FERC Commissioners, Other Experts Testify on Carbon Rule Reliability and Financial Impacts
The past week saw a flurry of Congressional hearings probing how the Environmental Protection Agency’s (EPA’s) proposed carbon pollution rules will affect grid reliability and the economy.
On Reliability
The U.S. House Energy and Commerce Committee on Tuesday summoned the Federal Energy Regulatory Commission’s (FERC’s) four sitting commissioners and future chair Norman Bay to testify on grid reliability challenges posed by the Clean Power Plan.
In her answers to preliminary questions to the Energy and Power Subcommittee, Acting Chairman Cheryl LaFleur said the EPA met with FERC only six times to discuss the rule’s proposal, but they included only one discussion with LaFleur. The three other commissioners said no consultations had been conducted with them. She also said that the EPA “did not request written advice or analysis regarding the potential impacts of the proposal on the reliability of the electric grid.”
FERC staff was still reviewing the EPA’s reliability analysis, she noted. She also declined to comment on specific impacts, stressing that state compliance plans would dictate changes in the utilization of generation resources. It would also be “premature … to speculate on the changes that might be needed to the design of organized wholesale electricity markets,” she said.
“As state compliance plans are developed, it will be important that energy infrastructure and markets adjust to support those plans,” LaFleur also said. “I would note, however, that compliance is not required until 2020, and then can be met by average performance over 10 years subject to certain limits. For example, a coal-fired unit needed for reliability after 2020 can continue to run, including under a reliability-must-run contractual arrangement, so long as state-wide emissions meet the proposed targets through other means.”
Republican FERC Commissioner Philip Moeller confirmed, however, that the EPA’s proposal could result in “stranded financial investments for units that have been retrofitted with emissions controls for other programs, such as EPA’s [Mercury and Air Toxics (MATS)] rule.
“As for impacts, this will only raise costs to consumers,” he said.
Significantly, Moeller also said he was “skeptical” that the EPA’s modeled capacity increases are feasible by 2020. “This is partly due to the fundamental manner in which the proposed rule would change the way that electricity is dispatched.”
Increased demand under the proposed rule will be addressed by adding more gas-fired generation, he explained. “It’s unclear what role these new plants will play in markets that have security constrained economic dispatch. Because these plants will be dispatched on merit, the owners of such plants are less likely to sign long-term contracts for gas supply. Long-term contracts (usually signed by local gas distribution companies) have provided the financial underpinnings of pipeline expansion. The new demand for pipeline gas will be from this class of generators, and it is not clear how the necessary infrastructure will be deployed and financed.”
Bay, who currently serves as FERC’s director of the Office of Enforcement, was confirmed by the Senate on July 15 as a Democratic member of FERC but has not been sworn in yet. In his responses, Bay noted that regional transmission organizations and independent system operators “have been able to successfully integrate state and regional environmental requirements into their economic dispatch.”
He also said that FERC had enough time to review certificate applications to address natural gas deliverability constraints by the 2020 deadline proposed in the EPA’s rule. “Given the flexibility in the EPA proposal, states can take other steps if there are concerns that pipeline infrastructure may not be ready in time.”
On the Economy
At the Senate Committee on the Budget‘s hearing to examine economic and budgetary consequences of climate change on Tuesday, a number of witnesses from environmental groups predictably lauded the various benefits of recent U.S. climate policies.
Government Accountability Office director Alfredo Gomez, who leads the independent agency’s Natural Resources and Environment arm, suggested that investing in reliance to reduce potential future losses could reduce the potential impacts of climate-related events. Mindy Lubber, president of Ceres, the national nonprofit group that advocates for strong “clean energy” policies for major firms, said companies and investors it works with believe that “without a stable climate, our economy cannot thrive.”
Dr. Bjorn Lomborg, an adjunct professor at the Copenhagen Business School, argued that it is “more plausible that total costs of climate action will be more expensive than climate inaction.” To tackle global warming, it would prove more fruitful to increase research and development funding for renewables and energy storage, he said.
Meanwhile, W. David Montgomery, a senior vice president at NERA Economic Consulting, painted a darker picture. “It is far from clear that recent weather events are anything more than normal variability in storm frequency and intensity, and the nature, timing and extent of damage from climate change remains highly uncertain,” he told lawmakers.
But, he added: “This does not imply that no action is justified, but it does imply that costs and avoided risks must be balanced carefully.”
If NERA’s model of the U.S. economy is used to estimate economic costs and budgetary impacts to achieve the president’s goal of reducing GHG emissions to 17% below 2005 levels by 2020, as outlined in the president’s Climate Action Plan, it shows a likely reduction in the average household’s disposable income by about $1,000 in 2020, Montgomery said. But it also shows a cut in federal revenues by more than $150 billion due to “reduced reduced economic growth, and cause[s] electricity prices to rise by about 7%,” he added.
“Holding U.S. emissions at 17% below 2005 levels all the way to 2040 would reduce cumulative global emissions over that period by less than 2%, because of the declining share of the U.S. in global emissions. That would take as little as three-hundredths of a degree and no more than one ten-tenth of a degree off the rise in global average temperatures that might occur otherwise. Damages to the U.S. would probably be reduced by about the same 2 percent.”
—Sonal Patel, associate editor (@POWERmagazine, @sonalcpatel)