Political clout tempers utilities’ fears of power plant rule to be implemented by states

Source: Nick Juliano, E&E reporter • Posted: Tuesday, June 10, 2014

The relatively sanguine reaction from most utilities to U.S. EPA’s landmark climate change rule reflects the extent to which power companies are confident in their ability to influence the state governments that will be crafting plans to hit required carbon dioxide emissions reductions.

EPA’s proposal was greeted with predictable outrage from coal miners, heavy industry and ideologically motivated interest groups that warned of higher energy prices, lost jobs and a less reliable energy supply. But utilities were generally more likely to welcome — or at least begrudgingly accept — the regulation on existing power plants as something they were already on the way to achieving by switching from coal to natural gas-fired power, promoting energy efficiency and relying more on renewables.However, the full implications of EPA’s rules will not be known until state regulators submit implementation plans. After the rule is finalized next June, states will have two or three years to craft plans to hit the reduction targets EPA has set for 2020 and 2030 using a variety of tools ranging from stricter regulation at power plants themselves to a variety of “outside the fence” strategies, such as consumer efficiency programs that would reduce emissions elsewhere.

When it comes time for states to write those plans, regulators and legislators are sure to hear from the dominant utilities in their state, whether investor-owned utilities (IOUs), municipal utilities, rural electric co-operatives or some combination.

“It’s hard to see state policymakers shaping an implementation plan without the consultation of the important utilities in the state,” says Michel Dicapua, an industry analyst with Bloomberg New Energy Finance.

All segments of the industry have levers of political influence at their disposal. IOUs tend to be among the larger companies in their states and many are active in campaigns through political action committees or donations from top executives. Co-op members tend to be prominent within their communities, and municipal utilities often are controlled directly by local elected leaders.

“Because they’re community leaders they know the state [representatives] and the state senators, they know the U.S. reps and the U.S. senators,” National Rural Electric Cooperative Association spokesman Mark Hayes said of his group’s members. “That is probably one of our strongest assets right now.”

A similar dynamic exists among municipal utilities, which typically are controlled by the city council or another locally elected board whose members are well known to state regulators, said Joe Nipper, senior vice president for regulatory affairs and communication at the American Public Power Association.

“They have those relationships,” Nipper said. “They work with those folks [in state regulatory agencies] on an ongoing basis, and I think that will serve them well here.”

The dynamic is likely to play out differently in different states depending on the how prominent different types of utilities are and what fuel they typically rely on for power. EPA also floated the possibility that several states would team up to establish carbon trading programs such as the Regional Greenhouse Gas Initiative in the Northeast.

Whatever approach states take, years of difficult technical work lie ahead, and that means utilities will have ample opportunity to influence the shape of compliance programs. That has created some concern among consumer advocates — who worry about the effect on ratepayers — and optimism among some in the coal mining industry who hope they can count on support from some of their biggest customers.

“There’s no question that part of the reason that utilities have held their fire in really attacking this rule … is for most of them their opportunities to influence state implementation is significant, much more significant than their ability to influence Washington, D.C., or regulators at EPA,” said Tyson Slocum, director of the energy program for Public Citizen.

While Slocum said he supports EPA’s decision to give states so much flexibility, the approach means consumer watchdogs will have to be “extraordinarily diligent” to ensure state plans are not too generous to utilities.

One potential area of concern would be any reliance on “decoupling” programs, which aim to ensure utilities can still make a profit while encouraging reduced energy use. Such programs should be designed to ensure that individual consumers see their bills go down to encourage efficiency, not aimed exclusively at protecting a utility’s bottom line, Slocum said.

Watchdogs also will have an important role ensuring that utilities do not simply pass through all of their compliance costs spurred by the EPA rule.

“Any utility can pass on its costs to customers, but it faces risks in doing that,” said Dan Bakal, director of the electric power program at Ceres, a nonprofit dedicated to mobilizing investment in sustainability. “Consumer advocacy organizations are supposed to pay attention to what are the costs that are getting passed on and are they prudent.”

While myriad details remain to be worked out, many experts still see the fuel mix used by various utilities and various states as the most influential variable over how the existing power plant rule ultimately will be implemented. States where coal dominates will likely try to maintain a larger role for coal-fired electricity than those that historically have had less of it, and that dynamic may lead to a closer alignment between utilities and coal miners in some instances.

“We’re confident that at the state level, when this next level of rules are implemented, we’re going to have the broad-based support we need to make our voice heard and our concerns understood,” Luke Popovich, a spokesman for the National Mining Association, said in an email.

“A very large coalition of power users, including the electric coops and public power users, has expressed their misgivings about this rule,” he continued. “They know they have skin in the game, that today’s bystander could be tomorrow’s victim.”