By - Michael Drost

Will EPA’s Clean Power Plan Rule For Existing Power Plants Survive Legal Challenges?

coal-plant

By Martin E. Rock, P.E., J.D., LEED-AP
President & Senior Principal, OMNI Professional Environmental
EUCI Instructor

On June 2, 2014, the U.S. Environmental Protection Agency (EPA) issued its proposed Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units. This proposed rule commonly referred to as the EPA’s proposed “Clean Power Plan” (CPP) or existing source performance standards (ESPS), under Section 111(d) of the federal Clean Air Act (CAA), for the first time, introduces CO2 emission limits for existing electric generation facilities. (EPA refers to all power plants as EGUs.) EPA’s ESPS would give each state the daunting task and unfunded mandate of achieving an aggressive state-specific carbon-reduction goal, an EPA-required target calculated for each state under a complex formula set by the rule.

EPA’s proposed rule is primarily a political tool that is short on statutory authority, yet long on new governmental controls and dramatically intrudes EPA into the ambit of electricity regulation. If it survives legal challenges, this Rule would significantly affect both the reliability and the costs of electricity. This is quite a striking situation given that EPA actually met only 8% of its own CAA regulatory deadlines since 1990, and the national system of wholesale power markets and electric grid reliability is quite complex with many moving parts. The Federal Energy Regulatory Commission planned to hold its first of several public meetings on February 19, 2015, to discuss the potential impact of the Environmental Protection Agency’s Clean Power Plan on the reliability of the nation’s electric grid.

EPA’s Plan assumes dramatic reductions in CO2 emissions can be made using four “Building Blocks”:

  • Building Block 1: Heat rate improvements;
  • Building Block 2: Dispatch changes among affected electric generating units (EGUs);
  • Building Block 3: Using an expanded amount of less-carbon-intensive generating capacity; and
  • Building Block 4: Demand-side energy efficiency

Commenters on this Rule have already pointed out several unworkable aspects of what has been described by critics as “EPA’s simple-minded approach.” For example, much of this has already been done, and the US has seen the greatest reductions in GHG emissions of any country on the planet. NERC correctly points out that multiple incentives are already in place to operate units at peak efficiency, and periodic turbine overhauls are an existing industry best practice – much of this was driven by cost and some by the Administration’s trillion dollar stimulus package. Costly, additional site-specific engineering analyses would be required to determine any remaining opportunities for economic heat rate improvement measures, and in some cases, the efficiencies attained by one facility would simply be transferred as inefficiencies to another facility integrated into the same power generation network. For example, a base load plant that is converted to swing load operation is likely to see increased emissions per kW generated and likely diminished air pollution control efficiency from add-on controls.

In plain English this means that squeezing out any appreciable additional energy savings at the magnitude required by the EPA’s CPP is highly unlikely and almost by definition, such additional reductions are not cost justified.

“The number of estimated retirements identified in the EPA’s proposed rule may be conservative if the assumptions prove to be unachievable.” (NERC, 2014)

“The number of estimated retirements identified in the EPA’s proposed rule may be conservative if the assumptions prove to be unachievable.” Ironically, despite EPA’s concerns regarding global warming, the most recent tests of the reliability of the grid have been electricity demands during the recent severe winter cold conditions. For example, Detroit, Michigan just experienced the coldest February monthly average temperature in over 140 years.

NERC further indicates the following: “Developing suitable replacement generation resources to maintain adequate reserve margin levels may represent a significant reliability challenge, given the constrained time period for implementation. Pipeline constraints and growing gas and electric interdependency challenges impede the electric industry’s ability to obtain needed natural gas services, especially during high-use horizons.”

Pipeline constraints and growing gas and electric interdependency challenges impede the electric industry’s ability to obtain needed natural gas services, especially during high-use horizons. (Id.)

BPS Reliability Concerns

EPA’s CPP simply requires more natural gas dispatch, as it this were a matter of flipping a switch. However, in reality, that is not the case: “The anticipated changes in the resource mix and new dispatching protocols will require comprehensive reliability assessments to identify changes in power flows and ERSs [essential reliability services]. ERSs are the key services and characteristics that comprise the following basic reliability services needed to maintain BPS reliability: (1) load and resource balance; (2) voltage support; and (3) frequency support.” (NERC assessment, 2014)

NERC also expresses concerns about the magnitude of the changes needed within the timeframe EPA has proposed: “New reliability challenges may arise with the integration of generation resources that have different ERS characteristics than the units that are projected to retire. The changing resource mix introduces changes to operations and expected behaviors of the system; therefore, more transmission and new operating procedures may be needed to maintain reliability.”

Despite these expensive and resource-consuming implementation problems, perhaps more significant is the question of the EPA’s legal authority to even promulgate such a rule. Of the four building blocks, EPA has explicit authority to regulate one: utility plant operating efficiency.

Natural gas dispatch, mandatory energy efficiency reductions for industrial customers of power plants, and construction of less carbon-intensive source of energy that are either more costly than fossil fuels, as in the case of wind & solar, or most capital intensive, as in the case of nuclear power generation facilities are all beyond EPA’s purview under the CAA. “EPA assumes that the states and industry would rapidly expand energy efficiency savings programs from 22 TWh/year in 2012, to 108 TWh/year in 2020, and reach 380 TWh/year by 2029. With such aggressive energy efficiency expansion, the EPA assumes that energy efficiency will grow faster than electricity demand, with total electricity demand shrinking after 2020.” (NERC assessment, 2014) Of course, another problem with this approach is the sun doesn’t always shine and the wind doesn’t always have sufficient velocity to turn a wind turbine – another obvious reliability issue.

Petition for an Extraordinary Writ by Murray Energy

The U.S. Court of Appeals for the District of Columbia Circuit (DC Circuit) is consolidating two separate lawsuits filed by Murray Energy raising different legal challenges to EPA’s proposed utility greenhouse gas existing source performance standards (ESPS), and plans to hold oral arguments the same day as arguments in several states’ suit over the ESPS. Normally, a plaintiff would be required to wait until a final rule is issued before bringing suit under the federal Administrative Procedures Act (APA) and the CAA itself, so this is already an interesting legal case since ESPS is still at the proposal stage.

In a Nov. 13 order the court says that a three-judge panel of Chief Judge Richard Roberts and Judges Brett Kavanaugh and Nina Pillard will hear all three challenges. Roberts is a Clinton appointee, Kavanaugh a George W. Bush appointee and Pillard is a recent Obama appointee thanks to Harry Reid’s “nuclear option” maneuver to pack the Court.

The first case filed by Murray Energy challenges EPA’s final legal conclusion that it has Clean Air Act authority to issue the ESPS, arguing that the air law does not even allow the agency to pursue the rule.

The second case aims to scrap the rule by citing the All Writs Act as allowing the court to block EPA from finalizing the rule. Murray Energy has said the D.C. Circuit has power to issue a writ prohibiting the rule under the All Writs Act,

arguing that while such a move may be relatively rare, a Court can and should issue a writ prohibiting an agency from taking an action beyond its power — an ultra vires action — before it is final.

The order also sets a briefing schedule, with petitioners brief due Dec. 15, and final replies due March 9. It does not set a date for oral argument though it would likely be later in the spring of 2015. Undoubtedly, the oral arguments will be closely watched, but it is probably safe to presume the case will ultimately be presented to the U.S. Supreme Court for review by whoever loses at the DC Circuit. Given the high stakes involved, there will likely also be a battle over whether the ESPS rule implementation is stayed during these proceedings.

As interesting as these initial cases are, they are just a taste of the forthcoming battles likely when and if the ESPS Rule is ultimately finalized. Although such cases are typically fairly routine and not usually known for their creativity, this rule has already prompted speculation about some very unusual legal questions.

For example, in addition to the fact that the CAA clearly does not authorize EPA to engage in three of the four “building blocks” of the ESPS, another fascinating aspect of the legal interactions is the current U.S. Supreme Court review of the MATS (mercury and air toxics standards) Rule. One of the intriguing legal arguments discussed in numerous legal blogs, law review articles, and public speeches is whether EPA can issue both a NESHAP and an ESPS rule for the same industry sector. The CAA actually has specific language pertaining to the electric utilities sector, and Congress actually passed two different versions of one of the key provisions of the statute.

While some may commend the EPA’s aggressive approach to reducing CO2 emissions from the electric power sector, and there is certainly ample debate on the merits of the ESPS, an impartial review of the proposed rule by legal professionals would raise the specter of possible vacatur of the ESPS Rule by the Courts. The larger question is whether any new law created by this complex and interesting litigation will affect the EPA’s ability to promulgate other future rules.

Stay Tuned . . .

**Would you like more information on this topic? Check out EUCI’s live course on CAA Rules Affecting the Electric Utility Industry March 17-18, 2015 in Houston, TX.**

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