Questions about EPA regulation of power plant carbon emissions

This week the U.S. Environmental Protection Agency issued a public notice relating to its Clean Power Plan, the agency's proposed rule to reduce carbon emissions from the nation's existing power plants.  The notice reiterates questions raised by commenters about issues including the redispatch from coal- to natural gas-fired generation and near-term carbon reductions through 2029.

The Clean Power Plan imposes a federal carbon emissions rate (stated in pounds of carbon emitted per megawatt-hour of electric energy generated) for each state.  The rule is designed to offer states flexibility in developing plans to achieve that level of carbon intensity, and features four proposed "building block" elements that states may choose to include in their program design: increased coal plant efficiency, increased utilization of natural gas plants, increased renewable energy, and increased energy efficiency.  Collectively, EPA projects that by 2030 the Clean Power Plan's implementation will reduce power plant carbon emissions 30 percent below 2005 levels.

Since EPA published its proposal on June 18, 2014, the agency has held at least eight days of public hearings in four cities, attended by over 2,700 people, of whom nearly half spoke or otherwise weighed in.  The draft Clean Power Plan was originally scheduled for public comment through October 16, but EPA extended the comment period by 45 days (until December 1, 2014) in response to both the volume of comments and numerous requests for additional time. 

On October 28, EPA issued a notice of data availability related to the proposed Clean Power Plan.  EPA routinely issues such a notice, or NODA, to provide the public with a targeted opportunity to consider and comment on emerging technical issues and data related to an ongoing rulemaking.  EPA's Notice of Data Availability Related to the Proposed Clean Power Plan (PDF) provides additional information on several topics raised by stakeholders and solicits comment on the information presented.  The three topics covered in the notice are the emission reduction compliance trajectories created by the interim goal for 2020 to 2029, certain aspects of the building block methodology, and the way state-specific carbon dioxide goals are calculated.

EPA's interim goals govern emission reductions over the 2020-2029 period, as states transition to energy resources with lower carbon intensity.  Some stakeholders have expressed concern that, as proposed, the interim goals do not provide enough flexibility for some states which may be forced to rely heavily on re-dispatch from fossil steam generation (e.g., coal- , oil-, or gas-fired boilers) to natural gas combined cycle units to achieve the required reductions, and that this effect of the interim goals severely limits the opportunity to fully take advantage of the remaining asset value of existing coal-fired generation -- particularly challenging with the threat of a "polar vortex" or other disruptive weather event.  EPA requests comment on these interim goals and whether they afford suitable flexibility.

Stakeholders have also raised questions about the building blocks available to states as they design compliance programs.  In particular, building block 2 focuses on shifting utilization from coal- and other fossil-fired steam power plants to more carbon-efficient natural gas combined cycle plants.    Building block 3 focuses on renewable energy and nuclear power.  In response, EPA requests comment on ways that building block 2 could be expanded to include new natural gas combined cycle units and natural gas co-firing in existing coal-fired boilers and ways that state-level renewable energy targets could be set based on regional potential for renewable energy.

Stakeholders have also noted concerns with the way the state-specific carbon dioxide goals are calculated.  These include concerns that the numeric formula for calculating each state's goal is not consistent in its application of the best system of emission reduction (BSER) for each building block, and concerns with the use of data for the single year 2012.

EPA's Clean Power Plan is now open for public comment through December 1, 2014.

Polar vortex caused energy price spikes, says FERC staff

Why did energy prices rise during last winter's extremely cold "polar vortex" weather?  A recent report by federal regulators suggests that inadequate infrastructure is largely to blame, while finding no evidence of widespread or sustained market manipulation.

A recent winter in New England: cold ocean, cold snow.  Must high energy prices follow?

The 2013 - 2014 winter season brought prolonged and unusually cold weather events in much of the United States.  While the nation's major electric grids were generally able to maintain reliable operation, prices for natural gas and electricity spiked to unprecedented levels.  Bottlenecks on interstate natural gas pipelines limited the amount of gas flowing into regions like the Northeast, while demand for gas for heating and electric power generation increased beyond the constrained pipelines' capacity.  This imbalance of supply and demand for gas led to extremely high prices for gas as well as for electricity, because the price of natural gas often sets the price for power.  Compounding the problem, some generators could not buy enough gas to operate, while others experienced outages due to equipment failure and frozen coal piles.  In some regions, generators amounting to 30 percent of electric load faced forced outages.

As an immediate response, the Federal Energy Regulatory Commission took actions including changes to rules in the PJM, New York ISO and California ISO electricity markets, the Commission's first use of its emergency powers under the Interstate Commerce Act to direct Enterprise TE Products Pipeline to temporarily provide priority treatment to certain propane shipments, and approving a Winter Reliability Program in the ISO New England region.

According to a recently released report by the staff of the Federal Energy Regulatory Commission, the FERC Office of Enforcement also launched investigations into whether market participant behavior influenced regulated energy prices.  In addition to the Commission's enforcement arm's regular surveillance of natural gas and electric markets for market manipulation and other improper conduct, the past winter's extreme price spikes prompted a closer look by the Office of Enforcement to determine if market manipulation was behind the historically high natural gas and electric prices.

On October 16, FERC’s enforcement staff reported that it found "no evidence of widespread or sustained market manipulation."  Enforcement staff said it reached its conclusions after an extensive review and data analysis related to gas trading behavior, allegations received through the FERC hotline, generator offer behavior and outage behavior.

However, enforcement staff reported that three non-public investigations remain pending.  At stake is whether any market participant was involved with the formation of a single monthly natural gas index to benefit its financial derivative positions, as well as whether certain generators improperly took advantage of constrained conditions in the electric markets by bidding in a way that increased their uplift payments.

Expect these enforcement investigations to continue, either to an informal resolution or a public enforcement process.  With former Office of Enforcement head Norman Bay as the newest FERC Commissioner, FERC's enforcement arm appears to be growing in influence.  Meanwhile, the coming winter may yet again test the nation's electricity and natural gas infrastructure.  What will the 2014 - 2015 winter hold, in terms of energy reliability, pricing, and enforcement actions?