Legal & Regulatory

Six States Sound Off on EPA’s Clean Power Rule

Regulators from six states shared starkly different views on the Environmental Protection Agency’s (EPA’s) proposed carbon rules for existing power plants at a House hearing on Tuesday.

Some state-level officials said the EPA’s overall emission targets and suggested means to achieve them are based on unworkable and unrealistic assumptions about how state and regional power systems work in the real world. Others contended that their states could achieve proposed emissions reductions without comprising system reliability or raising costs significantly.

A State Perspective

The hearing at the House Energy and Power Subcommittee on Tuesday included witnesses from Texas, Montana, Arizona, Indiana, Maryland, and Washington. It was held to determine questions and concerns from state regulators on the EPA’s June 2-issued “Clean Power Plan.”

That rule proposes greenhouse gas (GHG) emissions guidelines for existing power plants under the Clean Air Act’s Section 111(d). It sets state-specific, rate-based goals and relies on four “building blocks” to establish the best approach for each state to slash power sector CO2 emissions by 30% from 2005 levels by 2030. It requires that state goals, calculated as an emissions rate in pounds of CO2 per megawatt-hour, be achieved within a 10- to 15-year window after the rule is finalized (which is anticipated in June 2015) States must develop plans by June 2016, with a one-year extension option, to meet those goals.

The plan proposes varying carbon reduction targets for each U.S. state (infographic map). Compared to 2012 power sector carbon emissions, it requires that Texas slash its emissions by 28%, Montana by 21%, Arizona by 52%, Indiana by 20%, Maryland by 37%, and Washington by 72%—the most of any state in the nation.

EPA’s Building Blocks Work Against Targets in Texas

Texas Public Utility Commissioner Kenneth Anderson pointed out that his state is the only one with a physical presence in all three electric interconnections. The Electric Reliability Council of Texas (ERCOT), a power region that covers about 75% of the state, is an island with only limited direct current ties to the Eastern and Western Interconnections, he said.

At least in Texas, the EPA’s proposed building blocks work against the targets—largely because they don’t give any credit for substantial improvements made since 2001, or “recognize how security constrained economic dispatch works in organized wholesale markets,” he added.

“For example, EPA’s ‘building block’ 1 [which requires a 6% across-the-board improvement in coal-fired heat rate] assumes that efficiency improvements are still available. But, the Texas ERCOT competitive market has already forced coal-fired generators to adopt state-of-the-art technologies available to improve thermal efficiencies in order to compete effectively.”

Building blocks 2 (which calls for a 70% capacity factor of natural gas combined cycle generation) and 3 (calling for an increase in non-hydro renewable generation to 20% of the state’s total energy produced), meanwhile “act counter to each other in Texas, making ‘building block’ 1 impossible to achieve—and simultaneously worsening emissions of not only CO2, but other harmful pollutants,” Anderson said.

Ramping up renewable production to the proposed 20% will also likely shut down all other generation during certain times of the day, including nuclear. “This creates a paradox,” he noted. “Texas cannot achieve both a 70% capacity factor for gas combined cycle plants and 20% renewable energy production without increasing CO2 emissions.”

In addition, the 2012 energy baseline year selected by the EPA does not give Texas any credit for the already dramatic increase in Texas wind generation that delivered 35.917 million MWh (16.24% of this nation’s non-hydro renewable generation) in 2013, he said. “During the spring and fall, a 20% renewable energy goal as proposed by the EPA under Block 3 could put more renewable generation on the grid than there is existing load.”

Anderson, along with another witness, Montana Public Service Commissioner Travis Kavulla, also raised concerns about several timelines in the proposed plan. The comment deadline of mid-October isn’t enough to evaluate the 600-page proposal, they both noted. Anderson also said the 2020 deadline for intermediate goal achievement is also unrealistic for Texas, given that the state’s Legislature meets every two years, in odd numbered years.

“Cookie-Cutter Formula” Detrimental to Montana and Neighbors

For Montana’s Kavulla, the EPA’s application of a “cookie-cutter formula” to states is “predicated on untrue generalizations not only about the upgrades available at power plants that emit carbon dioxide, but about the robustness of the electric grid, the nature of natural-gas generators’ operations, and the prospects for increasing renewable energy and energy efficiency.”

The EPA’s state goal-setting process, meanwhile, also punishes Montana and its neighbors—which rely on a weak grid and only a few generators to meet local demand while exporting the rest—for “being early adopters of pollution controls and for diversifying their fuel mix to include less carbon-intensive power plants.”

The coal-fired Big Stone power plant in South Dakota and Montana’s 2.1-GW Colstrip facility, for example, had already made most of the heat-rate upgrades suggested, making another 6% in efficiency improvement “simply not economical,” said Kavulla. Then, because Big Stone must comply with the EPA’s regional haze rule for South Dakota, it is in the process of upgrading its Air Quality Control System at a cost of about $400 million. However, that system will need to dedicate about 8 MW to running that pollution equipment, a EPA-mandated “parasitic load” that means more tons of carbon emissions per MWh of net production will be produced by the plant.

“In other words, to comply with one EPA rule endangers Big Stone’s ability to obtain the efficiency upgrades that are the assumed possible by the proposed EPA rule,” he said.

Kavulla also stressed that the EPA had not conducted a reliability analysis of its proposed “Best System of Emission Reduction (BSER)” for the 11-state Western Interconnection. Additionally, the agency made unreasonable assumptions about how plants operate, he alleged.

For one, it assumes that renewable power and coal power will be dispatched in an offsetting manner, but “Coal plants typically are not designed to cycle quickly to integrate renewables; they are meant to be run relatively flat, ramping up and down over longer periods of time,” he said. “Even the certain coal units that are today being dispatched more quickly are showing more carbon-intensive heat rates; they emit more carbon per megawatt-hour for the energy they do produce, and it appears that effect has not been captured in the EPA’s proposed rule.”

He closed his testimony with this hard-hitting statement: “The much-heralded flexibility that the proposed EPA rule provides to states is a meaningless concept, if the underlying goal—a number which is inflexible—has been calculated using generic assumptions that are misleading or false when applied to the facts of a specific state, in a specific part of the transmission grid.”

Arizona Has No Option But to Switch From Coal to Gas

Henry R. Darwin, director of Arizona’s Department of Environmental Quality and an environmental lawyer, outright challenged the EPA’s claim that the Clean Air Act gives the agency the authority to regulate GHGs. However, he stressed that it was in Arizona’s best interest to work with the agency to develop a final rule that results in “energy reliability” and “adequate flexibility.”

The plan presented three key challenges for the sixth-largest state in the country: Arizona must achieve a 52% reduction in emissions intensity goal by 2030—the second most stringent reduction target in the country after Washington; to comply with the interim goal by 2020, more than 75% of Arizona’s total reductions must occur by 2020; and the power needed to deliver Colorado River water via the Central Arizona Project comes from the coal-fired Navajo Generating Station, which is on the Navajo Reservation where there is no proposed rule or goals.

“By our calculations, switching from coal to natural gas by 2020 is the only ‘building block’ available to Arizona for meeting EPA’s proposed goal,” said Darwin, lamenting that Arizona did not enjoy the flexibility the EPA intended.

He said, however, that the EPA had told the state that “appropriate data-driven analyses could result in adjustments to the Clean Power Plan.”

Plan Could Affect Indiana’s International Competitiveness

Thomas Easterly, commissioner of the Indiana Department of Environmental Management, asked the EPA to withdraw the proposal and replace it with a federal-state effort to formulate a national energy policy.

Easterly noted the plan would significantly impact his state, which produces 80% of its power from coal (and has a 300-year supply of coal). One issue is cost: While the EPA forecasts that the proposal would increase the cost of natural gas and residential power by 10% over the next six years, an Indiana state utility forecasting group has predicted a 30% increase in Indiana electrical costs from other EPA rules. The rule is bound to erode the state’s international competitiveness, he said.

“When these businesses close, U.S. emissions will decrease, but worldwide GHG emissions will increase as our businesses move to areas with less efficient and more carbon intensive energy supplies,” he said.

Maryland: Economic Growth and Carbon Reductions Can Be Achieved Together

Kelly Speakes-Backman, a commissioner at the Maryland Public Service Commission and chair of the Regional Greenhouse Gas Initiative (RGGI), disagreed with the Indiana regulator’s argument, saying: “It is possible to achieve pollution reductions while supporting economic goals.”

She said the nine states  participating in RGGI’s carbon cap-and-trade program (which include Maryland) have demonstrated “the successful
 reduction of carbon pollution, while maintaining grid reliability and having a positive impact on ratepayers and our overall economies.”

Maryland, which dominantly depends on coal power (for 44% of its in-state power needs), has diversified its generation mix over the six years it has participated in RGGI, she said. RGGI states have also experienced an overall 40% reduction in power sector carbon pollution since 2005, even though the region’s economy has grown by 7%. And through 2013, RGGI states have invested more than $950 million from proceeds in energy efficiency and renewable energy.

Yet, while Maryland found that the basic structure of the Clean Power Plan is “sound,” it still wants the EPA to address some questions in its final rule,” said Speakes-Backman.  These include assessing whether the rule is designed in way that recognizes states for early action taken to reduce carbon pollution from the power sector, whether through energy efficiency programs, renewable energy programs, or other strategic energy initiatives.

It also wants the EPA to determine whether there are more opportunities or strategies available that would allow for even greater carbon pollution reduction in a cost-effective manner, and if the rule provides for a “transparent, verifiable, equitable and enforceable emissions reduction target for all states.”

Washington on Track to Achieve Nation’s Most Stringent Reduction Target

Washington Utilities and Transportation Commissioner David Danner, a self-described “economic and safety regulator,” told lawmakers that his focus is centered on ensuring that the state can achieve the nation’s highest emissions reduction target of 72% without compromising electric system reliability or imposing undue costs on consumers.

“At this point, we are cautiously optimistic that we can,” he said.

Washington’s power sector already has a “relatively small carbon footprint compared to other states,” he noted. To achieve its target, the state must slash emissions from fossil fuel–fired power plants, he said. That is already scheduled: In 2011, Gov. Christine Gregoire signed legislation putting into effect an agreement under which TransAlta Corp. would close its 1,340-MW Centralia coal plant, with the first unit closing by 2021 and the second in 2025.

Then, the state must increase its non-hydro renewable power share, and increase its energy efficiency to achieve 1.5% of annual load served by conservation. That, too, is in the works: State voters in 2006 approved an initiative to require that power utilities pursue “all cost-effective conservation” and by 2020 to meet at least 15% of their load with non-hydro renewable power.

For Washington, slashing carbon pollution hasn’t increased energy costs significantly, he said. It could even grow the economy, Danner said. “Based on Washington state’s experience, I believe the proposed rule, when finalized and implemented, will spur further investment nationwide in non- carbon or low-carbon resources, and in demand-side energy efficiency.”

Sonal Patel, associate editor (@POWERmagazine, @sonalcpatel)




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