A Rising Tide of Regulation and the "Kick-the-Can" Gambit

An array of federal regulation is coming down the pipe in 2014, but whether any of this represents real change remains to be seen.

A tidal wave of pent-up federal regulations could surge across much of the electricity industry in 2014.

In recent years, Congress has been unable to enact new laws in energy, which has led a frustrated executive branch to substitute the slow-motion process of regulation for new legislative authority. The judiciary has become deeply involved in second-guessing the executive branch and Congress, introducing new delays in policymaking. In Washington, this pattern of active inaction has become known as “kicking the can down the road.”

While 2014 likely will be busy, that does not mean that major new rules will be firmly in place at the end of the year. The tools of delay remain available to partisans and policy advocates of all stripes. In the most complex and contentious rulemakings, such as carbon dioxide reductions from coal-fired plants, new rules won’t be scheduled for full implementation until 2015 and 2016. Court challenges could easily boot any resolutions further into the future.

Complicating this picture is that 2014 features a midterm election. All 435 seats in the House of Representatives are in play (at least nominally), along with a third of the 100-member Senate. The partisan balance of power in Washington is tenuous. All sides will scrutinize upcoming executive branch rules and regulations not just for their substance and economic impact but also for how they play politically.

Environmental Protection Agency

As has been the case for many years, the U.S. Environmental Protection Agency (EPA) will be the locus of the most contentious regulatory battles impacting the electricity sector in 2014. At the top of the EPA’s agenda are a brace of rules aimed at reducing carbon dioxide emissions from power plants, known to many of the combatants as the “war on coal.” But the metaphorical rhetoric may be overstated, as coal’s real troubles today are a product of market forces, including the rise of natural gas and lagging demand for new electricity. The EPA’s new regulations will add to the weight, but they may not prove decisive.

Nonetheless, the EPA, lacking new legislative authority, is attempting to use the 1990 Clean Air Act as the foundation for limits on CO2 emissions from both new and existing coal plants. President Obama outlined his approach last June, calling for a regulatory assault on carbon dioxide emissions.

The EPA has already rolled out its plan for new plants. In September, it arrived at a somewhat-altered proposal from one announced in April 2012. Under the September plan, new coal-fired plants must meet a limit of 1,100 pounds of CO2 per MWh and use carbon capture and storage as the “best available control technology.” These rules are likely to be the first the EPA promulgates this year for carbon reductions, probably in the first quarter.

But the rules for new plants, yet to be published, face congressional and legal roadblocks. The U.S. Chamber of Commerce is pushing legislation, sponsored by Sen. Joe Manchin (D-W.Va.), and Rep. Ed Whitfield (R-Ky.), to scuttle the carbon capture and sequestration requirements as unachievable. Coal interests will also challenge the EPA rules in federal court. They argue that carbon capture and sequestration technology is not proven, so the EPA rule is invalid.

Complicating the subject is a recent finding from the House Energy and Commerce Committee that the EPA’s conclusion that carbon capture is a commercially proven technology may be illegal. The committee in late November sent the EPA a letter asserting that provisions of the 2005 Energy Policy Act say the EPA may not base a determination that a coal technology is commercial if the projects on which that determination is based have been funded by the Department of Energy’s (DOE’s) clean coal technology program. According to the letter, all three of the projects the EPA has cited have received DOE clean coal funds.

The EPA is on a slower schedule for its plan for existing plants. This rule is likely to reach deeper into the ways the industry operates and the prices consumers pay for electricity, because coal remains the major generating fuel in the U.S., with about 40% of the market. While utilities are willing to close older plants that are no longer competitive, they are unwilling to shutter viable plants that the new regulations, by themselves, would render economically unproductive.

The structure of the Clean Air Act makes it difficult for the EPA to come up with clear and consistent rules for existing units, according to many analysts. The agency must work through state governments to implement its rules, and many states—particularly those with large coal producers or generators—are unlikely to go easily into the new regime. So the agency will have to negotiate many different state approaches to carbon dioxide reductions.

That sets up a nasty political collision. In the meantime, the EPA is under White House orders to come up with the plan for existing plants by June 1 and implement them a year later, with the rules going into effect by June 30, 2016. At that point, Barack Obama will have long been a lame duck president. Much of the nation’s attention will be focused on who will replace him.

Several industry groups have made it clear they will sue to overturn the rules for existing plants. Litigation will add more uncertainty and more delay.

Climate rules are not the only big-ticket items on EPA’s Clean Air Act agenda that have an impact on electricity. Ozone pollution crossing state boundaries, a thorny issue that goes back to before the second Bush administration, is still a regulatory uncertainty. The U.S. Supreme Court is likely to weigh in on the topic early this year. The D.C. Circuit Court of Appeals has rejected both the Bush administration’s plan for cross-border pollution and the Obama administration’s somewhat different follow-up on the topic, known as the Cross-State Air Pollution Rule (CSAPR). Once the high court rules to unravel the legal knot it has tied for itself, that’s likely to kick off a regulatory sprint at EPA to put something in place that will satisfy the court.

Next comes regulation of coal ash storage, a vexing non-air EPA issue long entangled in the courts. The EPA has toiled for years on new rules for coal ash disposal under the Resource Conservation and Recovery Act. The impetus for the regulation comes from a massive 2008 collapse of a coal ash pond belonging to the Tennessee Valley Authority. Following four years of EPA regulatory wheel-spinning, environmental groups in 2012 sued the agency to expedite an agency rulemaking. Late last year, U.S. District Court Judge Reggie Walton gave the agency 60 days to publish a plan and schedule for final rules. The litigants will be poring over the EPA plan early this year. Action may kick off again in the first or second quarter.

Nuclear Regulatory Commission

The EPA is not the only federal agency with an agenda driven by court oversight of its administrative actions. The Nuclear Regulatory Commission (NRC), and its predecessor, the Atomic Energy Commission, for half a century have been entangled in the tendrils of nuclear waste disposal policy. Today, spent fuel from power plants is again at the top of the agency’s regulatory agenda.

The NRC is under order from the D.C. Circuit to resume licensing activities at the Yucca Mountain site in Nevada, which the Obama administration and the NRC have largely abandoned. In a 2-1 decision in August, the court said the NRC did not have the authority to halt its licensing proceedings. The court said that the president “may not decline to follow a statutory mandate or prohibition simply because of policy objections.” So the agency is restarting review of the underground activities at the site.

But the NRC is caught in a bureaucratic and political trap. Congress has never repealed the 1982 Nuclear Waste Policy Act and the 1987 amendments that singled out Yucca Mountain for storing the nation’s high-level nuclear waste. But Congress has also not appropriated any money for the NRC to move forward, driven by the opposition of Senate Majority Leader Harry Reid (D-Nev.), and the Obama administration to the Yucca Mountain project. NRC Chair Allison Macfarlane has said her agency has only about $11 million in hand for Yucca Mountain activities, a pittance given the scope of the regulatory activities required for licensing. Nevertheless, the NRC in late November ordered a restart of the licensing for the Nevada repository.

But shortly afterward, the same court threw another monkey wrench into the process. The D.C. Circuit said the federal government no longer has any justification for collecting a 1 mill/kWh fee on consumers of nuclear power to fund the waste program, because the DOE has essentially abandoned it. The court ordered the DOE to ask Congress to zero out the fee. But Congress is not likely to act, since the $750-million-per-year fee is used to finance general government activities, not the nuclear waste program.

Meanwhile, the blowback from the March 2011 catastrophe at Japan’s Fukushima nuclear station continues. The NRC is implementing a series of regulatory tweaks from its examination of the disaster. The units that melted down were of the same design as many General Electric boiling water reactors in the U.S.

Macfarlane recently told the American Nuclear Society, “We’re reassessing our licensees’ ability to mitigate seismic and flooding events and requiring them to ensure adequate emergency response training and communication to cope with prolonged accident conditions. They’re strategically placing backup equipment on-site to help maintain reactor cooling in the event of a loss of power. We’ve also required enhanced instrumentation to better measure the water level in spent fuel pools. While many of these activities are well on their way to completion, we’ll need to address some items through rulemaking at our agency.”

Federal Energy Regulatory Commission

While the Federal Energy Regulatory Commission (FERC) flies under the public attention given to the EPA and the NRC, FERC’s activities have major impacts on the electricity sector. That looks like a pattern that will persist in 2014.

The agency in November gave final approval to the latest version of the North American Electric Reliability Corp.’s (NERC’s) Critical Infrastructure Protection (CIP) standards, which will begin to go into place in the spring. These are the fifth generation of rules designed to protect the bulk electric system from cyberattack. CIP 5 takes a new, more-integrated approach. Prior rules on cybersecurity were often formalistic, checklist-oriented procedures that both NERC and the National Institute of Standards and Technology found cumbersome and ineffective. FERC Commissioner John Norris described the new CIP standards as shifting “from managing compliance to managing risk.”

CIP 4 was scheduled to go into effect this April, but FERC decided that CIP 5 was such an improvement that it gave a green light for the latest version to hopscotch over version 4. The latest rules will see phased implementation, although the commission has not yet decided on a timetable. The proposal will require three years to become fully implemented. The commission wants public comments on that schedule, hoping to collapse it somewhat. While highly technical, the cybersecurity rules, in FERC’s judgment, are among the most important facing the utility industry and the nation in the years ahead.

Also on FERC’s regulatory agenda is NERC’s implementation of a commission order aimed at protecting the grid and major infrastructure depending on electric grid services from solar storms and geomagnetic disturbances. The commission had in mind the 1989 solar storm that damaged grid infrastructure from Canada to the Middle Atlantic states, including major blackouts and millions of dollars to transformers and grid support equipment.

FERC’s May 2013 Order 779 has two phases. Phase one charges NERC with coming up with day-to-day actions that system operators can take, such as instituting new procedures or training staff, to protect the grid in the short term. The second phase of the FERC order focuses on hardening equipment and identifying engineering protections that go beyond soft training and procedures. NERC must come up with “benchmark” standards regimes for utilities to protect against geomagnetic storms. These should be tailored to utility specifics, such as geography or the configuration of the utility system. Then each utility must develop a plan to deal with the benchmark solar flux events.

FERC adopted the new solar flare rules in anticipation of a round of higher solar activity. The 11-year solar activity cycle suggested that 2012–2014 would see a burst of solar flares. While things started slowly, NASA at the end of November reported a surge of major activity, including a strong solar eruption, not directly aimed at Earth, which caused a brief but widespread radio blackout.

FERC could become a wild card this year, providing some regulatory and political surprises. Chairman Jon Wellinghoff, an aggressive regulator, departed in late November. That leaves the five-member commission at a 2-2 partisan tie, with Cheryl LaFleur, the most senior Democrat, as acting chairman. The agency has generally avoided the political rancor of the rest of Washington over the past few years, but there are still important ideological splits between the Democrats and Republicans on the commission, particularly over the role of state regulators in the federal system.

Following the failed nomination of former Colorado regulator Ron Binz, the White House has shown little interest in FERC. Under the law, the commission has five members, with a majority and the chairman appointed by the president. Whether the decision by Senate Democrats to end filibusters on most executive branch nominees will hasten action on FERC appointments is unclear at this writing.

The timing for FERC appointments could be tricky. LaFleur’s term is up in June, so the administration must come up with replacements for both her and Wellinghoff (she could be reappointed). Traditionally, the White House, regardless of party, has tried to pair partisan nominations to FERC, matching a Democrat and a Republican nominee. That won’t be possible this year with two Democratic seats in play. So a 2-2 division could remain for some time.

One topic has proven to be divisive: Order 1000, Wellinghoff’s signature accomplishment, which requires regional coordination and planning of interstate electric transmission. The commission’s two Republicans, Philip Moeller and Tony Clark, have consistently objected to major aspects of the order, including its revocation of the long-standing precedent that incumbent transmission providers can direct the process through a presumption of the “right of first refusal” in transmission cases. With Wellinghoff gone, Moeller and Clark may try to convince LaFleur or John Norris, a Democrat who is also a former Iowa utility regulator, to reexamine the issue.

Follow the Bouncing Can

All told, 2014 looks like a year with plenty of regulatory action in Washington. Will the regulatory churning, which provides full employment for many inside the Washington beltway, result in real changes in behavior on the part of electric companies, investors, or consumers? Or will Washington resume its characteristic game of delay, booting issues down the road for decisions or delays by future administrations and regulatory agencies? Follow the bouncing can. ■

— Kennedy Maize is a POWER contributing editor. Like It? Share It!Did you know that you can easily share links to your favorite POWER print and digital-only stories via social media using the colorful widgets on powermag.com? During the month of November, our story on Top Plant Award-winner Bruce Nuclear Generating Station was the most shared award article while “Electrical Area Classification in Coal-Fired Power Plants” was the most shared overall!