Cinergy Corp.: Current EPA Rules Work Against Meeting Environmental/Electricity Reliability Goals.

Business Editors

CINCINNATI--(BUSINESS WIRE)--July 10, 2001

In testimony today before a US Environmental Protection Agency hearing, Cinergy Corp. (NYSE:CIN) said current policies of the agency are working against the nation's goals of environmental quality and reliable electric service.

Paul King, executive vice president, power operations and fuels for Cinergy Power Generation Services, testified that EPA's current interpretation of rules on power plants is "counter-intuitive to meeting the nation's environmental goals, while maintaining a reliable electric supply. Instead, the result will be the potential for increasingly less efficient and reliable power plants and increased environmental degradation, not enhancement. But there is a better way to achieve both environmental goals and a reliable electric supply."

He said the difficulty facing the electric industry is a rule on New Source Review which is intended to prevent companies from retooling existing power plants in a way that would also result in a significant increase in power plant emissions. However, over the past several years, the Environmental Protection Agency has interpreted the rule to include routine power plant repairs and maintenance.

In his testimony, King said, "From my experience as a real-world operator of a major electric utility, I can tell you that EPA's current interpretation of NSR is causing havoc at electric generating stations across the country. Formerly straightforward maintenance decisions are now hardly so -- the direct result of EPAs revised NSR interpretations."

King pointed out that there are steps that can be taken to fix the problem. Piecemeal interpretation of NSR, combined with the current uneven regulatory implementation of other air quality reduction programs that utilities face, should be simplified and integrated into one complete program.

"If the notion of needing additional emission reductions is behind EPA's current NSR interpretation, then only legislative change will meet that goal," he said. "Legislation can simplify NSR and integrate other air quality programs, giving the industry one set of nationwide reduction goals, adequate time to meet them and the tools to make them work, such as emissions trading."

"Such an approach," King said, "will provide a framework for timely, real, and rational sector-wide emission reductions." He concluded by reconfirming Cinergy's commitment to working cooperatively with Congress to fashion a new, improved comprehensive legislative program that meets both environmental and electric reliability goals.

King noted that the current interpretation of this rule also creates roadblocks for projects that would make steam turbines more efficient by producing more electricity with the same amount of steam. That means that Cinergy could not undertake a project that produces "dramatically more power per pound of coal with no increased emissions. A program intended to prevent the significant deterioration of air quality would actually contribute to air quality degradation."

Cinergy Corp., one of the nation's leading diversified energy companies, has a focused strategy intent on growing its energy merchant business. Its energy merchant business owns, operates or has under development about 21,000 megawatts of generation. Cinergy has the sixth largest electricity trading organization in the U.S. as well as physical and financial gas trading capabilities of 35 bcf/day. The "into Cinergy" power trading hub is the most liquid trading hub in the United States. Cinergy's energy merchant business operates in several regions of the U.S. and is based on a profitable balance of asset development, customer origination, marketing and trading, and industrial-site cogeneration infrastructure development.