Environmental policy attorney Learner discusses shifts in Midwest power market

Source: Monica Trauzzi, E&E • Posted: Friday, July 26, 2013

How will the Midwest respond to power plant emissions proposals coming out of U.S. EPA? During today’s OnPoint, Howard Learner, president and executive director of the Environmental Law and Policy Center, explains how Midwestern states may handle emissions standards differently than other regions. He also talks about changes in power market investments in the region.

Monica Trauzzi: Hello and welcome to OnPoint. I’m Monica Trauzzi. Joining me today is Howard Learner, president and executive director at the Environmental Law and Policy Center. Howard, thanks for coming back on the show.

Howard Learner: Good to join you.

Monica Trauzzi: Howard, President Obama’s climate action plan potentially gives states a lot of leverage in terms of how they want to shape their emissions programs. What do you think this means for the Midwest?

Howard Learner: Well, first of all, it’s a big step in the right direction. We’re now moving to certainty or as much as we can get in terms of regulatory certainty. Businesses can predict for the future. States can plan for the future, and for the Midwest, what this means is flexibility. You’re going to see states being able to look at how with energy efficiency, with a lot of wind-power development, with other emerging new technologies can people best solve a problem.

Monica Trauzzi: And how do you think the Midwest might approach this differently than other regions of the country?

Howard Learner: The Midwest power market is driven by an economics these days of the lower power-market prices. PGM recently held an auction. The price went down by 60 percent. What’s going on is there’ an oversupply in the market at the same time that the quiet revolution in energy efficiency is taking hold and demand is staying flat or dropping. So there’s a lot of economic pressure on coal-plant owners an nuclear-plant owners to take some of their older plants and decide whether it’s economic or not to retrofit with modern pollution-control technology. So what you’re seeing is first energy, for example, an AEP shutting down older coal plants. Midwest Generation in Illinois, it’s in a bankruptcy proceeding now with all of its coal plants. On the nuclear side, Mid-American Energy decided to invest $1.9 billion in building more than 1,000 megawatts of new wind power while canceling plans to build a nuclear plant, and Exelon canceling some of its up-rates at the nuclear plants. The market’s speaking. Wall Street corporate boardrooms are focused on the economics, and the economics right now favor new, clear technologies and not some of the older technologies. We’re seeing technological innovation taking hold, and what will happen with the regulatory proceeding and the standards that give flexibility for the states is to look at some of the ways through technological innovation we can best meet our energy needs in the future.

Monica Trauzzi: So you’re saying maybe coal and nuclear are not getting as much money, so that means wind, natural gas are seeing all the cash flow?

Howard Learner: That’s certainly what’s happening right now in the Midwest. You’re seeing major coal-plant owners, First Energy, AEP, Midwest Generation, their corporate boards making economic decisions that it’s not economically efficient to invest in retrofits even into natural gas. That’s what AEP just decided. What you’re seeing on the nuclear side is savvy companies like Exelon, Mid-American Energy, deciding to push back, hold back their nuclear investments. You’re seeing a tremendous amount of investment moving forward on natural gas and I’ll call next-generation higher-capacity wind power that really can come into the market and make a difference. That’s the change in the Midwest.

Monica Trauzzi: So let’s go back to the power-plant emissions regulations that we’re going to be seeing rolling out of EPA over the next few years. How much of an impact does the industry have here on the path to a finalized rule on new power plants and then down the line, the existing power-plant rule?

Howard Learner: Well, the obvious question is, which industry? The fact of the matter is there’s splits in the energy industry taken as a whole. The natural-gas industry has splits within it, but they have a different perspective than the coal industry, and within the coal industry there’s a difference between the coal-mining industry and the companies that own older coal plants and the companies that’ve already retrofitted some of their coal plants like PSEG. Nuclear certainly has skin in the game from the nuclear industry’s perspective. Tighter controls on fossil fuel is a winner for nuclear, and the wind industry is picking up pretty effectively that what’s happening underneath all that are the technological advances in energy efficiency, which is holding down demand in the market, and that’s holding down prices. If you’re an electric generator, low prices aren’t good for you. If you’re any other sort of business, whether you’re a grocery store or a commercial office building owner or an industrial plant or people at home, low electricity prices are a good thing for you, and what’s happening is with more efficient refrigerators, air conditioners, electric motors, better lighting, LEDs coming into the market, that’s holding down and decreasing demand and that’s pulling down market prices, and that’s one of the more flexible ways of dealing with some of the greenhouse-gas standards that I think the states are gonna be using.

Monica Trauzzi: What kind of litigation are you anticipating on these emissions rules, and how can EPA sort of ensure that the rules are court-ready and that they won’t be struck down in court?

Howard Learner: Well, there’s no guarantee that a rule won’t be struck down, but certainly EPA has looked at the range of decisions that’ve come out of the Supreme Court and out of the D.C. circuit, and the Supreme Court in the AEP v. Connecticut case made pretty clear that there’s a lot of deference to EPA’s scientific and technical expertise. So I think what you’re seeing with the new plant rules is EPA taking a half a step back, tweaking them to try to get them as right as they can, both as a matter of policy and as a matter to be as protected on litigation as they can be. There’s no question there’s a cottage industry in Washington and elsewhere of suing everything that EPA does. There will be appeals, probably many appeals, to the D.C. circuit. So far the track record is in most cases on the greenhouse-gas standards EPA has been upheld by the D.C. circuit.

Monica Trauzzi: Let’s talk about what’s happening in Chicago, the municipal aggregation contract. What’s the potential there on the impact on the coal industry and on renewables?

Howard Learner: Well, Mayor Emanuel listened to the public. The public said overwhelmingly in Chicago, “Let’s have more renewables and less coal.” The city of Chicago had a municipal aggregation contract. It’s procuring its own electricity supply in the market. This is huge, the third-largest city in the country buying power for the people in the city, and they had two stipulations: one, no coal, and, secondly, buy more renewables. The city has doubled the amount of wind power they’re purchasing and the city has entered into a power-procurement contract that has no coal. That reduces carbon, spurs clean-energy development and winds up with a profile that reduces the carbon equivalent of about 100,000 cars.

Monica Trauzzi: All right, interesting as always, Howard. We’re going to end it right there.

Howard Learner: Thank you very much.

Monica Trauzzi: Thank you for coming on the show, and thanks for watching. We’ll see you back here tomorrow.