This newsletter addresses EPA’s proposed Clean Power Plan regulatory and compliance developments.
As we approach the summer of 2015, when the US EPA is expected to finalize its rule for reducing carbon emissions from existing power plants under Section 111(d) of the Clean Air Act, more attention is being given to who exactly will be impacted by the rule. Of course, power generators will be affected as will consumers, who will be required to pay higher electricity prices for compliance, as all costs are ultimately borne by consumers. It is not clear however,  the role that electric utilities, regional transmission organizations (RTOs), Federal Energy Regulatory Commission (FERC), retail energy service providers, and state utility regulatory agencies, to name a few will play in developing compliance strategies and plans or in execution.

Speaking at the National Press Club, in January, FERC Chair Cheryl LaFleur suggested that FERC is being cast in a role to “validate” the varying views on the Clean Power Plan. Similarly in other single state and multi-state RTO’s, planning authorities are considering the role they can play in working with affected parties, state utility regulators and environment agencies to assist in developing compliance plans and helping ensure compliance. While Chair LaFleur recognizes that FERC is not an environmental regulator, the agency as RTO’s can still play a key role in helping to ensure the CPP is successfully implemented.

State compliance plans could put the entire responsibility on power generators to reduce carbon emissions using mass or rate standards. Compliance plans could also include roles for RTO’s working with FERC to require that markets clear, and wholesale prices be set, using environmental dispatch rather than economic dispatch with carbon being the limiting factor. Similarly, retail electricity service providers could be required to procure a mix of generation that meets mass or rate targets. Since the “play” will be at the state and regional level, for states that band together, these and other questions need to be asked now. Even something as seemingly simple as requiring greater use of gas in power generation will not be easy, as some might expect. For example, methane leaks from aged pipelines could further exacerbate an existing methane leak problem in gas distribution systems as pipeline pressures increase. Limited gas pipeline capacity could prohibit more gas being used because pipeline capacity is not sufficient to meet needs and siting new pipelines is becoming increasingly difficult. As a result, FERC and state utility regulators and environmental regulators and RTO’s will have to work together to see that more pipeline capacity is built and built safely.

As Chair LaFleur noted, all energy regulatory-related issues come down to balancing reliability, cost and the environment; and I will add economic development and job growth. Finding the right balance will require thoughtful deliberation and assessment of different strategies and plans. While states will lead the effort, US EPA is reserving the right to force a compliance strategy on states that do not develop their own. The stakes are getting higher and the need for more immediate action is getting greater.

Best regards,

Paul DeCotis