Feeling Abandoned by Congress, State Regulators Push for
U.S. Carbon Cap
Published: August 16, 2010
Congress has "left state regulators in the lurch" by failing to set
new national climate policy that could guide regulators' decisions on
the fate of coal-fired electric power generators in their states, the
new chairman of a task force on climate policy says.
Ron Binz, who heads the climate task force of the National
Association of Regulatory Utility Commissioners (NARUC), said in an
interview that U.S. EPA will provide some help for state officials next
year to fill the vacuum created by Congress' inaction.
EPA is preparing to tighten restrictions on interstate air pollution
from power plants under its planned "transport" rule. It will open a
second front when it regulates greenhouse gas emissions from coal-fired
generators, based on its endangerment finding on the threat posed by
man-made greenhouse gases in the atmosphere.
But the move by EPA in the absence of a clear national policy still
confronts state regulators with uncertainty, said Binz, who chairs the
Colorado Public Utilities Commission.
"NARUC is united that the uncertainty in Congress is hurting state
regulatory commissions, and for that reason, we are supporting federal
climate legislation to remove those uncertainties," he said.
The tools available to EPA through its plant-by-plant regulation
under the Clean Air Act are not ideal for controlling greenhouse gas
emissions, he said. "We need a GHG regulatory regime similar to what was
used for SO2 -- a nationwide cap," he said. "It's unclear whether EPA
can regulate carbon emissions in the way it regulates SO2 emissions."
"There are six or seven rules that are moving forward in EPA. It is
most unfortunate that we don't have guidance from Congress on climate"
that would help regulators decide whether to close down or clean up old,
existing coal-fired generation, he said.
A patchwork view of the future
"We are facing very large decisions right now about the future of the
fossil energy utility fleet," Binz said. "To make fully informed
decisions, we need to know what the future of greenhouse gas regulation
will be."
Biz said his state exemplifies the dilemma. The Colorado commission
is considering the fate of 1,300 megawatts of coal-fired generation in
the state, he said. The options vary widely, from converting the coal
plants to burn natural gas to cleaning up coal boiler emissions,
mothballing the plants, or shutting them down permanently and making up
the difference with demand response programs or new generation. The
commission's decisions are due by Dec. 15, well before EPA's actions
take effect.
At the same time, the commission also oversees the state's commitment
to obtain 30 percent of its power requirements in 2020 from renewable
energy sources.
Every state's situation is different, but all face difficult
decisions on the generation choices that will be needed to meet demand
and assure reliability, Binz said. "This is the reality right now for
what state commissions are doing."
Binz would not speculate on how NARUC may respond to a confrontation
between EPA and members of Congress bent on restricting EPA's regulatory
authority on air quality and climate policy issues. As in all such
cases, NARUC policies must be developed and brought to the membership
for approval, he said. "We have a very strong tradition of living within
our resolved positions," he said.
But NARUC will continue to press Congress for action, he said. The
task force is planning a series of webinar briefings for its members on
climate and Clean Air Act issues. "Our goal is to be as ready as
possible for a variety of approaches that might happen, with the
assumption that nothing happens this year and the elections may make it
even harder next year."
"EPA and the White House are clear that EPA will continue to press
its authority under the endangerment finding. While I think that's
suboptimal in terms of what could be done in designing a good,
economywide carbon policy, perhaps EPA pressure will bring people
together on a economywide solution," he said.
A chorus of differing opinions
State and federal regulators, the power grid's managers, utilities
and generators all face a confounding lack of clarity about the nation's
future demands for electricity and how best to respond, said Revis
James, director of the Energy Technology Assessment Center at the
Electric Power Research Institute (EPRI).
"There are different views as to how long a reduced rate of demand
growth will persist," said James. "Some people feel we may not reach
2007 [demand] levels for 10 years. That would obviate the need for a lot
of additional generation."
The common assumption is that new generation as it's needed will be
supplied by gas generation, as operators increase the output of
underutilized plants and, if necessary, build new ones. Others in the
industry believe that the ability to capture and sequester carbon
emissions underground will keep coal alive as a power plant fuel. Others
believe that a combination of more wind power and reduction in demand
will shrink the need for new coal or nuclear baseload generation, he
said.
"There are just a lot of different opinions, even among the utility
commissions," James said. "It's not a very satisfying picture." State
regulators are charged with seeking the lowest-cost, responsible choice
of generation based on today's conditions, and those may not be the best
choices for the future, James said. That is the dilemma.
A report released this week by the consulting firm M.J. Bradley &
Associates concluded that the United States can count on a substantial
"cushion" of excess generation capacity in this decade that ensures the
nation's electricity needs can be met.
While some coal plants will be shut down rather than install new
pollution control equipment required by EPA, the reliability of the grid
will not be compromised "if the industry and its regulators proactively
manage the transition to a cleaner, more efficient generation fleet,"
according to the report.
It was prepared on behalf of eight energy companies by a team headed
by Susan Tierney, a principal with the Analysis Group and a member of
the Secretary of Energy Advisory Board, and Michael Bradley of M.J.
Bradley & Associates.
Elderly power plants retiring
The report draws on estimates by the PIRA Energy Group that about 30
to 40 gigawatts of power-plant capacity faces retirement across the
country over the next few years, but the industry is expected to have
100 gigawatts of surplus generation in 2013. (One gigawatt equals 1,000
megawatts, or enough capacity to serve between 800,000 and 1 million
homes.)
"The industry has a proven track record of adding new generating
capacity and transmission solutions when and where needed and of
coordinating effectively to address reliability concerns," the report
says.
There are proven technologies readily available for controlling
power-plant pollutants such as nitrogen and sulfur oxides and mercury. A
majority of the nation's coal plants have, or soon will have, these
controls in place, demonstrating that the costs can be managed, the
report says.
"Additionally, the industry is deploying enhanced demand response
actions, expanded energy efficiency programs, and new 'smart grid'
advances to manage consumption during the transition to cleaner, more
efficient generation," it says.
The sponsors of the report -- Calpine Corp., Constellation Energy,
Entergy Corp., Exelon Corp., NextEra Energy, National Grid, PG&E Corp.
and Public Service Enterprise Group. -- would generally benefit from
tighter restrictions on coal-fired power because of their holdings in
gas-fired or nuclear generation.
Although most experts are forecasting slower growth trends for
electric power demand, the North American Electric Reliability Corp.,
which oversees grid reliability, cautioned in a report this month that a
rapid resumption of economic growth in 2013 could quickly push reserves
of generation below targeted reliability levels in parts of the country.
What if the economy and the weather both heat up?
To take one case, the report by Tierney and Bradley cites data from
the PJM Interconnection, which operates the wholesale power network
between New Jersey and Chicago, as projecting a reserve margin of more
than 24 percent in 2013, even with the expected retirements of 10,000
megawatts of older generation facilities. Grid planners generally strive
for a reserve generating capacity of 15 percent as a safeguard in case
demand or supply suddenly moves in unexpected directions.
NERC's new report estimates that if economic growth and energy demand
were to pick up to pre-recession levels in 2013, PJM's reserve margins
could drop as low as 6 to 9 percent by 2017 under the most conservative
assumptions about new generation construction.
And surprises do happen. Despite the drag of a stagnant economy,
electricity consumption in June and July in PJM hit record highs for
those months, with peak demand climbing 16 percent over last year's
peak, PJM reports. "Definitely because of the weather," summed up PJM
Senior Vice President Michael Kormos.
Tierney said her report's optimism about future power supplies
depends on rational decisionmaking by power companies and more clarity
on the policy end.
"Companies need to make decisions about installation of control
equipment, and they're going to have to make those decisions before
long, unless they are betting there will be legislation to change the
Clean Air Act," she said. "It would be a bad thing if the industry and
parties played a game of chicken, and took things to some point where we
would begin to face a tighter scheduling challenge because everyone was
waiting for solutions."
Big bets on natural gas
"One of the reasons we wrote this was to help get the discussion
going about the art of the possible," Tierney added.
"Utilities have to plan for the possibility of unexpected events,"
EPRI's James said. "And they have plans. What we hear from quite a few
utilities is that they are probably going to utilize natural gas [to
expand generation capacity] in the next decade."
Between 2001 and 2003, power companies installed more than 160
gigawatts of new generation, virtually all of it gas-fired. That is
about four times what analysts project will retire over the next five
years, the Tierney-Bradley report says.
Today, much of that gas generation is excess capacity, and tapping
into it is an obvious answer if power demand picks up sharply. Some gas
generating plant operators hope to increase their operating capacity
rate from 40 percent to 80 percent, James said. But that will hinge on
whether existing natural gas pipelines can supply enough fuel, whether
the gas generators are located in the right places on the grid, and
whether there is enough transmission line capacity to carry that extra
power to where it is needed, he said.
"The confluence of those conditions may not be met for all those
underutilized gas generators," James said.
Copyright 2010 E&E Publishing. All Rights Reserved.
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