FERC and EPA's Clean Power Plan

Following the U.S. Environmental Protection Agency's 2014 proposal to regulate carbon emissions from electric power plants and other major sources, federal energy regulators have scheduled a series of public technical conferences on how the Clean Power Plan may affect electric reliability, wholesale electric markets and operations, and energy infrastructure.

On June 2, 2014, the U.S. Environmental Protection Agency announced the Clean Power Plan, its proposed rule under Section 111(d) of the Clean Air Act to reduce carbon emissions from the nation's power plants.  Designed to reduce carbon emissions 30 percent below 2005 levels by 2030, EPA's proposal would impose limits on each state's rate of carbon emissions per megawatt-hour of electric energy generated.

The Federal Energy Regulatory Commission regulates the transmission and wholesale sales of electricity in interstate commerce, monitors energy markets, and protects the reliability of the high voltage interstate transmission system.  Acting out of concern over the possible impacts of the EPA Clean Power Plan on its regulated sector, on December 9, 2014, the Commission scheduled a series of technical conferences to develop public comment on these issues.

First, the Commission will hold a National Overview technical conference on February 19, 2015, at its Washington, DC headquarters.  Earlier this month, the Commission issued a supplemental notice describing the agenda for the National Overview.  After an introduction by EPA, the Commission expects to discuss:

• Electric reliability considerations: How will the Clean Power Plan affect electric reliability?  How can the U.S. sustain reliability as states and regions develop their plans to comply with the proposed carbon rule?  How could state, regional, and federal plans for compliance affect grid operations?  What tools are available to identify potential reliability impacts?  How can reliability planning processes and compliance planning efforts  coordinated to address potential issues?  What is the Commission's role in this area?
• Identifying and addressing infrastructure needs: What potential infrastructure needs may arise from various state or regional compliance approaches?  How can any infrastructure needs met in a timely manner in order to ensure system reliability?  How can relevant planning entities, industry, and states coordinate reliability and infrastructure planning and siting processes with state and/or regional environmental compliance efforts to ensure the adequate and timely development of new infrastructure?  Are additional mechanisms needed to ensure timely development of new infrastructure? Are adaptations to current Commission policies needed to facilitate the infrastructure needed for compliance with the proposed Clean Power Plan?
• Potential implications for Commission-jurisdictional markets:  How could potential compliance approaches to the proposed Clean Power Plan impact Commission-jurisdictional electric and natural gas markets?  What aspects, if any, of the wholesale and interstate markets would facilitate implementation of state or regional compliance plans?  What tools are available to address market issues as they arise?  What opportunities are available to coordinate compliance approaches with Commission-jurisdictional markets to meet the requirements of the proposed Clean Power Plan rule?

Following the National Overview, the Commission has scheduled three regional conferences in February and March 2015.

EPA carbon rule: cost and benefit

Monday, the U.S. Environmental Protection Agency proposed a rule aimed at reducing carbon dioxide emissions from power plants.  Part of the EPA's "Clean Power Plan", the rule would rely on states developing and implementing their own plans to reduce the amount of carbon emitted by the electric power sector per unit of electricity generated.  EPA projects that if fully implemented, meeting this goal would reduce the power sector's carbon emissions to 30% below 2005 levels by 2030.  But what will this cost -- and what will the benefits be?

Steam rises from the Con Edison power plant at 14th Street and Avenue C, in New York City.  The plant can burn fuels including oil and natural gas.

Power plants represent the largest source of carbon dioxide emissions in the U.S., accounting for about one-third of the nation's greenhouse gas emissions.  Building on President Obama's 2013 Climate Action Plan and the May 2014 release of the third National Climate Assessment, the Clean Power Plan is premised upon the finding that greenhouse gas pollution "threatens the American public by leading to potentially rapid, damaging and long-lasting changes in our climate that can have a range of severe negative effects on human health and the environment."  The proposed rule targets carbon dioxide because is the most prevalent greenhouse gas, accounting for 82% of U.S. greenhouse gas emissions.

The Clean Power Plan requires states to develop plans to reduce the carbon intensity, or amount of carbon emitted per unit of useful energy, of their power plants.  Each state is allowed to select the measures it wishes to use to reach its carbon intensity goal.  This allows states flexibility to craft policies to reduce carbon pollution that:

1) continue to rely on a diverse set of energy resources, 2) ensure electric system reliability, 3) provide affordable electricity, 4) recognize investments that states and power companies are already making, and 5) can be tailored to meet the specific energy, environmental and economic needs and goals of each state .

The economic impacts of the Clean Power Plan will form a key theme in the debate over its implementation.  The flexibility afforded states makes projections of costs and benefits hard to quantify, even before consideration of the global social cost of carbon or economic concepts like the appropriate discount rate to apply to future costs and benefits.  With those caveats stated, EPA has analyzed two illustrative cases: a collaborative, regional compliance approach (perhaps along the lines of the Regional Greenhouse Gas Initiative) and a state-by-state approach.

Under EPA's analysis as stated in its proposed rule documents, the Clean Power Plan will produce economic benefits far in excess of its costs.  In 2020, EPA projects the regional compliance approach would have total costs of $5 billion, climate benefits of approximately $17 billion, and health co-benefits associated with reduced particulate matter and other emissions -- mostly in the form of reduced premature fatalities -- of between $16 billion and $37 billion.  In this scenario, the Clean Power Plan would yield net economic benefits of between $28 billion and $47 billion by 2020.  EPA's analysis of a state-by-state approach yields similar costs and benefits: a cost of $7.5 billion by 2020, climate benefits of approximately $18 billion, and health co-benefits of between $17 billion and $40 billion.  Under either case, net benefits continue to grow through 2030, reaching between $48 billion and $84 billion.

EPA also projects "job gains and losses relative to base case for the electric generation, coal and natural gas production, and demand side energy efficiency sectors."  In 2020, EPA projects job growth of 25,900 to 28,000 job-years in the power production and fuel extraction sectors, and an increase of 78,000 jobs in the demand-side energy efficiency sector.

What the ultimate costs and benefits of the Clean Power Plan will be remains uncertain, as does EPA's adoption of a final rule implementing the plan.  In the meantime, electric generators, consumers, and policymakers are taking close looks at the plan to ascertain its impacts.

Electricity and natural gas market links

Concerns over the increasing interdependence of natural gas and electricity markets in the United States have prompted federal regulators to schedule a series of technical conferences on the subject for next month.

In recent years, natural gas has increased its share of the energy mix used to generate electricity.  Usage of coal, historically the dominant fuel used to generate electricity, is declining, while natural gas pricing is historically low.  This shift to increased reliance on natural gas is also driven in part by the growth of intermittent renewable energy resources like wind which may need natural gas to back them up when the wind isn't blowing.

At the same time, investigations into the blackouts and reliability problems like those affecting Texas and the Southwest in February of 2011 suggest that a lack of coordination between the electricity and gas industries may be partly responsible for the outages.

On February 3, 2012, Federal Energy Regulatory Commission Commissioner Philip Moeller issued a letter posing a series of questions concerning gas-electric interdependence.  His questions included what role the FERC should play in overseeing better coordination between the two industries, what regional differences might affect this coordination, and differences in how electricity and gas are traded in their respective markets.

In response to Commissioner Moeller's letter, a variety of stakeholders submitted comments.  Many commenters suggested that significant regional differences exist in both how markets operate and how their coordination could be improved.

As a result, the FERC has scheduled a series of regionally-oriented technical conferences for August:

• Central (generally the areas controlled by Midwest Independent Transmission System Operator Inc. (MISO), Southwest Power Pool, Inc. (SPP) and Electric Reliability Council of Texas (ERCOT)), to be held August 6, 2012, in St. Louis, MO
• Northeast (generally the area controlled by ISO New England, Inc.), to be held August 20, 2012, in Boston, MA
• Southeast (generally the areas controlled by Southern Company, Duke and Progress Energy, TVA, as well as other areas south of PJM Interconnection, L.L.C. (PJM) and East of SPP and ERCOT), to be held August 23, 2012, at FERC headquarters in Washington, DC
• West (generally the Western Interconnection), to be held August 28, 2012, in Portland, OR
• Mid-Atlantic (generally the areas controlled by New York Independent System Operator Inc. (NYISO), PJM and related areas), to be held August 30, 2012, at FERC headquarters in Washington, DC

FERC anticipates that each conference will be organized as a roundtable discussion regarding the sharing of information and communications, scheduling, market structures and rules, and reliability concerns.  The Commission has encouraged those interested in attending a conference to register by July 19, 2012.