Rhetoric increases over alleged EPA regulatory "train wreck" but will reliability really be imperiled?

As part of their fall jobs agenda, House Republicans are targeting a number of controversial EPA regulations, including the utility MACT and cross-state air pollution ("CSAP") rules. Opponents of these and other rules argue that they will result in a regulatory "train wreck," which could threaten the reliability of domestic electricity grid. Next week, the House is expected to consider H.R. 2401, the Transparency in Regulatory Analysis of Impacts on the Nation Act, which would require an analysis of the cumulative economic impacts of EPA's air, waste, water and climate change rules. In addition, two House Committees held hearings this week regarding the potential impacts of these rules. The House Energy and Power Subcommittee held a hearing with commissioners from the Federal Energy Regulatory Commission ("FERC") on the potential reliability and costs implications of the utility MACT, CSAP and other proposed EPA regulatory actions. A House Science Committee also heard testimony from EPA, utilities and state regulators regarding the CSAP rule. The testimony of the FERC Commissioners at the hearing reflects the broad disagreement over the effects of EPA's regulations. FERC Chair Jon Wellinghoff stated that "with sufficient information and time, the electric industry can plan to meet both its reliability and environmental obligations." FERC Commissioner Phillip Moeller, however, contended that he is concerned about reliability given EPA time-lines for new regulations. At a House Science Committee hearing, Trip Doggett, the President of the Electric Reliability Council of Texas, alleged that the loss of 1,200 megawatts would have resulted in rolling blackouts during this summer's heat wave. This hearing came days after Luminant threatened to close two of its coal-fired power plants due to the CSAP rule. The 1,200 megawatts is approximately equal to the capacity of Luminant's two coal-fired power plants. At the hearing, Associate Administrator Gina McCarthy defended the CSAP rule, arguing that Luminent could reduce emissions by using scrubbers. McCarthy also contended that EPA has engaged in extensive outreach to Luminant to explore compliance options that would allow for its facilities to remain open while it installed pollution-control equipment. The fiery and partisan rhetoric over utility MACT and CSAP rules has obscured a non-partisan analysis of the rules by the Congressional Research Service ("CRS"), which was released last month. CRS found that the utility MACT, CSAP and other air rules will affect utilities but concluded that the impacts will be less severe than those claimed by opponents. The report found that new EPA air rules would mostly affect older, less efficient coal-fired units. These plants, however, are already being retired or replaced by more efficiency combined cycle natural gas plants. According to the report, many of the newer coal-fired plants already comply with the new air rules or could make modest investments to obtain compliance. The CRS report concludes that fears related to reliability are overstated. Currently, there is a significant amount of excess generation due to the recession and increasing number of natural gas combined cycle plants being brought on-line. The report cites an analysis by FBR Capital Markets, which found that even the retirement of 45 gigawatts (GW) of electricity from coal-fired power plants would have a minimal effect on electricity reserve margins. This FBR Capital Markets analysis reported that "summer reserve margins are currently 26% across the U.S. and are likely only to decline by 2014 in a draconian scenario in which 45 GW of generation is retired." Moreover, the "draconian scenario" is premised on the fact that 45 GW would be retired, an estimate that appears above current projections under EPA's new air rules. An important caveat, however, is that the rules will affect various parts of the country differently. The reserve margins in states like Texas are narrower, and the threats to reliability could be more pronounced in areas that rely more on older coal-fired power plants. Despite the partisan acrimony recently over these rules, the impacts, while real, appear to be more modest than opponents would allege. One potential positive outcome of the House Energy and Power Subcommittee is that FERC Commissioners appeared to agree on the importance of a "safety valve" in a final utility MACT rule. In public comments on the utility MACT rule, Midwest ISO proposed the "safety valve" option, which would provide a retiring generator will an "extension for the time needed to implement reliability solutions to replace the subject resource." Common-sense solutions such as this one can address reliability concerns while helping to achieve significant health and environmental benefits.

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