Even if the Clean Power Plan (CPP) doesn’t overcome legal challenges, it is likely that many states will implement carbon-curbing measures set down by the rule, some panelists said at the Environmental Mega Session at the ELECTRIC POWER 2016 conference in New Orleans on April 19.
The Rule’s Shaky Legal Standing
The rule is currently stuck in legal quagmire, noted John King, a partner with Louisiana-based law firm Breazeale, Sachse & Wilson, LLP, who gave attendees a “high level” overview of legal arguments for and against the rule that was finalized last August by the Environmental Protection Agency (EPA).
King noted that the Supreme Court stayed the rule on February 9, 2016, and that currently, parties are contesting the rule’s validity in the D.C. Circuit. When the federal court will make its decision, whether the Supreme Court will hear an appeal, and whether the Supreme Court will have nine justices by then, is “anyone’s best guess,” he said.
The Only Certainty Is Uncertainty
Block Andrews, an associate environmental engineer with Burns & McDonnell, outlined considerations that are prompting shifts in power markets. Low natural gas prices topped his list, followed by “plenty of renewable subsidies,” renewable portfolio standards, “too many obstacles for new coal,” and “multiple environmental rules for existing fossil fuel sources impacting competitiveness.”
Power generators who are evaluating what to do with existing coal plants in the face of these considerations should assess whether or not they can handle additional capital and operational and maintenance costs. Decisions may also be driven by several environmental rules, including the EPA’s ozone and cooling water rule, and especially by the effluent limitation guidelines (ELG) and the coal combustion residuals rule (CCR).
For the ELG and CCR rules, for example, generators may have two options. The first would be to close the facility in 2022, which would avoid ELG compliance and dry ash conversion required by the CCR rule; however, costs would still be required for pond/landfill closures. Overall, this option could cost about $1.5 million in 2020 (and about $50,000 after 2024). Option two would entail keeping the plant operational beyond 2022, Andrews said, but that would require converting the bottom ash system to a dry system, closing the ash pond, and expanding the existing landfill. This option would cost about $450,000 in 2016, $20 million in 2020, and about $300,000 after 2024.
Ultimately, each facility has unique characteristics that require evaluation of compliance specific costs and resource planning, he added.
A Regional Transmission Organization’s Perspective
J.T. Smith, director of policy studies at the Midcontinent Independent System Operator (MISO), also echoed concerns about the timeline uncertainty prompted by the Supreme Court’s stay.
MISO, which manages a regional grid spanning 15 U.S. states and the Canadian province of Manitoba, has considered six capacity expansion scenarios that take into account generation, transmission, and environmental constraints. Its business-as-usual scenario, for example, takes into account that about 12.6 GW of coal capacity will retire as a result of the EPA’s Mercury and Air Toxics Standards.
Among its findings is that more coal retirements are certain depending on the level of carbon reductions required. Under a 17% emission reduction by 2030 from 2005 levels, MISO could see about 8 GW of retirements, but under a 34% emissions reduction—what the regional transmission organization calls the “final CPP model”—the industry could see 24 GW of retirements.
Meanwhile, MISO found that under a rate-based compliance approach, continued investment in non-CO2 emitting resources is necessary to mitigate carbon dioxide price increases. However, it also found that system dispatch faces relatively less change under a mass-based approach.
“What we found overall is that the mass trading regime allows more flexibility overall. We also noticed that liquidity was important,” Smith said.
Maria Race, director of NRG Energy’s federal environmental programs, predicted that state commitments to clean energy will endure regardless of the Clean Power Plan’s outcome. And companies like NRG Energy are already planning for that low-carbon future.
NRG, which owns a number of coal-fired facilities across the nation, is looking to reduce its carbon emissions by 50% by 2030 below a 2014 baseline and by 90% by 2050. That will mean “driving competitive solutions, deploying innovative, low-carbon energy technologies,” she said.
“I believe this will largely be market-driven, as costs for coal plant management increase inevitably, as they have been, and costs for renewable installations decrease while more transmission is built for wind and solar.”
Federal environmental rules other than the Clean Power Plan are putting pressure on coal generation. Some states, like Illinois, are also developing their own CCR rules, she pointed out.
Any company’s position on the Clean Power Plan will depend on its vision, she said, and NRG is a proponent of state measures that offer compelling means to achieve low-cost CO2 reductions. That said, “A mass-based trading regime can serve as a backstop for reaching CO2 targets should the state measures approach fail to do so,” she said.
Chuck Barlow, a vice president of environmental policy and strategy at another power company—Louisiana-based Entergy Corp.—pointed out that Clean Air Act compliance plans are usually the responsibility of the governor or state environmental quality agencies, but that “utility regulators are expected to play an important role in CPP planning.”
But the rule’s timing wasn’t as clear, he said. The D.C. Circuit may rule in the third quarter or fourth quarter of 2016, and the Supreme Court will almost surely agree to review the decision, “whatever the outcome,” he said. “The stay will be in place until the Supreme Court rules on the case, likely in late 2017 or 2018—so no filings with EPA are required in September 2016 or likely in 2017.”
The Supreme Court may vacate the rule or remand it to the EPA, or a combination of the two. Even if the rule is upheld in whole or in part, the EPA may not change some compliance deadlines, Barlow warned. That could mean state plans will be due in 2018. “States must decide whether and how to continue compliance planning in the interim.”
Among the states in which Entergy has generation assets, only Arkansas will likely continue planning. Louisiana had a “listening session” at the end of March, while Mississippi has suspended stakeholder meetings on the rule, and Texas isn’t planning to conduct any further analysis or meetings.
For more on the Mega Session, look for an in-depth report in POWER‘s forthcoming June issue.
—Sonal Patel, associate editor (@POWERmagazine, @sonalcpatel)