991). [Excerpt]

5. MAINE: Industrial Energy Bulletin, "Maine Industrials Win Amendment To 

Pending Environmental Legislation" (March 16, 1990). 

6. MASSACHUSETTS: 

a. Inside F.E.R.C.'s Gas Market Report, "Boston Gas Urges State Regulators 

To Favor Gas For Power Generation" (March 16, 1990). 

b. Independent Power Report, "Boston Ed RFP Seeks Between 132 MW and 

306 MW; Bids Due Jan. 10, 1992" (October 25, 1991). 

7. MICHIGAN: "In the matter of the proceeding, on the Commission's own motion, 

to examine the electric rates of CONSUMERS POWER COMPANY; In the 

matter of the complaint of the ASSOCIATION OF BUSINESSES 

ADVOCATING TARIFF EQUITY against Consumers Power Company with 

respect to its electric rates", Mich. Pub. Serv. Comm., Case No. U-9346, 1991 

Mich. PSC LEXIS 125, 122 P.U.R. 4th 486 (May 7, 1991).

8. OHIO:

a. Clean-Coal/Synfuels Letter, "AEP parries fuel with critics; utility pressed 

to scrub, use CCTs" (August 12, 1991). 

b. "In the Matter of the Regulation of the Electric Fuel Component 

Contained Within the Rate Schedules of Monongahela Power Company 

and Related Matters; In the Matter of the Inquiry Into the 1990 Long-Term 

Forecast Report of Monongahela Power Company", Pub. Util. Comm. of 

Ohio, No. 90-106-EL-EFC, 1991 Ohio PUC LEXIS 73 (January 17, 

1991). 

9. UTAH: Public Utilities FORTNIGHTLY, "Comments Sought on PacifiCorp 

Resource Plan", Vol. 128, No. 11 (December 1, 1991).

10. VERMONT: Public Utilities FORTNIGHTLY, "Vermont Adopts 

Comprehensive Conservation Program Planning", Vol. 125, No. 12 (June 7, 

1990).

11. WASHINGTON:

a. "In the Matter of the Request for Approval of the Draft Request for 

Proposal of WASHINGTON WATER POWER COMPANY", Wash. Util. 
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& Trans. Comm., Docket No. UE-910452, 1991 Wash. UTC LEXIS 77 

(August 21, 1991). 

b. "In the Matter of the Request for Approval of the Draft Request for 

Proposal of PUGET SOUND POWER & LIGHT COMPANY", Wash. 

Util. & Trans. Comm., Docket No. UE-910573, 1991 Wash. UTC LEXIS 

78 (August 21, 1991). 

c. Electric Week, "Northwest Power Council's Inverted-Rate Proposal 

Strikes Some Sparks" (November 1, 1982). 

12. WISCONSIN: "Advance Plans for Construction of Facilities as Filed With the 

Commission for Review and Approval Pursuant to Section 196.491, Wisconsin 

Statutes", Pub. Serv. Comm. of Wisc., No. 05-EP-5, 1989 Wisc. PUC LEXIS 23, 

102 P.U.R. 4th 245 (April 6, 1989). 

*NOTE: At the time of this research, Public Utility Commission Opinions are available in 

LEXIS for the following states only: 

1. California 

2. Connecticut 

3. Delaware 

4. Florida 

5. Illinois 

6. Indiana 

7. Louisiana 

8. Maryland 

9. Michigan 

10. Minnesota 

11. Missouri 

12. New York 

13. Ohio

14. Pennsylvania 

15. Texas 

16. Washington 

17. Wisconsin