Miscellaneous Committee Reports

Reports provided by PA Legislative Services

HARRISBURG - (4/29/08, 10:00 a.m., Room 418, Main Capitol)

The House Finance Committee held a public hearing on House Bill 1676.

HB 1676 Levdansky - (PN 2210) Amends the Tax Reform Code by adding a section to dedicate sales and use tax revenue for transfer to the Game Fund and the Fish Fund. The bill requires 0.00116 percent of the revenues collected from the tax imposed would be annually transferred to the Game Fund and requires 0.00058 percent of the revenues collected from the tax imposed be annually transferred to the Fish Fund.

Members in attendance included Majority Chairman David Levdansky (D-Allegheny), Minority Chairman Steven Nickol (R-York) and Representatives Gordon Denlinger (R-Lancaster), Dan Frankel (D-Allegheny), Dante Santoni (D-Berks), Mario Scavello (R-Monroe), Daryl Metcalfe (R-Butler), Scott Boyd (R-Lancaster), Michael Peifer (R-Pike), Tim Seip (D-Schuylkill), Mike Carroll (D-Luzerne) and Adam Harris (R-Juniata).

Chairman Levdansky began the hearing by declaring that funding for wildlife management agencies is at a crisis. The Chairman explained that the hunting and fishing industry has a profound impact on the state's overall economy and especially on the tourism industry.

Arguing that the Game Commission and Fish and Boat Commission are charged with protecting all wildlife in the state, he expressed concern that the total costs of running these agencies is borne solely by hunter and anglers. The Chairman stressed that a sustained and dedicated funding source must be found for both agencies.

He further informed everyone that the Fish and Boat Commission has an annual budget of $45-$50 million that is funded through the boat fund and fish fund. In terms of the Game Commission, he said their budget is approximately $65 million a year with half of their revenues coming from license sales and the other half from our resources.

Chairman Levdansky worried that attempting to secure additional funding for these agencies simply by raising license fees always results in a decline in the total number of license purchasers. For the above reasons, the Chairman explained that he has introduced legislation that would use a small dedicated stream of revenue garnered from the sales and use tax to annually appropriate $5 million to the Fish and Boat Commission and $10 million to the Game Commission.

He closed his opening comments by stating that PA is one of the only states that give no public money to their wildlife agencies.

Mike Schmit, Deputy Executive Director of the PA Game Commission was the first to testify along with Dorothy Derr, Director of the Game Commission's Bureau of Administrative Services.

Schmit stated that while the Commission's funding structure is largely dependent upon hunting and trapping licenses, the Commission is tasked by law to preserve and protect all wildlife and their habitats for the benefit of current and future generations. He stated that the additional revenue that would be generated through the proposed legislation would be vital in helping the Commission to fulfill their constitutional mandate.

He explained the Commission is charged with protecting 467 species (22 of which are either threatened or endangered) and currently manage over 1.4 million acres of habitat on more than 300 tracts of land for these species. Additionally, Schmit explained that these game lands are not just for hunting and trapping but for a variety of outdoor activities including horseback riding, bicycling, snowmobiling and hiking. Schmit added that while these lands are available for these uses free of charge, the Commission is mandated by law to pay counties, municipalities and school districts almost $2 million annually as "Payment In-lieu of Taxes."

In terms of the impact of hunting on the economy, Schmit cited a recent report that found hunting in PA is more than a $3 billion industry and generated more than $214 million in state and local taxes. He then explained that even though hunting has a great economic impact on the state, the Commission continues to struggle with budgetary concerns due to a lack of funding and increased costs. According to Schmit, the last time the Commission received a funding increase, gasoline cost $1 a gallon while gasoline now averages well over $3 a gallon.

Arguing that other states such as Missouri and Arkansas have supported their wildlife agencies with public funds, Schmit said that it is inequitable and unrealistic to expect sportsmen to remain the only source of funding for wildlife conservation and protection in PA.

Rep. Seip began by congratulating the Game Commission on all of their good work. He quickly added that he continues to hear concerns from Pennsylvanians that fewer hunters are showing up to hunt during the seasons and that this is negatively impacting the local economies. For this reason, Rep. Seip expressed support for the Chairman's legislation.

Rep. Denlinger acknowledged that funding is a concern but said that under the current system, sportsmen, as the sole funders, recognize the direct connection between the costs they are asked to bear and the benefits they receive. He worried this bill would create a separation in that relationship. He also worried it could open the door for militant environmentalists and anti-hunter groups trying to negatively influence the Game Commission. Rep. Denlinger asked if the Game Commission shares this concern. Schmit replied that the Game Commission has been discussing this issue for years and that while hunters are proud that they have been solely responsible for the Game Commission, times have changed and with more sophisticated and advanced techniques of wildlife management now being employed, hunters can no longer afford to bear all of the costs on their own. He stressed that hunters will still pay the lion's share of the Game Commission's expenses and the Game Commission will continue to serve all of the people of the state.

Rep. Denlinger asked if Schmit knows how the Administration views this legislation. Schmit says he does not.

Rep. Santoni said that he understands that the last license increase was 10 years ago and wondered how much of an increase the Game Commission received. Derr answered, saying the last increase was approved in 1998-1999 and gave the Commission an additional $9 million in revenue. She quickly added that this increase in funding was employed to "catch up" on matters that had been put aside. According to Derr, during the 2004-2005 fiscal year they realized the Commission was again in a dire financial state so they brought in more revenue sources and started making program sacrifices.

Rep. Santoni stated that there are a lot of people that continue to call for a reduction of taxes yet still want the government to provide all of its services. He asked if the Game Commission has explored additional ways to secure revenue aside from this tax revenue. Schmit explained that 10 years ago, at the federal level, there was a movement to implement an excise tax on outdoor equipment and use that money to help wildlife agencies. While that never came to fruition, Schmit explained that the ultimate result was a wildlife grant program that PA taps into every year to secure a couple of million of dollars in revenue for their programs. Schmit said that while the idea of calling for an excise tax on outdoor equipment in PA has been discussed, no legislation has ever been formally drafted.

Rep. Peifer commended Schmit on this testimony saying that the general public often does not understand the money the Game Commission spends on non-game species. He referenced an example of a nesting pair of bald eagles in Pike County that have generated a financial boom for the local economy because of all the site seers that have come to watch them.

Rep. Scavello suggested that if the Game Commission needs additional revenue they should consider allowing companies to use spray irrigation on the game lands. He said there are facilities that would pay for the ability to do this. Schmit promised to have someone from the Game Commission contact the Representative for more details.

Staff for the Committee wondered what percentage of the Commission's budget goes to capital improvements. Derr replied that 2.6%, or approximately $2 million of the budget is for fixed assets. She added that $1.5 million of this is for the replacement of vehicles used by two thirds of the Commission's employees that work in the field. The remaining $500,000 is set aside by the Commission for land acquisition.

Staff for the Committee next asked what capital improvements did the Growing Greener funds get put towards. Schmit replied that some of this additional funding went for the purchasing of newer equipment for use by the Commission's food and crop employees.

Asked how much total the Commission received from Growing Greener, Derr said $20 million but added that they must receive approval every six months from the Administration to spend these funds. According to Derr, in the first round, the Commission received $6 million that was used for updated equipment. Subsequent funding is being used for things like bridges, roads and dams explained Derr. She added the Commission is now in the process of finishing up a project funded through this revenue stream to remediate all of the shooting ranges managed by the Commission and to increase spraying for Gypsy Moths. Schmit interjected that spraying for Gypsy Moths is considered an investment for the future because it is vital to ensuring the health of the oak trees in the forest which are a key source of nutrition for many species.

Rep. Boyd said it is his understanding that because the Commission is self funded, the legislature really has very little oversight of its activities. Schmit disagreed, saying that he believes the Commission comes under intense legislative scrutiny and believes the Commission has always been responsive to the legislature. He explained that while constituents expect their legislators to be responsive, the Game Commission is first charged with being responsible and then responsive especially on issues such as deer management.

Rep. Boyd worried that a dedicated funding stream from the legislature would make the Commission susceptible to legislative oversight. Schmit agreed this would be the case. Rep. Boyd closed his questioning warning the Game Commission to be careful about what they are asking for lest they find themselves in a position where they are called upon to be more responsive and not just responsible.

Chairman Levdansky offered to the Committee members some perspective explaining that the Game Commission and Fish and Boat Commission are independent state agencies who do not have to come before the legislature for budgetary approval even though they present their budget to the legislature as a courtesy. He went on to state that their budget is decided through Executive Authorization which has traditionally occurred without a lot of oversight since the combined budgets of both Commissions are only $110 million and are dwarfed by the size and concerns that always surround the state budget.

The Chairman stressed that if his legislation passed, there would be an expectation that the agencies would have to participate in the budget process. He opined that what sportsmen are concerned about is that they maintain independence over establishing their own seasons, bag limits and methods. According to the Chairman, while he has not spoken to the Governor about the need for a separate funding stream recently, he did six years ago when the Governor was still a candidate.

Rep. Frankel wondered what the inflationary rate is on the Commission's last license increase. Schmit acknowledged that there had been some talk right before their last increase of building in an inflationary factor but that did not happen. In terms of what this impact has meant since the increase, he confessed that he did not know.

Rep. Denlinger offered that during the last House Appropriation meeting with the Game Commission, this topic came up and he believes the inflationary impact since the last increase is around 23%.

Minority Chairman Nickol said he recognizes the Commission's financial plight but offered that tax payers will want to know what they are getting for their tax dollars. He asked what the cost to the Commission will be if their employees opt for retirement at age 50. Schmit replied that of their total potential compliment of 732 employees, 200 could potentially fall under the ability to retire at the age of 50 (if all positions were currently filled). He lamented that as of now, their officers are the only in the state that do not have the ability to retire at the age of 50 without penalty. He said that while the legislation to provide for this was passed by the legislature last session, the Governor vetoed it citing the Commission's fiscal situation.

The Minority Chairman asked what the anticipated first year cost would be. Schmit admitted he didn't know but stated that they were not forecasting many retirements. He speculated the cost could be $200,000.

Chairman Levdansky said of the $214 million in taxes the hunting industry generates, he would like to see how much of that is sales tax revenue. Schmit promised to forward the report containing this info to the Committee.

The Chairman then told the Committee the intent of this bill is not without precedent. He said there are already $500 million in tax funds already being used for things such as alternative fuel investments, public transportation, the CHIP program and the MCARE Abatement.

J. Gary Moore, Legislative Liaison for the PA Fish and Boat Commission, testified in support of the legislation saying the Commission's legislative charge includes the promotion of sport fishing, fisheries management, recreational boating and boating safety. He stressed their funding is highly dependent upon the sales of licenses, permits, registrations and titles.

He continued, stating that fishing supports 14,600 jobs in PA, generates $53 million in annual taxes and provides an economic benefit of $1.6 billion to the state. Moore cautioned that while the Commission is in good financial health now, they are projecting insufficient revenues for fiscal years beginning in 2012-2013. Moore testified that while license fees are typically increased every six to ten years, these increases also result in a decreased number of licenses sold.

He added the Commission expends $5 million in revenue to support programs that connect children with the outdoors, assist in watershed management, monitor environmental issues, manage non-game species, prevent accidents and save lives. According to Moore, with a supplemental funding source, future fishing license and permit increases may exceed 10 or more years in duration and the ultimate increase could be must smaller than in years past.

Rep. Denlinger asked Moore if the Fish and Boat Commission is willing to accept these new funds even though it would mean increased oversight by the legislature. Moore replied that times have changed and an additional funding stream has become necessary.

Rep. Seip complimented the Fish and Boat Commission for "thinking outside of the box" and holding two separate opening days for trout which have resulted in increased local revenue. He closed saying he would welcome any opportunity to secure more resources for the Game Commission and Fish and Boat Commission.

Chairman Levdansky said he would like to see a breakdown in the taxes the state collects from the fishing industry. More replied that he believes that $43 million comes from sales and use taxes and $10 million from income taxes but promised to verify these numbers.

Jan Jarrett, Vice President for PennFuture, testified next stressing their continued support for adequate funding for PA wildlife resource agencies. Citing their past support for the Game Commission and the Fish and Boat Commission to receive funding through the Growing Greener II initiative, she related how both agencies have used that funding in projects around the state that benefit all Pennsylvanians and not just sportsmen.

She stressed both agencies fill crucial environmental protection and restoration roles that no other agencies handle and employ wildlife professionals with expertise that exists in no other agency. She quickly lamented, however, that they are almost entirely funded by shrinking license sales.

She stated that dedicating a small portion of sales tax to these agencies would provide a stable funding floor for the development of maintenance and improvement plans for facilities and programs.

She closed by expressing concerns over diminishing Growing Greener II funding and its impact on PA environmental issues.

Rep. Denlinger began stating that the Growing Greener II money was an investment in the state's future and that this money has to be paid back. Jarrett acknowledged this and said she supports dedicating more money to paying back that debt.

The Representative then asked as a member of the environmental movement if she ever encounters any extreme anti-hunting groups that would want to try and take advantage of this legislation to stop hunting in the state. Jarrett stressed that the environmental groups they work with support hunting. She acknowledged that while she personally knows people that are against hunting, the environmental community recognizes the importance of hunters and anglers to the overall health of the environment. Jarrett added that PennFuture also provides free legal services to many hunter and angler organizations. She closed her response by telling the committee that there is a big difference between environmental organizations and animal rights organizations.

Chairman Levdansky agreed that conservationists and hunters often share the same concerns. He thanked PennFuture for working with hunting and angler organizations.

Ed Wentzler, Legislative Director for the United Bowhunters of PA stated that they constantly monitor the actions of the Game Commission and are well satisfied. He related how while many state wildlife agencies are being forced to cut back services, some like Missouri are enhancing them instead with the use of public money.

Wentzler stated that the United Bowhunters of PA is nearly 80% is support of the proposed legislation and strongly urges that it be passed with no restrains, assignments, earmarks, or designation attached to funds appropriated to the agencies.

Chairman Levdansky thanked Wentzler for the progressive position his organization has taken over the years.

Melody Zullinger, Executive Director of the PA Federation of Sportsmen's Clubs was the last to testify at the hearing. Zullinger began by stressing that the Game Commission and the Fish and Boat Commission manage wildlife and aquatics for the interest and benefit of everyone, not just sportsmen.

She explained how the agencies constantly struggle with funding because most of their revenue is derived from license sales yet license fees are set by the legislature which is often years behind in their approval for needed increases. Zullinger said the proposed legislation would help to alleviate the obstacle of needing a large license increase. Additionally, Zullinger testified that for years, they have requested a cost of living adjustment be factored into license increases but have continually been turned down.

She informed the Committee that in addition to her organization, the Pa Chapter of the National Wild Turkey Federation and many other statewide sportsmen's organizations, as well as non-traditional users like Audubon, support the concept of this legislation as well.

Acknowledging that concerns have been raised about how general fund revenue could result in more control over resource management and outdoor traditions by non-hunters and anglers, Zullinger said that it is clear that rising agency costs have outpaced what sportsmen can afford to pay for and alternative funding is necessary. In addition, Zullinger argued that the agencies are not independent now as they are audited more times than any other agency.

She continued, saying it only makes sense to return a small portion of the revenue generated by the hunting and fishing industries to help fund the programs that protect these resources.

Zullinger closed saying it is her hope that the percentages proposed in the legislation would eventually be increased to sufficiently sustain the agencies, alleviating the need for future sizeable license increases.  She also had other letters of support, details on Missouri's program, and a breakdown of the financial impact of sportsmen included in her packet of information for the legislators.

Chairman Levdansky said it wasn't long ago that such a proposal would have been rejected by the sportsmen community. He asked why there has been a change in position. Zullinger answered, saying that while there are still some concerns, the reality of the situation is that the additional money is needed so long as the wildlife management decisions are left to the independent discretion of the agencies. She said that while they generally do not support dedicated funding they wouldn't mind if the money was dedicated to non-game species.

Minority Chairman Nickol asked if the Federation would oppose a bill to pick up a specific cost of one of the agencies. Zullinger said that is not necessarily the case and that if the money was dedicated to non-game issues or for agency salaries that would be O.K. She worried, however, over any attempt that would mandate an agency to spend money in a particular fashion if the agency was in a tight financial situation and needed the revenue in a different area.

Minority Chairman Nickol said he just wanted to clarify this point because he fears it could be difficult to run this bill because it seeks to amend the tax code.

Eric A. Failing, PA Legislative Services

HARRISBURG - (3/17/08, 10:30 a.m., Room G-50, Irvis Office Building)

The House Republican Policy Committee held a public hearing on rate cap mitigation.

Members in attendance included Chairman Mike Turzai (Allegheny) and Representatives Tom Quigley (Montgomery), Dick Stevenson (Allegheny), Kathy Rapp (Warren), Scott Hutchinson (Venango), Bob Mensch (Montgomery), Garth Everett (Lycoming), Mark Keller (Perry), Scott Perry (York), Gordon Denlinger (Lancaster), Stan Saylor (York), Brad Roae (Crawford), Jeff Pyle (Armstrong), Mauree Gingrich (Lebanon), Glen Grell (Cumberland), Randy Vulakovich (Allegheny), Chris Ross (Chester), Carl Mantz (Berks), Dan Moul (Adams), RoseMarie Swanger (Lebanon), Dave Reed (Indiana), Brian Ellis (Butler), John Payne (Dauphin), and Bernie O'Neill (R-Bucks).

Chairman Turzai explained rate caps were enacted in the mid 1990s with the deregulation of the electric industry. All of the caps will expire by 2010 and industry experts are projecting a rate increase as caps expire for each utility. He said the purpose of the meeting is to investigate the issue and the benefits of competition.

Rep. Hutchinson, Minority Chairman of the Environmental Resources and Energy Committee, and Rep. Saylor, Chair of the Policy Committee's Energy Task Force, also spoke about the importance of this issue and ensuring consumers are protected during the transition.

Dr. Susan Tierney, Managing Principal, Analysis Group, stated PA's restructuring has been successful. She noted, however, that underlying changes will present challenges, including the increase in fossil fuel prices, the increase in related costs like copper and steel, the need to modernize infrastructure, and climate change. She urged the members to resist the temptation to fix prices and continue rate caps beyond 2010 and to "stay the course on restructuring". She argued that staying the course will attract capital investment. Dr. Tierney suggested additional tools to mitigate the increase without extending caps, such as a phase-in and enabling customers to better manage their electricity use.

Glen Thomas, PJM Power Producers Group, stated the vision of 1996 is largely intact today and PA is better served if the market is allowed to set rates than if regulators set rates. He emphasized the importance of educating consumers and providing them to tools to "compete and win". He also urged the members to let the market work, noting PJM is a fundamentally sound wholesale market. He said as the legislature looks at legislation, the members need to ask if the proposal will give their constituents the tools need to deal with the new electricity world. Lastly, Thomas urged caution in how they members react, stated that the market and investors will react to the message the legislators send. He urged them to send the message that they believe in the market.

Jan Freeman, Vice President, Exelon Corporation, argued competition has dramatically increased efficiency of generating units because now the risks are borne by investors and not consumers. He stated that today's rates, when adjusted for inflation, are 12% lower than the rates of 1996, but the utilities cannot continue indefinitely under capped rates. He suggested that the legislature continue to support competitive markets and allow the market to function in order to ease the impact of rate increases upon expiration of the caps. He also cautioned the legislature in its consideration of permitting long term contracts, noting that they would potentially lead to stranded costs. Freeman emphasized the importance of consumer education and preparation and stated demand side response needs to be "kick started". He suggested short term options such as ramp up or phase-in of rate increase should also be considered, recommending that such an option be "opt-out" to ensure more participation. Freeman argued attempts to cap or defer costs could bankrupt utilities, discourage investment, create reliability problems and guarantee higher prices. He concluded Exelon supports competitive procurement models, consumer education, and adoption of a ramp up or phase-in of increases.

Steve Feld, Associate General Counsel, FirstEnergy Corporation, expressed support for a phase in price mitigation plan and the encouragement of wise energy usage. He noted that with a phase in of rates, utilities will incur costs while they finance the difference and they must be allowed to fully recover those costs. He also argued that a phase in should have a defined end date of not more than three years plus three years to recover costs and should be limited to residential and small commercial customers. He noted the longer the phase-in period, the less likely demand side response will take hold. Feld concluded by emphasizing that a properly implemented phase in or ramp up and consumer education can mitigate the impact at expiration.

Doug Krall, Manager of Regulatory Strategy, PPL Electric Utilities, expressed support for competition, stating it will enable customers to realize the most reasonable prices over the long term. He provided an overview of the action PPL has taken to mitigate the increase for its customers, including deployment of advanced metering, the launch of PPL's "ePower" campaign to educate consumers about energy usage, and doubling the number of customers in the time of use rate program. He noted PPL has also implemented a purchase strategy to reduce risk and hopes to offer a ramp up option. Krall also suggested the state should consider additional support for low income customers, who will need more help as rates rise.

Aldie Warnock, Vice President of External Affairs, Allegheny Energy, explained Allegheny Energy just went through this process in western Maryland. He stated they found education to be very important because most customers do not realize their rates are capped. Warnock argued the rate mitigation strategy must balance price, environmental stewardship and reliability. Like the previous testifiers, Warnock stated a rate freeze is not an option. He suggested education of the situation, conservation, support of infrastructure development and a phased in approach to rate increases.

Frank Lacey, Director of Government and Regulatory Affairs for Direct Energy, spoke on support of the Retail Energy Supply Association (RESA). He stated RESA members are the competition. He, too, spoke in support of consumer education. He urged the legislature to reject cap extension and stated RESA has no preference regarding phased in increased, provided that they are competitively neutral. Lacey referred to several tools that the PUC has indicated support for, however the PUC does not have express authority to implement these tools. He opined the PUC should be given such authority.

Terry Fitzpatrick, General Counsel, Electric Power Generation Association, expressed his general agreement with the testimony provided to the committee thus far today. He expressed the importance of understanding the reality of the current situation, including global competition and environmental pressures. He commented caps have been a mixed blessing and were needed to get through the deregulation transition. He also stressed the importance of consumer education, providing tools to ease the transition and assisting low income customers. Fitzpatrick argued the best long term plan is to stick with the competitive market, noting plants will operate more efficiently upon completion. He emphasized the importance of providing a stable market to encourage investment. He noted resolution to the climate change debate will provide further incentives to invest.

Rep. Hutchinson acknowledged the need for a phase-in, but stated he is concerned with how it gets done. He asked if a phase-in is a political response or good policy. Dr. Tierney stated it is a "pragmatic, wise political response". She explained states implemented mitigation plans that did not take the "screaming value" into account found that "heels were dug in" due to the surprise of the rate hike. She said legislators could not withstand the pressure. She stressed the importance of smoothing the transition in advance, because it is harder to deal with if consumers are surprised. Rep. Hutchinson asked about the experiences of Penn Power. Feld explained the caps came off and power was procured through a competitive process. This resulted in increases of 20-30%, he said, so a phase-in was not necessary. He explained the increases are expected to be larger in Met Ed and Penelec, so a phase-in would help to smooth the transition. Rep. Hutchinson remarked there appears to be agreement that phase-in should happen, but stated he is nervous about that.

Rep. Hutchinson then asked for an explanation of "transmission challenges" and the adequacy of transmission. Fitzpatrick opined transmission will be built, but he noted there will always be people who do not want it. He stated transmission is needed to move power from the production site- whether solar, wind or nuclear-to the consumption site. Warnock agreed transmission will be built, but he said the question is whether it will be built before or after the blackouts. Dr. Tierney stated PA must ensure companies have the appropriate capital structure and that structure cannot be jeopardized.

Rep. Saylor remarked he agrees with Governor Rendell and Rep. Bill DeWeese (D-Greene) regarding the Department of Energy (DOE) transmission lines. He opined jobs should be here, not the emissions from West Virginia. He asked the panelists about their stances on the whole issue of power lines. Warnock replied Allegheny Energy plans to use the state process, not the federal process. He noted DOE identified congestion areas, stating today's congestion areas are tomorrow's reliability problem. He stated DOE has identified a program. Thomas suggested there is a general underinvestment in transmission in the country. He said the federal process identifies future problems and PA has to accept it to have reliability. Freeman added it is a balance act that needs to look at need versus economics of moving cheaper power. Rep. Saylor stated his concern is that the power line corridors don't follow other major corridors, like the Turnpike. He remarked public education and cooperation is important.

Rep. Saylor then stated he has introduced legislation to repeal the gross receipts tax and asked for the panelists to comment. Dr. Tierney stated that is the first time she has seen something so creative. Chairman Turzai interjected the 5.9% tax will generate additional revenue from the state and he said the goal is to mitigate rate increases, not provide a windfall for PA. Thomas noted the gross receipts tax on natural gas was eliminated in the late 1990s, so there is precedent for such action. Rep. Saylor commented most consumers do not understand the tax structure and added this could give $350 to 600 million back to taxpayers.

Rep. Ross remarked PA hasn't seen real competition yet and he is looking forward to the benefits. He commented new generation capacity takes time to build and in the meantime focus can be directed to conservation and demand side management. He asked about opportunities for third party companies to present a package to consumers to help mitigate increases and if that has happened in other states. Dr. Tierney replied yes, it has occurred in other states for large and small customers. She commented people don't want to have to figure out their electricity. Lacey added the role of the state is to educate people on their options, but it is incumbent on his members to come in with a marketing plan to education consumers on the products available.

Rep. Mensch asked about the role of caps in the creation of a competitive environment. Dr. Tierney replied PA hasn't seen the opportunity for retail competition yet, so consumers have not had the positive effect on rates. She noted the number of innovative offerings and choice in other states. The wholesale market, which is not capped, has seen tremendous benefit, she stated, including increased efficiencies due to improvements in operation and maintenance.

Rep. Mensch asked about infrastructure and demand. Freeman replied PJM has declining reserve margins and needs to look at building to meet needs. He stated there is a sense of urgency, but uncertainty may inhibit growth. Fitzpatrick added political uncertainty needs to be resolved. He suggested the climate change debate also affects new generation, but that is a federal issue. Krall stated all the utilities need capital to assure reliability and to upgrade. Warnock added the financial community will not invest until the uncertainty in PA is resolved. Dr. Tierney suggested the members promote the value created by electricity.

Rep. Rapp asked if the panelists are suggesting residential customers be able to make an additional payment of any amount, like a savings program. Krall affirmed it is essentially a saving program. He explained PPL has a schedule based on the average usage of customers, which would be tailored to individual needs.

Rep. Rapp asked how rural electric customers will be affected. Dr. Tierney replied they will be exposed to the same kinds of cost increases. Fitzpatrick added cooperatives were not capped and may have a variety of plans in place. He explained cooperatives were always under a difference scheme and never subject to PUC regulation. Rep. Rapp stated she has rural electric, so she is very interested. Freeman said many rural electrics have initiated demand side response. Feld added cooperatives buy power through a central entity and will be subject to increases.

Chairman Turzai asked about the bad things that result from price control, which Thomas referred to in his testimony. Thomas explained prior to competition a utility would ask the PUC to approve a project, but under the competitive market the money is at risk, as there is no guarantee the costs will be covered. He said risk is now borne by investors, not consumers, providing incentives to utilities to operate efficiently.

Chairman Turzai asked about the difference between RESA members and other utilities. Lacey replied RESA members are unregulated and typically do not own pipes and wires.

Chairman Turzai asked about conservation and demand side management, remarking consumers have not been forced to make these decisions, which ultimately affect the environment. Fitzpatrick responded environmentalists understand the caps cannot be extended or there will be further harm to the environment. Warnock commented San Diego had the best conservation because people saw the actual price and began to conserve, but when caps were implemented usage went back up.

Rep. Hutchinson commented a lot of the uncertainty could be resolved if the governor and administration would clearly say "we are not extending caps". He opined it is a mixed message without such a statement and that creates uncertainty.

Additional testimony was provided by J. Michael Love, President and CEO of the Energy Association of PA.

Kimberly Collins, PA Legislative Services

SENATE REPUBLICAN POLICY COMMITTEE

Public hearing on Chesapeake Bay Tributary Strategy

By Nate Collins, PA Legislative Services

2/21/08

The committee held a public hearing on the state's Chesapeake Bay Tributary Strategy and its impact on taxpayers across Pennsylvania. Members in attendance included Chairman Jake Corman (R-Centre) and Senators John Eichelberger (R-Blair), Mike Folmer (R-Lebanon), John Gordner (R-Columbia), and Pat Vance (R-Cumberland).

Secretary Kathleen McGinty, PA Department of Environmental Protection, outlined Pennsylvania's Chesapeake Bay Compliance Plan. The state's plan will allow Pennsylvania to meet the federal obligations facing the Commonwealth in a manner that is fair, yet provides sources of nutrient pollution with cost-effective options on how to achieve reductions, she stated. She offered that if the state cannot meet the goals set forth by 2010, it faces the prospect of much more stringent requirements from the U.S. Environmental Protection Agency. Secretary McGinty explained that Pennsylvania must achieve the mandatory nutrient reductions for point sources and non-point sources alike, while providing new compliance flexibility. "This strategy was formulated after more than 100 stakeholder meetings across the state, and included specific initiatives to address reductions from point sources and non-point sources in proportion to their relative contributions to the nutrient pollution of the Bay," she said. She commented that the federal requirements that are driving Pennsylvania's obligations are "very real and very specific". If the Commonwealth does not implement its compliance plan now, the EPA is obligated to dictate a compliance regime to the Commonwealth through a bay-wide total maximum daily load and EPA-dictated sewage treatment plant permits, she informed the committee. The Secretary outlined how the compliance plan includes mandatory reductions from point sources, like sewage treatment plants, and nonpoint sources, such as agricultural and stormwater run-off. With regard to point sources, she described how Pennsylvania's approach does not mandate sewage treatment plant upgrades, only nutrient reductions. She added that the permits now being issued to the largest plants in the watershed largely reflect the pollution reduction plans offered by the plants in conjunction with the Pennsylvania Municipal Authorities Association. She acknowledged that compliance with federal obligations will be costly.

Chairman Corman asked what powers the EPA has to force compliance and what penalties it can impose. Secretary McGinty replied that there are court- ordered mandates on the EPA. She added that if Pennsylvania does not meet its required reductions the EPA can impose a much harsher plan on the state. She offered that the EPA is regulating the District of Columbia and under its plan there is one plant in the city that has a compliance bill of several hundred million dollars. Pennsylvania's plan is much more flexible, she stated.

Senator Vance noted that the department estimated the cost of the Strategy to be $190 million in 2005 but now its estimate is over $300 million and she asked about the change. Secretary McGinty responded that the original $190 million estimate was based on actual discharges in 2010. She said that through the stakeholder process the department developed a different plan so a variety of numbers were changed resulting in a different estimate. Senator Vance questioned whether the cost estimate is heavily dependent on a credit trading program. The Secretary answered no, adding that stakeholder groups estimated the cost at $620 million, but that estimate does not include any credit trading. She said the department will encourage and in fact require lowest-cost alternatives to the used. Senator Vance asked what will happen if the nutrient trading doesn't work. Secretary McGinty acknowledged that compliance will cost more but if trading is used municipalities can receive a reduction without expensive capital upgrades at plants. Senator Vance commented that she has heard that credit trading is not viable for most plants. Secretary McGinty countered that the borough of Mount Joy has a credit trading program in place. There is a supply of credits but sewage treatment plants must be willing to use them, she stated. Senator Vance remarked that no municipalities in her county have an interest in credit trading. The Secretary said if that is true all the department can do is try to offer the lowest cost options to the municipalities. She noted that credit trading is not limited to a county, but to any plants in the Chesapeake tributary system. Senator Vance argued that funding must be provided to municipalities. Secretary McGinty agreed, adding that sewage treatment plants in central Pennsylvania are feeling put upon which she completely understands. However, she said that sewer and water infrastructure issues or a statewide problem that will likely cost $20 billion.

Senator Gordner remarked that the Water Supply and Wastewater Infrastructure Program (PennWorks) provided money for economic development but not for residential investments. He said the Governor's budget borrows money for a variety of improvements but not to address this specific proposal. Secretary McGinty agreed that PennWorks is an economic development program. She highlighted three aspects of the Governor's budget proposal related to water infrastructure, which includes flood mitigation, repairing high hazard dams and a task force to work on the problem of drinking and sewer water infrastructure. Senator Gordner said there is a concern in the Senate Republican Caucus about the Governor's continued borrowing. The Chesapeake Bay strategy is a long-term issue but the Governor is not addressing it, he stated, adding that the state should take action by providing funding.

Senator Eichelberger asked if the agriculture industry is responsible for an 80% reduction in nutrients in the Chesapeake Bay watershed. Secretary McGinty clarified that under the full compliance plan the "lion's share" of responsibility for reduction will be born by agriculture. She said the 80% amount actually includes all non-point sources, which include real estate developers and forests, among other sources. Senator Eichelberger noted that municipalities in his area are looking at a regional bond issue, and he asked the Secretary for her comments on this idea. Secretary McGinty replied that looking beyond a single plant is a good idea for municipalities. Senator Eichelberger then remarked that Governor Rendell has repeatedly shown that he does not care about central Pennsylvania. The Governor needs to come up with money for this proposal, but he doesn't even recognize the problem, the Senator argued. The Secretary disagreed with his comments, adding that the Governor is concerned about this issue. She assured him that the department will fully cooperate with the General Assembly on plan implementation.

Chairman Corman noted that a DEP spokeswoman said it will cost $620 million to upgrade sewage treatment plants, which is more than the estimate that the Secretary provided in her testimony. Secretary McGinty responded that the estimate of $190 million was relevant to the proposal in 2005 but with the participation of regulated facilities the estimate is now different. She clarified that the $620 million amount is not a DEP estimate, but it is considered by stakeholders to be the best available estimate. Chairman Corman questioned why the credit trading program is not popular, and asked if the department should be better educating people about the value of the program. Secretary McGinty said the program is brand new and it is going to take some time to get municipalities interested. Chairman Corman inquired if there will be any non-point source benefits from the dirt and gravel road program. The Secretary replied that the EPA will accept those projects for a credit as part of a compliance obligation.

Jim Felmlee, President, Lewistown Borough Council, David Frey, Lewistown Borough Manager, and Michael Dippery, Superintendent, Lewistown Wastewater Facilities, were next to testify. Felmlee said that over recent decades, the population of the borough has declined while its neighboring municipalities have grown. It is critical for the entire region to maintain quality infrastructure at a reasonably competitive cost to the users or industry will seek other communities in which to invest, he stated. He explained that the borough's projected cost of complying with DEP's Chesapeake Bay Tributary Strategy is $31 million. Of that total, approximately $16 million is directly due to nutrient reduction, Felmlee told the committee. He offered that in addition to this large capital expenditure, the borough will face an increase of $850,000 per year in operations and maintenance costs due to the extra power, chemicals and labor associated with running the more complex nutrient removal system. The only viable funding sources for the capital expenditure appears to be PennVest or municipal bond issues, which are ultimately paid through sewer use fees, he suggested. He commented that the net annual cost of the required improvements is estimated to be $2,900,000 per year, which equals $332 per equivalent dwelling unit per year for the service area. "We believe that responsibility for cleaning up the Chesapeake Bay lies with the residents of the entire Chesapeake Bay watershed, and not just with the ratepayers of wastewater treatment facilities within the watershed," Felmlee said. He noted that other states have recognized this, in fact Virginia issued state bonds and Maryland instituted a "flush tax" to help municipalities pay for nutrient related improvements to their facilities. The distribution of costs for nutrient reduction among point sources is not distributed evenly throughout the watershed, he added.

Chairman Corman asked what the current quarterly sewer payment is for people in the service area. Frey replied that bills are currently based on a meter, but offered that bills are expected to increase about 80-100% because of the Chesapeake Bay strategy. Chairman Corman inquired if the borough considered credit trading. Frey replied that they did consider it but they did not think it would be applicable to the borough at this time.

Senator Gordner asked if there are any farms located in the borough. Felmlee answered no, adding that the borough is approximately two square miles and it is built out to the boundaries. Senator Gordner commented that Secretary McGinty said boroughs do not have to trade within their municipality but he believes the borough that did trade most likely traded with a farm located in their municipality.

Frank Rankin, Carlisle Borough Councilman, explained that the borough includes a wastewater budget of $5.4 million. The service area is approximately eight square miles, covering all of the borough of Carlisle, and portions of North Middleton Township, South Middleton Township, Middlesex Township and Silver Springs Township, he stated. Rankin said the wastewater fund is an enterprise fund supported entirely by user fees. The borough is facing a major financial challenge that will require substantial improvements to the wastewater plant to comply with the Chesapeake Bay Initiative, he stated, estimating the total for Phase I improvements to be $15.4 million. He noted that the Carlisle Borough Council increased sewer rates on January 1, 2008 by 10%, and added that rate increases totaling 32% throughout the entire service area will be required to fully comply with the requirements of the Chesapeake Bay Initiative. Rankin told the committee that they considered nutrient trading with the agricultural community as an option but did not feel it is a viable option for ratepayers. He made three requests: dedicated funding, more time, and an assurance from DEP that the nutrient limits proposed in the most recent draft NPDES permit will not become more stringent if they go forth with the upgrade.

Senator Vance noted that the borough has requested a time extension, and asked when they will hear whether it has been approved. Peter Selan, treatment plants manager, replied that they hope to find out if the extension was granted later this month. Senator Vance asked why the borough determined not to use credit trading. Selan replied that there are concerns about limits related to the credits because they must be renewed on a yearly basis. He also noted concerns that municipalities will pay for the credits over 20 years but have nothing tangible to show for it.

Senator Eichelberger said he has heard concerns that there are not enough contractors to do all the necessary work at the plants. Selan replied that he has heard the same thing. He noted that contractors are hesitant to give firm estimates, and he added that his borough is concerned about being able to get multiple bids under the current time frame.

John Mickle, Vice Chairman, Fairview Township Board of Supervisors, explained that the total number of taxable units in the township is 7,000, of which 3,700 are sewer customers. He projected that it will cost the township $4 million for compliance for just one of its four plants. He said once the township's North plant is in compliance it will be at capacity, and he noted that the South plant is already at capacity. As a result, all development in the township has stopped, Mickle told the committee. He said the township is revisiting the idea of credit trading because it is facing very high costs to meet compliance. This burden should not be placed solely on the backs of ratepayers, he said, adding that municipalities need statewide help.

Chairman Corman asked if the municipalities have considered merging with other municipalities in an effort to achieve savings. Rankin replied that Carlisle already operates a regional program. Mickle said Fairview Township has already done some merging, which is why they have four plants. He noted that they have talked to neighboring municipalities but the one that they may have interest in merging with has a problem at its plant.

Senator Vance noted that Fairview Township recently implemented a rate increase, and she argued for funding to help municipalities pay for necessary upgrades.

John Brosious, Deputy Director, PA Municipal Authorities Association (PMAA), stated there are 184 "significant" treatment plants in the Pennsylvania section of the bay watershed that will be required to reduce the level of nitrogen and phosphorus they discharge. The proposal calls for a three-phased approach over a 10-year period, with the largest 63 plants required to be under construction in the first five-year period, he explained. PMAA has estimated costs to be about $1 billion for plants to reach their nutrient reduction goals, he told the committee. Brosious suggested that the administration's assertion that the federal cuts have prohibited Pennsylvania from funding Bay projects is misleading as state funding cuts have also occurred. He noted that the Point Source Work Group recommended a $300 million matching grant program for treatment plants but it is not included in the approach by DEP. He added that credit trading is not a panacea but it may be a workable solution as an option for treatment plants in Phase 2 or 3 that did not have growth or other upgrade issues. He told the committee that there are not enough pounds of tradable phosphorus credits available. Brosious offered that PMAA supports funding to help offset implementation costs for treatment plants, adding that it also supports funding for agricultural and other non-point efforts to achieve their respective reductions.

Chairman Corman asked if PMAA has an estimate of reductions that will result from the Strategy. Brosious replied that treatment plants will remove about 5% of the nitrogen, but consequently 95% of the nitrogen will still exist in the tributary. He said there are a lot of ways to reach the required reductions but the state has to make sure that all of the sectors step up.

Senator Eichelberger expressed concern about growth in the state, and inquired if anybody has studied the impact of the Strategy. Brosious agreed that it is a concern. He said there are also questions about what will happen to large industrial plants that use public sewer systems that are forced to pay much higher rates.

Robert Fisher, Chairman, PA Builders Association (PBA) Chesapeake Bay Tributary Strategy Task Force, stated PA's housing industry has concerns with the Tributary Strategy but emphasized the PBA fully supports the goal of improving the water quality in the watershed. He stated the evidence to date indicates that the primary goals of the Tributary Strategy will not be met unless the nutrient credit trading program is significantly reformed. Fisher argued that just as important as the cost of the sewage plant capital upgrades "is the lack of environmental improvement such upgrades would provide for the Bay...agriculture and other non-point sources are by far the largest source of nutrients to the Bay from Pennsylvania. Spending as much as $1 billion to physically upgrade sewage treatment plants to reduce a small fraction of the problem is not fiscally efficient or environmentally effective public policy." He stated the functioning of the nutrient credit trading program is particularly important to the housing industry because the Strategy made no allowance for residential or commercial growth. However, he added, "changes to the trading program are needed in order to ensure that it is a viable option to ensure growth while promoting the necessary water quality improvements. The trading program needs to be reworked so that it is seen by treatment plant operators as financially competitive with capital upgrades." Fisher suggested a concept that would create a nutrient credit trading bank that would guarantee a fixed cost for credits over a certain period and to concentrated funding efforts to install best management practices to clean up the primary sources of nutrient pollution, mainly farmland.

Senator Vance opined that this Strategy will hurt growth in Pennsylvania, adding that it will certainly hurt boroughs along the Susquehanna River. Fisher responded that the state needs a credit trading system that works. He added that the bulk of the nutrient problem is not from treatment plants so he does not believe the bulk of the money should be spent to address the plants.

Chairman Corman asked why several of the Builders Association proposals have not been successfully implemented. Fisher replied that the ideas have been ignored. He said some of their ideas have been brought up at several of the previous stakeholder meetings but no action has been taken. He added that he has not heard where the money will come from to pay for the necessary farm improvements.

John Bell, Legislative Council, PA Farm Bureau, said no stakeholder expected nutrient trading to be the magical answer to the overall effort to meet nutrient reduction goals in the Chesapeake Bay so it should not be shocking that nutrient trading has not "rocketed forward" at this point. He offered that the Farm Bureau viewed the value of nutrient trading in the context of farmers' overall efforts to implement best management practices (BMPs) on their farms. Bell said in the crafting of the program farmers did not obtain everything they sought in the final nutrient trading rules. One of the areas of particular concern was the ability of persons to generate tradable credits solely through taking lands used in agricultural production out of production, he explained. He remarked that problems with nutrient trading may simply be the economic principle of supply and demand. Those who will likely need to obtain credits to meet their required nutrient reduction goals are not necessarily feeling the pressure to stock up on credits early, Bell stated. He added that another problem seems to be serious lack of trust among purchasers who may need to rely on purchased nutrient credits to meet permit requirements that the credits they purchase will actually be generated. "We continue to be optimistic that nutrient trading can work in the future, and can be helpful in moving Pennsylvania toward meeting the nutrient reduction goals outlined in Pennsylvania's Chesapeake Bay Tributary Strategy," he concluded.

Senator Vance asked about legacy sentiment, specifically wondering about the amount of nutrients they put into the Bay and estimated cost for removal. Bell replied that legacy sediment may prove to be a significant cause of non-point source nutrient pollution to the Bay. He explained that it is the residual of the build up of soils along stream banks from the proliferation of damming that occurred along Pennsylvania streams during the 1800s to provide a source of power for mills and other businesses. He said he does not believe such an extensive study on the cost of removal has been done.

Peter Hughes, President, Red Barn Trading Company, provided an overview of his company's role in facilitating credit trading. He stated, "I do not believe that the nutrient credit trading policy is a panacea that will cure all of the social and economic hardships created by implementation of the 2000 Chesapeake Bay Agreement. I do believe that it can be an economically viable alternative to capital upgrades or in conjunction with point source capital improvements. I do believe that best management practices installed by non-point sources that generate nutrient credits will have a significant positive impact on the Chesapeake Bay. I do believe that when there is a demand for nutrient credits from point sources that demand will be met with a robust market from the agricultural non-point sources. A capitalistic open cap and trade market is the future of environmental compliance."

Senator Vance noted that the company has 450,000 tradable credits, and she asked if they buy them from the farmers. Hughes explained that they contract with the farms to take the credit proposals to DEP to determine the amount of credit. Senator Vance asked about the current price of the credits. Hughes replied that it is currently nine dollars for nitrogen and four dollars for phosphorus. He added that to be effective the costs must be much lower. Lastly, Senator Vance asked if Red Barn is the only company selling credits, to which Hughes answered yes.

Chairman Corman asked if Red Barn sells the credits to point sources. Hughes affirmed this. He explained that they can sell to anyone in the Chesapeake Bay watershed. He suggested that there is no demand for the credits right now because municipalities do not have to meet the requirements until 2010. We must be able to stabilize the credit price over 20 years to make the program viable, he stated. Hughes suggested that credit trading should be considered as part of a long-term solution for many municipal authorities.

Senator Eichelberger inquired if Red Barn was involved in the credit trade in Mount Joy borough. Hughes said no.

Brian Hill, President and CEO, and Mathew Ehrhart, Vice President for Watersheds and Working lands, PA Environmental Council, were next to testify. Hill noted the Council is active in the development of nutrient trading policy and the nutrient trading program in PA, and has also coordinated the first nutrient credit trade in the borough of Lititz. While not a "panacea," Hill emphasized nutrient trading is nevertheless an important tool to help improve water quality. He described the NutrientNet online trading tool, which is an online marketplace for nutrient reduction credits and when completed it will allow farmers or wastewater treatment plant operators to buy or sell DEP certified credits. Hill reported a trial version of the website will go online in the spring of 2008, and has undergone successful testing in the Conestoga River Reverse Auction project in Lancaster County. Among other ongoing projects, Hill detailed the prospects of the Antrim Township Nutrient Trading Planning Project, a Golf Course Best Management Practices Manual, Third Party Nutrient Trading Proposal Review Services, and a partnership with Exelon in East Hempfield Township to conduct a project on a Forested Riparian Buffer.

Chairman Corman remarked that there seems to be a disconnect between the people who support the trading program and those who would actually use the credits. Hill replied that some of the demand drivers have been pushed back to 2010. He remarked that this is a very innovative program, and DEP is still working through the challenges of creating a brand new program. Chairman Corman suggested that someone needs to prove to the municipalities that a trading program is worthwhile because they do not see the value at this point. Ehrhart commented that the costs for credits and construction are about the same at this point, and to be competitive the credits must be cheaper. He added that there is a need to provide funding to municipalities to offset the costs.

Jon Capacasa, Director, Water Protection Division, and Robert Koroncai, Associate Division Director, Office of Standards, Assessment, and Information Management, US Environmental Protection Agency, Region III, were the last to testify. Capacasa detailed the buildup of nitrogen and phosphorous levels in the Mid-Atlantic Region which has severely impacted the Chesapeake Bay. He noted Pennsylvania's status as a "vital participant" in the Chesapeake Bay Program, designed to implement solutions to halt and reverse the damage caused by nutrient pollution. Capacasa stated that due to the Susquehanna River, Pennsylvania's contributions "constitute the most significant river source of nitrogen pollution to the Bay and the third largest river source regarding phosphorous pollution." Detailing the Chesapeake 2000 agreement and Pennsylvania's own Tributary Strategy, Capacasa acknowledged PA will achieve its allocated nutrient loadings when the Strategy is fully implemented. He stated the EPA has received a court order establishing 2010 as a deadline for compliance, with failure to remove the impairment resulting in the enforcement of a Total Maximum Daily Load allocation. He applauded the PA DEP for working closely with various municipal organizations to develop "creative options" to minimize the financial burden of the project.

Chairman Corman said he has heard that a large investment in point source treatment plants will result in a 5% reduction in nitrogen. He opined that this is a big cost for a small impact. Capacasa replied that non-point source is very cost-effective but point source has a definitive control point. Koroncai added that the Bay has too many nutrients from too many sources, adding that they need to look at all of the sources including point sources because agriculture can't do it alone. Chairman Corman expressed concern that municipalities are going to spend significant money but it won't solve the problem. Koroncai replied that this problem can't be solved with $1 billion because it is a multi-billion dollar problem to address all of the sources.

Senator Vance commented that PennVest has been cut in President Bush's budget proposal. She said if the goal is a clean Chesapeake Bay it can only be achieved if money is spent in the most effective way. She said her problem is that DEP has chosen to implement the Strategy without any money for municipalities. This is an unfunded mandate, she stated. Capacasa responded that the EPA is sensitive to the cost concerns. He said they have been working on the nutrient plan for many years, adding that this issue must be addressed now.

Senator Eichelberger expressed concern that if all the treatment plants are upgrading at the same time there will not be enough contractors, and he asked if extensions are possible. Capacasa replied that Pennsylvania already has a three-phase schedule. He suggested that the trading program can buy a municipality some time. He told the committee that 2010 is an important date because the EPA will be placed under a court requirement if reductions are not met. If an entity has a reason why they need an extension, those requests would be considered on a case-by-case basis, he added. Senator Eichelberger asked about sanctions if plants do not meet their required reductions. Capacasa said there is a penalty of $32,500 a day for violators who are not moving forward in a good-faith manner as required by the Clean Water Act.

Chairman Corman remarked that he hopes the EPA is lenient when it considers whether a municipality is trying to move forward in good faith.

Chairman Corman then inquired if it was the state's decision on how much point source and non-point source reduction would be required. Capacasa confirmed that the state developed its plan and chose the amounts. Koroncai explained that EPA gave each state a total amount of nutrients it had to reduce, and then the state developed its own Strategy. He said the EPA took each proposed a plan and ran it through a formula to determine if it meets the required reductions. Capacasa said every sector has to do its share. He offered his belief that Pennsylvania's plan calls for a reasonable reduction from point sources like treatment plants. Chairman Corman reiterated his comments that this must be done in the most cost effective way.