Law and the Environment : Environmental Lawyer & Attorney : Foley Hoag Law Firm : Boston, Washington D.C.

When I last posted on the potential impact of the Utility MACT rule on electric system reliability, I swore I was done with the subject. I knew then it was probably a mistake. Yesterday, FERC announced that it has issued a White Paper on how it will respond to requests by generators to EPA for an extension of time to comply under the Utility MACT rule. Since FERC has invited comments on the White Paper, it seemed worthy of note.

As those who have followed the progress of the MACT rule know, EPA has allowed a basic compliance period of three years. EPA has also provided for a one-year extension in some cases. Beyond that, EPA has provided that facilities which cannot comply within 4 years and which are critical to electric system reliability may seek a further extension through an administrative order. EPA also provided that it will take comment from experts, including FERC, on applications for such further extensions.

The White Paper sets forth FERC staff’s views on how FERC should handle such requests for comment. The process would be as follows:

• AO requests would be filed with the Commission Secretary (It is important to note that all AO requests must include a “concurrence with the reliability risk analysis” by the relevant “Planning Authority”, such as an ISO, or an explanation as to why such concurrence cannot be provided.)

• Requests would be treated as informational filings.

• Intervention would not be allowed.

• FERC review “should be whether, based on the circumstances presented, there might be a violation of a Commission-approved Reliability Standard” in the absence of the extension.

• The White Paper reserves the question regarding whether FERC review will be de novo or grant some deference to the analysis provided by the Planning Authority.

The White paper notes that it is specifically seeking comment regarding both the scope of its review of AO requests and the level of deference, if any, to give to the Planning Authority analysis. Comments may be provided by February 29, 2012, at the eFiling link on the FERC web site.

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As readers of this blog know, the impact of EPA air rules, including in particular the Utility MACT rule, on the reliability of the nation’s electric grid has been the subject of much speculation. Last week, the Congressional Research Service weighed in, with the exciting headline: EPA’s Utility MACT: Will the Lights Go Out?” Of course, notwithstanding the sexy title, the CRS conclusion can be summarized pretty simply: the MACT rule will not cause the lights to go out. Money quote:

although the rule may lead to the retirement or derating of some facilities, almost all of the capacity reductions will occur in areas that have substantial reserve margins. Two areas that may have difficulty meeting reserve margins, Texas and New England, will experience few plant retirements and deratings, according to industry data. Furthermore, to address the reliability concerns expressed by industry, the final rule includes provisions aimed at providing additional time for compliance if it is needed to install pollution controls or add new capacity to ensure reliability in specific areas. As a result, it is unlikely that electric reliability will be harmed by the rule.

Absent some surprises, I’m done with the subject. Let me know if the lights go out.

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On Wednesday, EPA promulgated the final Utility MACT rule. I doubt that anyone reading this blog isn’t already aware of the big news.

As seems frequently to be the case with EPA rules, this one, weighing in at 2.4MB and 1,117 pages, cannot easily be summarized here. In fact, the rule is so complicated – and controversial – that EPA had to generate four separate fact sheets to summarize the rule and its impacts: (1) Costs and Benefits (or, as EPA carefully puts it, “Benefits and Costs”); (2) Summary of the Rule; (3) Clean Air and Reliable Electricity (I wonder why EPA thought this one necessary?); and (4) Adjustments from Proposal to Final.

We live in a complex world, so there is not much use in complaining about how overwhelming this rule is, and about the problems inherent in a system in which rules with costs of approximately $10B annually and benefits ranging from $37B to $90B annually are this complicated and are probably truly understood by a very small number of people. As I tell my Libertarian friends, even Jefferson wouldn’t be a Jeffersonian today. Nonetheless, it is troubling.

The issues worth noting in a blog post are probably the changes from the proposal. Significant changes include:

·         Use of filterable PM for the particulate emissions limit, rather than total PM (which would include condensables).

·         Use of work practice standards, rather than emission limits, during start-up and shut-down. This is an important change, which will make life much easier for regulated units.

·         Greater flexibility in facility-wide averaging.

Reliability has obviously been the big issue for EPA. Units will generally have three years to comply. Permitting authorities may grant a 4^th year, if necessary, and EPA has said that they expect the extra year to be “broadly available.” EPA has also provided a mechanism for “units that are shown to be critical for reliability to obtain” a 5^th year to comply – though EPA has said that it does not expect many units to require or qualify for the 5^th year.

My predictions on the rule’s fate and impact?

·         I’ll be stunned if the rule does not survive judicial review. Of course, in an 1,117 page rule, there may be some obscure provision that is struck down, but the basic provisions will be upheld.

·         The sky will not fall. Significant numbers of jobs will not be lost, and the increase in electricity prices will be smaller than predicted. Since I whack EPA often enough, I’ll defend it here – to a limited extent. I don’t think that there has been a single big rule ever promulgated by EPA where the implementation costs haven’t been less than expected. That’s been true for one simple reason. When industry has clear rules to follow (even if they are not the cost-effective rules I would prefer), industrial innovation works to bring down compliance costs in ways that were not imagined, either by EPA or industry, when the rule was promulgated.

·         Of course, if there is a Republican President and a Republican Congress, all bets are off. Of course, when Mitt Romney was Governor of Massachusetts, he supported regulations by MassDEP that were essentially a state version of the Utility MACT rule, notwithstanding his criticism today of EPA for wanting to promulgate job-killing regulations. Of course, Mitt Romney has been known to change his mind. Of course,… oh, never mind. 

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Yesterday, the North American Electric Reliability Corporation, or NERC, released its 2011 Long-Term Reliability Assessment. The NERC report identified environmental regulations as one “of the greatest risks” to reliability. Much of the focus of the concern was on EPA’s MACT rule for hazardous air pollutants and its 316(b) rule for cooling water intake structures. While expressing uncertainty about these not-yet finalized rules, the NERC report took an extremely cautious approach, largely assuming the worst in terms of the stringency and inflexibility of these rules.

Appropriate caution? Not according to EPA.

In a letter to NERC, EPA Deputy Administrator Bob Persciasepe accused NERC of simply ignoring what EPA has said regarding the provisions of those rules and how they will be implemented. For example, with respect to the 316(b) rule, NERC assumes that the rule will require closed cycle cooling, even though EPA has explicitly said it will not require closed cycle cooling on all units and the rule will allow the cost of controls and potential impacts on reliability to be considered in determining appropriate technology. 

As Persciasepe summarized:

NERC’s draft report describes an extreme outcome that arises from a scenario where the most stringent and costly rules imaginable took effect, and no one at the federal, state, or local level took any steps to ensure the continued reliability of the grid.

Fortunately, the EPA’s analysis and several external analyses show that, where the EPA’s actual rules are accurately characterized, there is no adverse impact on capacity reserves in any region of the country. If isolated, local reliability challenges were to emerge due to individual plant retirements, the Clean Air Act and Clean Water Act provide flexibility mechanisms to ensure that sources can be brought into compliance over time while maintaining reliability.

In my most recent post on this subject, I noted that a comprehensive look at the reliability issue by FERC would be helpful. While I understand NERC’s approach to err on the side of caution, I agree with EPA that NERC overdid it here. Most of the old plants at risk of retirement are not going to have to install closed cycle cooling. I wouldn’t quite describe the NERC report as Chicken Little, but I don’t think the sky is falling. I’m still waiting for a more balanced and comprehensive review – and still skeptical that such a report would attain universal credibility, even if were to deserve it.

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