What Will Obama’s Power Plan Do to the Grid?
Environmentalists cheered last week when President Barack Obama and the Environmental Protection Agency issued the country’s first-ever mandatory greenhouse gas standards for power plants.
But an anxious power industry has also been warning: What about reliability? Any major shift in how America makes electricity, especially away from the reliable but high-carbon “baseline capacity” of coal, poses a threat to the crucial national power grid.
How serious is that risk? That’s the question facing FERC, the independent agency that played only a tangential role advising the EPA on its rules, but maintains a core mission of helping consumers get reliable energy services at reasonable costs. In May, all five of FERC’s commissioners urged EPA to give states more time to comply with the Clean Power Plan and also to include additional flexibility safeguards to ensure the country’s lights stay on.
POLITICO senior policy reporter Darren Samuelsohn interviewed Philip Moeller, FERC’s longest-serving commissioner, about the likely impact of the new rule. While Moeller praised EPA for addressing early concerns about maintaining a reliable power supply, he nonetheless warns that the states who are big coal producers and exporters still have “a lot to worry about.” He also sees the outcome of the 2016 presidential election playing a big part in determining how some of the more obstinate states proceed.
Darren Samuelsohn: What’s next for the country’s power grid now that the EPA rule is finished?
Philip Moeller: We’ll spend some time analyzing the rule because it’s so long, but the next, I think, critical part is when, assuming the rule survives litigation, the states will have to come up with their plans to comply with the rule, and that’s going to be a massive undertaking.
DS: What do you see as the biggest change coming to the electric grid because of the Clean Power Plan?
PM: We’re going to have state air regulators who are suddenly having a major impact on how the electricity system is designed and how power is produced and how it flows, because they will have a major role in putting together the state plans. I’m sure that they are all fine individuals, but moving from an air regulator to essentially an electricity regulator without a lot of background in it is going to be extremely challenging.
From an actual physics perspective, it kind of depends really on how the infrastructure is built out. If the pipes and wires are built, that will probably allow for greater expansion of renewables as proposed under the final rule, and much more gas capacity that is being used generally for base load, and also to support the renewables when their intermittency comes in and the wind stops blowing and the sun stops shining.
We’re going to have a lot of challenges in terms of making sure that the market rules are such that generators that have to respond quickly, particularly gas plants, are compensated not only for the wear and tear on those units, but also in terms of their quick response that will be increasingly necessary as intermittent generation has a greater penetration on the grid.
DS: Did EPA address FERC’s concerns in the earlier draft rule when it comes to electricity reliability?
PM: In many cases, yes. They extended the timeline to 2022. That was certainly helpful. They came up with some type of reliability mechanism which is needing further analysis, but is better than nothing.
DS: Why is a longer compliance timeline — it initially was 2020 — so important?
PM: It’s big because almost everybody was concerned that 2020 was just too aggressive… That timeline just didn’t mesh with building pipes and wires… That extra two years will make a difference, but a positive difference, but it would still be extremely challenging, particularly on the transmission side, because even when certain things all line up in the favor of a new line, it can still take five to seven years to build something, and that’s without a lot of significant opposition. The extra years, I think, are greatly appreciated by the folks who actually have to do the work to comply with the regulation.
DS: What are you hearing so far from state regulators?
PM: They’re still digesting the rule, but I’ve certainly met with them hundreds of times over the last year and a- half, and it kind of breaks down as to whether they have a state that uses coal or not. Those that don’t use coal don’t have really a lot to worry about. Those that do have a lot to worry about. And those states that are particularly exporters have to be very concerned. The importers have to be concerned, too, if they’re importing power that is essentially going to be affected by an exporting state.
DS: Many states will be writing their own implementation plans, but it’s also clear some states — like Indiana, Wisconsin and West Virginia — say they will just let the EPA do it for them instead. What’s the effect on the grid going to be from this disparity?
PM: That’s a great question because we’re not quite sure how it will work. A regional approach would certainly be better. Again, given the interstate nature of the grid, some regions already kind of see themselves in that position. Others are looking at it and yet there could be issues with one state taking one approach, the neighboring state taking another approach and there’s just things that need to be really thought through.
DS: Are there any specific regional hotspots you see for potential blackouts because of the Clean Power Plan?
PM: I think it’s too early because of the fact that we have to see how the state plans work together. That’s going to be the real challenge. But again, there’s a potential there that if one state is doing it one way and another state is doing it another way that there could be some issues related to reliability. With enough time, presumably, they can be worked through, but…we have to be cognizant of that potential set of problems.
DS: Are some of the industry predictions about blackouts and higher energy costs as dire as their warnings?
PM: I think it’s a little early, but those areas that are more coal-dependent, that has to be pretty high on the agenda…. Part of the issue related to the Clean Power Plan is it produces winners and losers, and the winners can be gas and renewables, and the losers, generally speaking, coal and the consumers that consume coal power are generally going to be paying higher prices. Those that don’t, their prices may be coming more in line with those other areas, but nevertheless, it’s producing winners and losers, including in the energy industry.
DS: What real-world effects will energy consumers notice from the Clean Power Plan?
PM: Areas that have to shut down coal plants and replace them with new generating units are going to see rate increases because of the very fact that these are going to be significant investments that, in some cases, go directly into rates. Other markets, it’s absorbed by the company in terms of a competitive model. But we’re going to see costs increase.
DS: Sen. Jim Inhofe is warning that the EPA rule will be especially painful for seniors, minorities and low-income people. Do you think that’s right?
PM: Given that electricity is usually a much higher proportion of those folks’ costs, in terms of their income, they have a higher proportion in electric bills, yes, I think that’s fair.
DS: How does uncertainty over the future of the Clean Power Plan — due to the 2016 presidential election and lawsuits — influence what states will be doing in the meantime?
PM: That’s a tough one, because states can either do nothing, fight it in court, but then they face the potential of having a federal implementation plan imposed upon them. Generally speaking, I think most of the states have been at least quietly or more prominently discussing the potential, how they could work together, what some of the tradeoffs are, and so those discussions I think have been relatively productive. But it’s going to be a long, long discussion and a decision-making process in terms of coming up with a state plan that will be very complicated.
DS: Do you think some of the states will just hang back and wait on implementing the rules until they know who is the next president?
PM: Oh yeah, I think that’s fair. In the meantime, though, some states are going to be very active, some kind of moderately, and some perhaps not doing much at all. But there will be plenty of talk between now and the election in terms of how this impacts various states.
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- On August 13, 2015