An In-depth Look at the EPA’s Clean Power Plan, Part III

by Matthew Rose, Enerdynamics Instructor

The last couple of weeks I’ve delved into the particulars of the Environmental Protection Agency’s (EPA) proposed Clean Power Plan including the plan’s purpose and objectives as well as how the EPA foresees its Red question mark puzzleimplementation. This week I conclude this discussion by looking at some areas of the plan that require further clarification and at some possible implications if the Clean Power Plan comes to fruition.

Issues needing clarification

A review of the plan’s draft rules points to a number of issues that seem ambiguous and need greater clarification. These issues are not exhaustive but reflect some of the immediate concerns arising from the rules.

  • Enforceable authority: There is some uncertainty regarding the enforceable authority under the “Clean Air Act” especially for renewables and energy efficiency strategies. If a state elects to use renewable energy or a state energy efficiency portfolio standard as part of its compliance plan, does the strategy become subject to EPA’s authority? There is some ambiguity that the rules may potentially extend to federal oversight in these instances.

  • Historical contributions: A key element of the approach is that EPA incorporated the relevant generation and energy efficiency accomplishments within each state in their goal-making process. As a result, any efficiency reduction prior to 2012 is not eligible to meet the savings targets. Only reductions from 2012 and forward can be applied against savings targets. Related questions: How do the rules address load growth or the need for new generation? Do emission targets change to accommodate new generation?

  • Generator incentives and cost recovery: What are the incentives to utilities (generators) to participate in a statewide strategy? This issue becomes more complex in states that have restructured and include merchant (IPP) generation, and it extends to the idea that some strategies may result in increased costs requiring regulatory approval and cost recovery. The process for this set of activities is not detailed.
  • Roles and responsibilities of ISO/RTOs: The rules have limited discussion of how things would work in an organized transmission organization (ISO/RTO) where the generators have limited control over their dispatch. The conflicting obligations of the ISO/RTO may not be aligned with intended state-level compliance requirements. Will states have the authority to control generation dispatch to address emission goals?

  • State regulatory authority: The rules are unclear in defining what state organization will be responsible for organizing and submitting compliance plans. Compliance with the rules will require an in-state authority capable of executing the plan development and compliance.

Implications

The proposed rules involve significant implications. Although there are disagreements on the rules’ impacts on prices and jobs, there is consensus that the rules serve to decrease the role and contributions of the country’s aging coal-fired generation. Many of the older plants will never find an economic path of compliance and will be forced to retire (although there may be some opportunities to convert existing coal plants to natural gas).

Many experts point to impacts ranging from higher electricity prices, fewer jobs, grid reliability concerns, and greater reliance on natural gas as a fuel choice for future generations. Other analysts suggest that impacts will be minimal. And some even suggest that consumers will benefit through significantly increased use of low-cost energy efficiency and demand side management solutions. Of course, the real impacts will be discernible only when the final rules are revised and approved and markets have a chance to respond.  

As of early August 2014, a number of states have filed suits against the EPA to block the proposed rule in the U.S. Court of Appeals in the District of Columbia. These include Alabama, Indiana, Kansas, Kentucky, Louisiana, Nebraska, Ohio, Oklahoma, South Dakota, South Carolina, West Virginia, and Wyoming. It seems the process may entail legal and political battles resulting in an evolving landscape that takes time to settle and means implementation may be delayed beyond the EPA-proposed dates.

About Enerdynamics

Enerdynamics was formed in 1995 to meet the growing demand for timely, dynamic and effective business training in the gas and electric industries. Our comprehensive education programs are focused on teaching you and your employees the business of energy. And because we have a firm grasp of what's happening in our industry on both a national and international scale, we can help you make sense of a world that often makes no sense at all.
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