Policy & Regulation, Policy & Regulations

Clean Power Plan is our New U.S. Energy Policy

Issue 1 and Volume 119.

Block Andrews   By Block Andrews, Burns & McDonnell

For many years, the United States government has done little to define an energy policy for electric utilities. The utilities’ world was dictated by their mission statement to provide safe, low cost, environmentally compliant and reliable electricity to their customers. Environmental compliance was part of the equation but not necessarily the primary driver. However, environmental compliance has become a larger part of a utility’s focus.

If the Clean Power Plan (CPP) is finalized, as it was proposed, environmental dispatch will have trumped the other factors in dictating how energy is generated. Thus, EPA will become the agency dictating energy policy.

Predictability, other players in this world, such as the electric utilities, North American Electric Reliability Corporation (NERC), Federal Energy Regulatory Commission (FERC), Regional Transmission Organization (RTO), State Public Service Commissions and even state legislators have some heartburn with the notion that their concerns over cost and reliability impacts have taken a back seat to environmental concerns. As some of these organizations have expressed their views, EPA has basically said to follow along with us and you will be able to figure out your cost and reliability concerns.

Thinking through this process, the phrase “the devil is in the details” comes to mind. EPA has spent years on development of the Integrated Planning Model (IPM) that incorporates environmental compliance and cost parameters to justify their policy. However, IPM does not evaluate how hourly loads will be met in the future. In the Clean Power Plan’s future world, renewable energy and natural gas combined-cycle turbines will rule the day. For example, in Texas, the projected natural gas and renewable energy mix is projected to exceed 80 percent of the energy generated by 2030. IPM has not adequately provided costs for this type of dispatch which would have to include a significant amount of new electrical and natural gas transmission, auxiliary services and demand response. Without these costs included, the IPM and EPA have underestimated the Clean Power Plan costs. Given sufficient time, these costs could be estimated by the Regional Transmission Organizations (RTOs). However, the drive to finalize the CPP will likely not allow time to do this analysis.

In addition to cost concerns, many groups are concerned about reliability issues. Typically, an RTO oversupplies electricity to the transmission grid by an amount equal to the largest plant in the system. This practice allows for a sudden disruption of the largest plant in the system which might be 2,000 MW or more. However, in an energy world filled with natural gas and renewables, the system not only has to deal with the largest plant suddenly out of service but also the variability of renewable energy. Based on an extrapolation of past weather conditions, the future hourly change in renewable energy could be 15,000 MW or more in some RTOs. Most, if not all of the RTOs are not ready for this scenario. In time, it may be possible to account for this generation variability, but will it be combined-cycle units that meet this load swing? For new natural gas combined-cycle facilities, the fast ramp rates needed to meet the variable loads are achievable, but only at a significant capital and operational and maintenance cost. For existing combined-cycles, it is questionable whether they can physically be retrofitted to meet these quick ramp rates and what impact it will have on the unit’s exiting useful life. Additional issues would include potential New Source Review (NSR) issues, worse heat rates than base load and higher CO2 emissions.

To make matters even more complicated, the Clean Air Act does not regulate RTOs; it regulates power plants through state programs. Thus, the state will develop and enforce the Clean Power Plan. EPA provides flexibility in developing the plans which is both good and bad. Unique state energy characteristics can be incorporated which could be beneficial to the state; however, those plans will likely require state legislative and regulatory approvals which are never easy. Additionally, the RTOs can only develop a plan that optimizes compliance across parts of single or multiple states. For instances where an RTO covers only parts of a state, the state will have to deal with multiple RTOs which may not have the same ideas on compliance with the rule. In these cases, states will be selecting winners and losers based on how they chose to allocate emissions credits. Meanwhile, the clock is ticking and compliance is expected to begin in 2020.

Then there are the individual generation plants, transmission companies and electric utilities that have to actually provide energy. They are still on the hook to provide environmentally compliant, safe, reliable and low cost electricity while staying above water financially. This is going to be a difficult trick and every piece of the puzzle is going to have to work in harmony. But no worries, EPA says we will figure it out.

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