Signs point to ‘affordable’ carbon reduction program — EPA official

Source: Jeffrey Tomich, E&E reporter • Posted: Friday, June 20, 2014

ST. LOUIS — Doomsday scenarios for the electric power sector in the wake of the Obama administration’s proposal to cut power plant carbon dioxide emissions ignore the industry’s ability to innovate and adapt to change, a senior U.S. EPA official said yesterday.

“The discourse in the coming months will be explosive,” Joseph Goffman, an associate assistant administrator and senior counsel in the agency’s Office of Air and Radiation, told state regulators and energy executives at a meeting here. “There will be all sorts of allegations about high costs.”

But those claims are premised on an assumption that “ingenuity will cease to exist,” he said. To the contrary, proposed EPA regulations historically have underestimated the industry’s ability to respond and its cost estimates have tended to be far too high.

“All arrows point to a completely affordable program,” Goffman said.

The assurances came at the annual stakeholder meeting for the Midcontinent Independent System Operator, the grid operator across all or parts of 15 states from the Gulf Coast to Canada. Goffman’s appearance continued a roadshow of top EPA officials in the weeks since the agency issued its proposed rule to curb greenhouse gas emissions from existing power plants. The proposed rule and a sister proposal to limit carbon emissions from new power plants are pillars of the Obama administration’s strategy to address climate change.

At every stop, EPA officials have tried to reassure utilities and state officials that the proposed rules are achievable and won’t wreak havoc on electricity rates, grid reliability and the economy.

Goffman, in fact, said states can go a long way toward meeting their respective carbon reduction targets by implementing existing policies that promote energy efficiency and increasing use of renewables such as wind and solar.

“In many cases, if states continue to do what they’re doing … virtually all states will be a good way down the road toward meeting their respective targets,” he said.

Ron Binz, who withdrew his nomination to lead the Federal Energy Regulatory Commission last fall under pressure from the coal industry, described how Colorado, where he was chairman of the Public Utilities Commission from 2007 to 2011, has implemented policies to slash power plant pollution with relatively little effect on electric rates.

Those policies include a 30 percent renewable energy standard, an energy efficiency standard and the state’s Clean Air-Clean Jobs Act — a measure to reduce criteria pollutants from power plants. The act will help clean up about 2 gigawatts of coal-fired generation in Colorado by 2017.

“The target there was criteria pollutants,” Binz said. “Coming along for the ride were carbon emissions.”

Binz said the Clean Air-Clean Jobs law is achieving sharp reductions in harmful emissions and generating new jobs while increasing electric rates in the state only about 2 percent above what they would be otherwise.

Carbon rules and nuclear’s future

The potential effects of EPA’s carbon rule on electric reliability and rates loom large for utilities, regulators and elected officials across MISO’s footprint, which is heavily reliant on coal as a fuel source.

But the future of the nuclear industry — both existing plants and the potential for new ones — was also a topic of discussion yesterday.

“One of my concerns is that we take our diversity of power supply for granted,” said Lawrence Makovich, who leads power sector research at IHS CERA, a consultancy. The nation’s nuclear fleet, in particular “looks to be a critical factor for managing CO2 emissions down the road.”

Richard Myers, vice president of policy development at the Nuclear Energy Institute, agreed. But, he said “adverse market conditions” led to recent decisions to shut down two nuclear plants. Dominion Resources Inc.’s 556-megawatt Kewaunee nuclear plant in Wisconsin stopped producing electricity in 2013, and Entergy Corp.’s 620-MW Vermont Yankee plant is scheduled to cease operation in the fourth quarter.

Myers and others in the nuclear industry say energy markets, as they’re currently structured, don’t appropriately value nuclear plants for their attributes, including high capacity factors and the role they play in helping reduce greenhouse gas emissions.

“We sort of think of electricity as an undifferentiated bulk commodity,” he said. However, “every kilowatt-hour has a pedigree, its own attributes and characteristics.”

According to NEI figures, a small single-unit nuclear plant like Kewaunee or Vermont Yankee produces electricity at about the same price as a new combined cycle natural gas plant with gas at $4 per thousand cubic feet.

“Unless you think that gas prices are going to stay below $4 per MMBtu for the next 20 years, it was probably a mistake to shut these plants down,” he said.

The shutdown of Kewaunee plant, which is in MISO’s footprint, was mentioned throughout yesterday’s meeting about the role of nuclear energy in helping states comply with EPA’s proposed carbon rule.

And at least one MISO board member, Eugene Zeltmann, a former CEO of the New York Power Authority, said it’s a topic the grid operator needs to look at more closely

“It seems that requires at least some analysis on our part,” he said. “I think we need to look at that, and I think we will, going forward.”

‘Leave no asset stranded’

EPA’s proposed rule, in fact, identifies 6 percent of the nation’s nuclear generating capacity that’s “at risk” of shutdown. The agency didn’t identify which reactors are in jeopardy in its 671-page rule. But Chicago-based Exelon Corp., which runs the nation’s largest nuclear fleet, has identified three of its six Illinois nuclear plants at risk of closure, including another unit in MISO’s territory, the 1,035-MW Clinton Power Station.

Goffman of EPA didn’t mention nuclear specifically but said the agency listened carefully to federal and state policymakers, who urged the government to be “sensitive to capital cycles of assets in question.”

“Leave no asset stranded was the watchword,” he said.

That said, he noted that even absent EPA’s proposed carbon rule, due to be finalized in a year, utilities, regulators and regional transmission operators will face critical decisions about the fate of aging coal and nuclear plants.

“The mere passage of time is going to require even without this policy a lot of decisions to be made about the ultimate disposition of assets,” he said.