Obama Administration’s Environmental Rules to Leave Lasting Legacy on Power Sector, Markets

Sonal Patel

Sonal Patel is POWER magazine’s senior writer. A national, award-winning energy journalist, she covers a wide range of technology, business, and policy issues affecting the power industry worldwide. She can be reached at spatel@powermag.com.

August 1, 2016

Witnesses at a Congressional hearing raised concerns about the complexity, costs, legality, and feasibility of the 3,900 final rules published by the Environmental Protection Agency (EPA) during the Obama administration.

A large portion of those rules affect the power sector, but none are more contentious than the Clean Power Plan, regulatory and citizen interest experts agreed at the July 6 hearing held by the House Subcommittee on Energy and Power titled: “A Review of EPA’s Regulatory Activity During the Obama Administration: Energy and Industrial Sectors.”

Shaking Up How Power Markets Are Regulated

For Travis Kavulla, President of the National Association of Regulatory Utility Commissioners (NARUC), even if stayed by the Supreme Court, the Clean Power Plan has had the wider impact of changing how, and by whom, utilities should be regulated.

The EPA’s rule can be “seen as a de facto fuel-type or renewable-energy standard,” Kavulla declared, adding that its design will likely promote “uneconomic” pathways to complying with it both in states that are regulated by state commissions and in competitive markets.

The head of the quasi-governmental, nonprofit group whose membership includes public utility commissioners serving all U.S. states and territories also revealed that NARUC’s members are “divided” on how to address carbon dioxide and other greenhouse gas emissions. However, NARUC “unambiguously” advocates that state traditional regulatory oversight should not be compromised.

“The EPA’s regulation creates a carbon planning function vested in the EPA together with the state environmental regulators and governors,” Kavulla told lawmakers. “This supplants the traditional oversight of utility resource planning by state utility commissions. This step change in the regulation of utilities will have many consequences, some of which are readily apparent and some of which are as yet unforeseen.”

For one, instead of focusing on an emitting facility, as other Clean Air Act rules do, the Clean Power Plan focuses on “ ‘the complex machine’ that is ‘the North American power system,’ ” he said. “This novel approach means that EPA has interpreted the Clean Air Act to give that agency the power, essentially, to plan the resource mix of the U.S. power sector.”

State utility commissions “possess and deploy” substantial technical resources in analyzing integrated resource plans (IRPs) filed by regulated utilities and take seriously their mandate to serve customers who do not have another choice in provider, Kavulla said.

“Were the environmental obligation in question here—the reduction of carbon-dioxide emissions—to be expressed as a facility-specific technology or even simply as an explicit carbon price, then those inputs could be modeled transparently within the IRP process that is used to identify the least-cost portfolio within the bounds of other restrictions, such as reliability or environmental impact.”

But when the EPA adopted a system that encompassed the entirety of the state’s electric power production, “what it really did was usurp the IRP function of a utility commission and replace it with a carbon-resource planning process undertaken by the state environmental regulator and governor’s office under the Clean Air Act’s §111(d),” he said.

A Compromised Planning Process?

This transfer of authority will have high consequences, Kavulla predicted. Not only will it give a less experienced regulator control over a resource planning process, it makes the resulting plan enforceable as a matter of federal law, “sapping the ability of the industry and the regulator to respond nimbly to changing market conditions,” he said. It also “introduces a new level of potentially self-seeking politics into the planning process,” he added.

Another high-profile witness at the hearing, Acting Assistant Administrator for the EPA’s Office of Air and Radiation Janet McCabe, argued that the Clean Power Plan rests on “strong scientific and legal foundations,” adding that the EPA is “confident it will be upheld” by the courts.

She also noted that not all states have rejected the Clean Power Plan. “Since the stay was issued, many states have been moving forward voluntarily to cut carbon pollution from power plants,” she said. “They have also asked EPA to continue our outreach and development of supporting information and tools that will help guide states when the Clean Power Plan becomes effective, which we are doing while ensuring that we fully comply with the stay.”

McCabe also defended the administration’s updated ozone National Ambient Air Quality Standards released last October that cuts the current limit of 75 parts per billion to 70 parts per billion. Industry has decried costs associated with the revised standards, warning that they could require billions of dollars in compliance costs and accelerate coal plant retirements.

McCabe said that the U.S. is mostly on track to meet the standards. “We expect that the vast majority of counties outside of California will meet the 2015 ozone NAAQS by 2025 without having to take additional action beyond federal measures.”

A Technology-Stifling Rule

Charles D. McConnell, who is Executive Director for the Houston-based Rice University’s Energy and Environment Initiative, made clear that he believes climate is changing, and that it “requires an energy strategy in this country and globally to address long-term implications.” But, “That does not, however, give the federal government through this agency, license to do whatever it wants,” he said.

McConnell lambasted the EPA’s rules in recent years, saying they do not serve their stated purposes. “The mercury rule provided very little benefit from mercury reduction, as EPA itself acknowledged. Similarly, it is clear both scientifically and technically, that the EPA’s [Clean Power Plan] is not a plan that will significantly impact global CO2 emissions.”

The plan does not give nuclear generators credit for their zero-emitting energy, which will force markets to replace their rapid retirements with natural gas. It also mandates that new coal plants meet emission standards based on partial carbon capture and store (CCS)—capturing about 25% of the CO2 emissions of a supercritical coal-fired power plant and sequestering those emissions underground.

“This may sound like progress, but mandating a technology that hasn’t yet been proven and burdening it up with draconian regulatory consequences should it not perform, will simply discourage people from choosing this option,” McConnell said.

“I don’t know of anyone who would consider implementing transformative technology in a coal plant with CCS at the same time the government would impose penalties on them if the technology didn’t work.”

On Costs and Benefits of the Rules

David Porter, who chairs the Railroad Commission of Texas, echoed concerns with the EPA’s power grab outlined by Kavulla: “If upheld, the Clean Power Plan would lead to a formidable, unprecedented, and unlawful expansion of EPA’s authority. The resulting restructuring of nearly every state’s electric grid would exceed even the authority that Congress gave to the Federal Energy Regulatory Commission, the federal agency responsible for electricity regulation,” he said.

But he also pointed to exorbitant costs associated with Clean Power Plan compliance. Citing a study released by Energy Ventures Analysis, Porter claimed that the plan, along with other rules, would increase the cost of electricity and natural gas by nearly $300 billion in 2020 compared with 2012.

On the other hand, the environmental rules adopted during the Obama administration—as with rules adopted during the Bush administration—offered immeasurable benefits to the public, argued Robert Weissman, president of Public Citizen, a national public interest organization with more than 400,000 members and supporters.

“Although most regulations do not have economic objectives as their primary purpose, in fact, regulation is overwhelmingly positive for the economy. It is worth underscoring this point, because concerns about particular rules or that the rulemaking process is unfair to regulated industry are usually rooted in economic arguments,” he said.

“Very few major rules are adopted where projected costs exceed projected benefits, and those very few cases typically involve direct Congressional mandates.”

Weissman said that industry overestimates cost matters “both for political reasons and because regulated industry typically has an undue influence over cost estimates, in large part because it controls access to internal corporate information, as well as because of its ability to commission studies that tend to support the interest of their funders.” But this “information asymmetry” is a problem in the cost-benefit analysis, including because businesses do not always disclose assumptions in their submitted cost estimates.

Among the rules offering “immense net benefits on society” adopted by the Obama administration—even if the government has been “achingly slow to act on major rules”—are the ones regulating mercury, ozone, and carbon pollution, he said.

Major rules from the EPA are accompanied by “a staggering—nearly paralyzing—amount of justifying technical information,” Weissman said. He also claimed that “environmental rulemaking in the energy and industrial sectors trails available science—including the EPA’s science—by years or decades.

“The stingy regulatory approach of the EPA means that America is not afforded the degree of health and environmental protection it should be.”



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