EPA’s Dangerous Desire To Become America’s Energy Regulator
Imagine that a federal agency seeks to fundamentally change the way electricity is provided to every household, school and factory in the United States. In fact, the agency’s proposal is so sweeping and dramatic that across the nation independent experts have raised concerns about it. According to the Nation’s reliability expert, the North American Electric Reliability Corporation, the agency’s proposal “may represent a significant reliability challenge” to the electric grid. The independent entity that runs New York’s power grid—the NYISO—similarly warned that the proposal “presents potentially serious reliability implications for New York.” And a Commissioner at the federal agency actually charged with regulating our nation’s power grid testified to Congress that the proposal “has the potential to completely undermine the market principles that underpin dispatch” of our Nation’s power systems, and that it may have “profound reliability implications.” All that might get your attention, right?
Now imagine that when the exact same federal agency that seeks to forever alter the Nation’s electric power system proposed this rule, it made several statements that revealed a fundamental lack of understanding about how the country’s electrical systems actually work. For instance, the agency stated unequivocally that electric generators “using diverse fuels and generating technologies . . . produce fungible electricity services,” and that “generation at one [electric generator] can be substituted for generation at another” regardless of the generating unit’s operating characteristics, its geographic location, grid design or any of a host of other factors. Got your attention yet?
Every first year electrical engineering student learns within the first few days of classes that electric generation at one location is simply not fungible with generation from another location. That same student quickly learns that a wind farm does not provide the same type or consistency of electricity as the electricity generated from a coal-fired power plant and that electricity generated from a plant located in Southern California cannot always be substituted for electricity generated in Northern California. These students also come to learn that there are circumstances throughout the country where electric generation units located just a few hundred yards apart provide very different electrical services to the electric grid depending on a variety of factors, such as the type of generation units, how and where they are connected to the grid, and the electric service they provide. As a Commissioner at the federal agency actually tasked with regulating our energy systems testified to Congress, “[i]t would be a sweeping, and incorrect, assumption to simply say that all megawatts are equal when it comes to reliability within or across regions. . . .” Do we finally have your attention now?!
EPA’s proposed Clean Power Plan would dramatically change all this and in doing so would arrogate upon EPA control over how every American gets and uses electricity service—whether that customer is a homeowner in De Moines, a factory in Ohio, or someone running their air conditioner in California. Simply put, the EPA’s proposal reaches into every aspect of the generation and use of electricity in the United States through its so-called “plant to plug” approach to CO2 emissions.
The EPA’s sweeping new plant to plug approach is radically different from any other regulation the EPA has previously imposed on electricity generators. Instead of merely saying to an existing power plant “thou shalt not emit more than X” from your smokestack, the Clean Power Plan would insinuate the EPA into every aspect of the Nation’s energy grid. For instance, the EPA proposes to reduce the use (demand in industry terms) of electricity by requiring States to impose energy efficiency standards that meet the EPA’s approval. This is a laudable goal to be sure, but the demand reductions the EPA proposes cannot possible be implemented as quickly as they want (if ever), and if they could, they would change consumer and industrial consumption patterns forever. At the same time, the EPA is requiring States to massively shift generation away from fossil fuel-fired power plants to renewable sources of electricity such as wind and solar. But as any first year electrical engineering student knows, you can’t simply substitute wind or solar power for coal power on a megawatt-for-megawatt basis if you want to keep the lights on when the wind isn’t blowing or the sun isn’t shining. The electric grid simply does not work that way.
Whether the EPA even has the legal authority to promulgate the Clean Power Plan will eventually be decided by the Courts. But, putting the EPA’s lack of legal authority aside, the key question every American should be asking is whether EPA has thesubstantive and technical expertise to be the Nation’s energy regulator. With the greatest respect, an agency that views all electricity as “fungible” lacks the substantive expertise to adequately consider the impact its proposed rule might have on the reliability of the electric grid and the long-term effect on costs to the American electricity consumer. That expertise has always rested with FERC and the States.
There has been a great deal written about how the Clean Power Plan was developed and proposed without much of a role for FERC. One FERC Commissioner even testified to Congress that in a meeting with the EPA’s Joe Goffman and Janet McCabe, the EPA refused “to allow FERC” to look at documents relating to the Clean Power Plan.
And, when FERC did have some initial views, the EPA appears to have simply ignored FERC’s advice. The Director of FERC’s Office of Reliability memorialized in a memo that in one private meeting, FERC advised the EPA that it “had doubts” about the EPA’s proposal to vastly increase the use of natural gas-fired generation in lieu of coal-fired generation. FERC also advised that there were “unresolved questions” about the proposed increased reliance on renewables, and that the EPA’s aggressive timeline for relying on renewables would be “difficult” to accomplish. In essence, FERC—the federal experts on questions of electric reliability—advised the EPA that its Clean Power Plan may have serious reliability implications for the Nation’s electric grid, but the EPA refused to listen.
More recently, the EPA has publically stated that it wants to work more closely with the States and FERC on reliability issues. This has led many to propose, in various forms, a so-called “reliability safety valve” that would be included in the final Clean Power Plan. That a general consensus has emerged that a safety value is needed all but concedes that the EPA’s proposal will cause reliability problems. But, almost all of the current safety net proposals appear to leave the ultimate decision making concerning electric reliability in the EPA’s hands, rather than in FERC’s and the States’, despite the reality that FERC and the States have the statutory mandate and the necessary technical experience to ensure the reliability of the electric power grid. Having the EPA administer an after-the-fact reliability safety value is no different than acknowledging that there is going to be a major car wreck but saying that as long as there is a good auto-body shop down the road, all will be fine. The “Better get to Macco” approach may work for cars, but it isn’t the way to protect the integrity of the Nation’s power grid.
The short answer is that the EPA does not have the expertise to be our Nation’s energy regulator. Congress has left that job to FERC and the States. But the EPA is now aggressively expanding its regulatory chokehold over the United States energy industry in a blatant attempt to seize control from FERC and the individual States on questions of how all electricity will be generated and consumed in the U.S. There has to be a better way of getting both a cleaner environment and keeping the lights on.
William S. Scherman is a partner at Gibson, Dunn & Crutcher LLP and is chair of the firm’s Energy, Regulation and Litigation practice group. Mr. Scherman previously served as General Counsel and Chief of Staff of the FERC. Charles H. Haake is of counsel at Gibson Dunn and is a member of the firm’s Environmental and Mass Torts practice group. Jason J. Fleischer is a senior associate at Gibson Dunn and is a member of the firm’s Energy, Regulation and Litigation practice group.
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- On May 12, 2015