EPA officials face off with utility regulators on warming rule

Source: Jean Chemnick, E&E reporter • Posted: Thursday, February 13, 2014

Two senior U.S. EPA officials yesterday sought to allay regulators’ fears about the effect the agency’s upcoming existing power plant rule for carbon dioxide could have on electric reliability and supply.

Acting EPA air chief Janet McCabe and senior counsel for air and radiation Joe Goffman, the lead architects of the rule due out by June 1, avoided offering specifics about the approach the agency would take while discussing it during the winter meeting of the National Association of Regulatory Utility Commissioners. But they emphasized EPA continues to solicit input from stakeholders on how best to craft it and that dialogue with state officials would continue even after the guidance is proposed.

McCabe said EPA intended to write a guideline that would complement actions states are already taking to address emissions.

“We very much intend to be enabling and opening things up, not constraining things,” she said. But she promised EPA would provide enough detailed guidance to help states write plans that would be approved.

McCabe said again that the rule would be “flexible,” a term EPA officials including Administrator Gina McCarthy have repeated for months and which most observers interpret to mean that EPA will write a rule that allows or requires states to encourage utilities to draw reductions from demand-side efficiency, shifts toward lower-carbon fuel sources and other changes that fall “outside the fence line” of a power plant.

She also seemed to indicate the agency would set a standard for emissions reduction and then rely on states to determine how best to meet that standard.

“What we are doing now is setting out guidelines to help the states write those plans, design those plans to meet an environmental target that EPA will establish under the rubric of the best system of emissions reduction,” she said.

There is an active debate among those who follow EPA’s Clean Air Act rulemakings about whether the agency has the authority to set an objective emissions reduction goal and require states to meet it.

Another area of contention is whether the section of the law EPA will use for existing power plants allows it to require systemwide reductions or whether the agency’s rule would be limited to what can be achieved at the source. The systemwide approach would allow for steeper emissions reductions and is championed by environmentalists.

Goffman said after the panel that McCabe’s remarks were not meant to show EPA’s thinking on either question. Stakeholders have generally assumed that EPA will set a target in the rule, though it might not come in the form of an absolute emissions-reduction goal that states must achieve.

“We won’t speak to that issue until we propose,” he said. “We’re not hiding in plain sight some of our decisions, we’re just using the lexicon of the dialogue that’s been going on since last fall.”

McCabe and Goffman shared the podium with three commissioners who have very different views on what EPA’s rule could do to the power grid.

Joshua Epel, a utility commissioner from Colorado, proposed a litany of questions that EPA should consider when crafting its guidance.

“We are about to undertake probably the most difficult environmental challenge I can imagine,” he said.

Epel questioned whether EPA has the legal authority to require state public utility commissions to take certain steps to rein in emissions.

He also advised EPA to think long and hard about how it assigns responsibilities to states under the rule, because the utility sector is not an industry that operates on a state-by-state basis. Some states, like Wyoming, generate power that is used in other states. Would they be responsible for all of the emissions they produce under the rule or would client states be assigned part of that burden, he asked.

He also questioned how EPA would propose to enforce state plans. Would the agency withhold funds from states that fail to meet their targets? Or would state policies suddenly become federally enforceable, because they are part of a compliance plan for a federal rule?

“Does that mean third parties can sue?” he asked.

McCabe did not offer answers to Epel’s questions but assured him that agency staff members were having the same discussions among themselves.

David Littell of Maine, a former environmental regulator, said that if his fellow commissioners are concerned about the kind of rule EPA will propose, they should not wait to offer their own solutions.

He noted that independent system operators and regional transmission organizations have already done this, submitting to EPA an eight-page white paper suggesting the agency promulgate a rule that allows state plans to be reviewed for their reliability implications after they have been submitted and providing a “safety valve” if the plan poses a threat to reliability. They also propose that EPA allow states to take a regional approach to apportioning responsibility for emissions.

“It’s not impossible to incorporate these elements,” he said.

On the question of the rule’s scope, Littell noted that Northeastern states participating in the Regional Greenhouse Gas Initiative, California and some other states have asked EPA to craft a rule that takes advantage of reductions made “beyond the fence line” at a power plant and that rewards states for steps they have already taken to limit emissions.

But Jon McKinney, a commissioner from West Virginia, said EPA must not require states to compel their utilities to do anything to reduce emissions that cannot be achieved at an individual power plant.

McKinney said EPA should craft a guidance that would “respect the primacy of states,” providing states with maximum flexibility to count reductions that are already in the works toward the rule.

EPA should not craft a rule that would lead utilities to idle existing power plants or that would strand investments already made to upgrade units, he said. It should also “strive to maintain equity between the states,” he said.