FERC working with EPA on power plant rule

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Members of the Federal Energy Regulatory Commission on July 29 told a congressional committee that they are working closely with the U.S. Environmental Protection Agency to make sure the coal-averse Clean Power Plan doesn’t destabilize the grid, according to GenerationHub.

FERC Acting Chairman Cheryl LaFleur was one of those testifying before the House Committee on Energy and Commerce’s Subcommittee on Energy and Power about the plan, designed to reduce CO2 emissions from existing power plants. The plan is expected to force the closure of a number of coal-fired power plants on top of those already being forced to shut due to EPA programs like the Mercury and Air Toxics Standards (MATS).

“FERC has closely followed the development of the Clean Power Plan because it is clear that such regulations and related state compliance plans could have implications for the operation of the grid,” LaFluer noted in her prepared testimony. “In addition, because it appears that vital decisions in this area will be made at the state level, I believe it is important to reach out to our state colleagues on these issues. As an example, the continuing FERC/NARUC work on reliability and the environment that I mentioned previously (which has now been folded into NARUC’s standing Electricity Committee) has provided a public forum for conversations concerning these issues, including not only FERC and NARUC representatives, but also senior EPA officials and industry representatives.”

Once the Clean Power Plan, unveiled to the public recently, entered the Office of Management and Budget (OMB) interagency review process before its release, FERC provided input to the EPA primarily from a reliability perspective. Among other recommendations, FERC staff emphasized that in light of EPA’s proposal to rely on increased capacity factors for natural gas-fired generation resources, gas pipeline adequacy should be considered from a regional perspective, not just a national perspective, due to existing constraints on the system.

With respect to the EPA’s proposed reliance on increased deployment of renewable resources, FERC staff provided input regarding the general timeline for the construction of transmission to remote resources and identified specific studies that explored questions about dependence on a significant amount of renewables to ensure adequate ancillary services, LaFleur reported. FERC staff also emphasized that, in order to promote efficient compliance with the Clean Power Plan, the EPA should not only allow but also encourage regional compliance.

FERC can support state efforts to reliably comply with the Clean Power Plan both directly, through its authority over permitting of certain infrastructure, particularly natural gas pipelines, and indirectly, through its statutory rate authority, market oversight, and collaborative roles with states and other important stakeholders, LaFleur said.

FERC Commissioner Philip Moeller also noted EPA’s reliance on more gas-fired generation in his testimony. “Most concerning is the assumption of increased ‘re-dispatch’ of natural gas units of up to 70 percent. Related to this concern is whether there will be sufficient pipeline capacity to support this increase in natural gas generation. Simply put, if plant owners don’t know on a daily basis whether and to what extent their power plants will be called upon to run or not, they will be reluctant to sign a 20-year or 30-year contract to buy natural gas. Yet pipelines rely on such long-term contracts to finance system expansion. And while EPA’s proposal does not require infrastructure to be installed overnight, such improvements sometimes cannot be implemented within the deadlines of specific rules.”

Based on the timelines involved, EPA is essentially capping the amount of U.S. electricity consumption in 2030, Moeller wrote. “Although the relationship between economic growth and electricity consumption growth has evolved over the past several decades, it is impossible to accurately predict this relationship out to 2030, just as it would be impossible to accurately predict the Dow Jones Industrial Average in 2030,” he added.

Moeller said about backing down coal in the power supply mix: “The biggest challenge in implementing the proposed rule is that electricity markets are interstate in nature. Thus the proposal’s state-by-state approach results in an enforcement regime that would be awkward at best, and potentially very inefficient and expensive. The interstate nature of these markets is illustrated by the example of Idaho. While that state currently does not generate electricity from coal plants within its borders, it consumes coal-generated energy produced in at least five other states. If those states decrease their coal generation and Idaho compensates by increasing generation from its existing natural gas plants, it creates complications related to its initial carbon baseline and its carbon baseline going forward.”

Moeller also brought up the MATS rule. “I remain very concerned about the reliability implications of MATS, especially in the Midwest during the summer of 2016. Adding new carbon dioxide compliance obligations on top of MATS creates a complex regulatory environment, the implications of which are not yet understood. Yet this topic is important and needs to be addressed promptly, as reliability is as much a necessity for the EPA as it is for the American people.”

FERC Commissioner John Norris struck an upbeat note on MATS. “One reason we have already started the transition toward a low-carbon economy is the implementation of the EPA’s MATS rule. That rule has contributed to the retirement of many of our highest polluting and least efficient coal-fired generation plants. While MATS has contributed to the retirement of many of these units, a number of the retiring units are old, inefficient plants that would have likely retired soon anyway. Although challenges remain in some areas of the country in providing adequate generation resources to maintain our reserve margins, our electric energy system generally appears well positioned to meet the requirements of the MATS rule.”

Last year, Norris pointed out, FERC began a significant look into whether capacity markets are functioning adequately, and it recently began an inquiry into price formation in energy and ancillary services markets. Among other things, FERC is considering whether varying characteristics of different resources are being appropriately valued in the marketplace. “Recent FERC rulemakings such as the variable energy resources and ancillary and storage compensation rules are examples of actions that can be taken to meet changes in the resource mix while maintaining or even enhancing reliability,” he explained.

FERC Commissioner Tony Clark said this CO2-control rule has the potential to totally re-shape the federal-state relationship when it comes to power industry regulation, since the rule sets certain new national goals and standards for the grid. States are being asked by EPA for input on how they will comply with the rule, which they may or may not cooperate with.

“On one hand, a state could tell EPA that it is not playing ball,” Norris wrote. “That would allow a state to wash its hands of a process that it may see as unworkable or ill-advised for any number of reasons. Yet doing so carries significant risk. Presumably, EPA would then step in and craft an implementation plan of its own; but its tools may be crude, and as of yet are undefined. In short, a state has no idea what the downside risk is should they not participate in creating a state compliance plan.”

He added: “On the other hand, a state could decide to go down the path of taking the EPA up on its offer of flexibility and craft its own plan or attempt to partner with other states on a regional plan. Yet this is a path that is at least as perilous; for if states agree to play by the EPA’s rules, they are ceding ultimate authority of the regulation of their state’s public utilities and energy development to the EPA.”

Norman Bay, currently the Director of the Office of Enforcement at FERC and recently confirmed by the Senate as a FERC member, said in his brief prepared testimony: “As the Director of the Office of Enforcement, I have been involved in investigations into potential reliability violations and inquiries into major reliability events, but I have not been involved in the EPA rulemaking. While the EPA has responsibilities under the Clean Air Act and other legislation, the Commission has a similar, and no less important, responsibility to promote the reliability of the bulk-power system.”

The FERC members were generally upbeat about the EPA plan, which is not surprising since they work directly under the Obama Administration. But Rep. Ed Whitfield, R-Ky., who chairs the subcommittee and comes from a coal-reliant state, wasn’t on that same page.

“As I have noted before, I find much reason for concern with this proposed rule,” said Whitfield in his opening statement. “For one thing, EPA’s unprecedented use of the Clean Air Act is on very questionable legal ground. I see nothing in the law that empowers EPA to commandeer state decision-making authority over how it produces, delivers, and uses electricity. But aside from the legal questions of whether EPA can do this to the states, there is the equally important question of whether the agency should do it. I have serious doubts whether this scheme is advisable or even workable.

“Ironically, EPA is embarking on this comprehensive effort to federalize energy planning even though the agency has absolutely no energy policy-setting authority or expertise," Whitfield added. "That is why it is important to hear from a federal body that actually does have such authority and expertise, although I might add that the top down, command-and-control efforts of EPA go far beyond even FERC’s jurisdiction. As a preliminary matter, I would like to better understand FERC’s level of participation in this proposed rule – is FERC an equal partner with EPA, a junior partner, or hardly a partner at all in promulgating this rule? And what would be FERC’s role in implementing it? I am also interested in tapping into FERC’s considerable expertise on electric reliability, as I anticipate many reliability concerns with this proposed rule that have not been considered by EPA.”

Full committee Chairman Fred Upton, R-Mich., was also critical of the EPA effort in his opening statement. “I am particularly concerned about the Clean Power Plan’s impact on energy diversity. Maintaining a diverse energy portfolio is a core component of this committee’s vision for America’s energy future – a vision we call the Architecture of Abundance. Consumers and businesses are best served by an electricity supply that can be generated from a variety of sources – coal, nuclear, natural gas, as well as renewables – and in the proportion that each state deems best to suit its unique circumstances. Maintaining diversity – both diversity in our electricity generation portfolio as well as a diversity of strategies for meeting a state’s electricity needs – is critical to affordable and reliable energy. But EPA’s top-down Clean Power Plan will give us less of both kinds of diversity.”

Rep. Henry Waxman, D-Calif., took the Administration line. "The Republican members of this Committee deny the existence of climate change or pretend it doesn’t exist," he said in his opening statement. "They see the EPA’s Clean Power Plan for the power sector as a threat to grid reliability. And that’s why they have called this hearing. They hope you will say something that will give them ammunition in their war on the environment. But those of us who aren’t members of the Flat Earth Society know that carbon emissions from power plants – not EPA regulations – are the real threat to the grid."

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