In the first half of our conversation with Michael Whatley, policy advisor to Consumer Energy Alliance, we touched on the issues that EPA’s Clean Power Plan, which aims to regulate existing power plants across the country, poses to US manufacturing sector, such as singling out coal-fired electricity generating capacity, grid parity, and some ‘cap and trade’-like effects.
In this second half, we touch on how the major utilities are looking at the rule, what the “European experiment” has taught us, and, in hindsight, what kind of cost/benefit analysis would be helpful if EPA were to get a “do-over” in proposing this rule.
Utilities and EPA Clean Power Plan
MetalMiner: Let’s talk about some of the energy producers, such as Exelon, ComEd, or Duke Energy. What’s their point of view on the EPA Clean Power Plan? What types of approaches, if any, are they taking at this point?
Michael Whatley: These proposed rules are going to require a certain percent of carbon reductions or carbon intensity in each individual state. [We haven’t] seen a lot of the utilities come out and say, ‘we really like these or we really don’t like these,’ because I think that at this point in time, the vast majority of the utilities are looking at it and saying what does this mean, and how are we going to apply it, and what are we going to do? At the end of the day, if you think about the utilities, their major role, according to state law and certainly any federal overlay on it, is to be able to provide reliable electricity for the consumers. A lot of states require that the utilities not only be reliable, but also to be the most cost-efficient that they can within the various rules that are out there. At this point, there really is just a lot of data-gathering assessment that’s going on from the utility world that is looking at the proposed rule going forward.
MM: If the rule goes into effect largely as is – which is a big if – how do you think about the cost impact of this new regulation on US manufacturing? What’s the benchmark of how you measure that?
MW: Consumer Energy Alliance released a study that we put together in conjunction with a number of other groups that looked at what are the potential ramifications of the rule as proposed. And the numbers were fairly staggering. You’re talking about, nationally, a 12% to 17% increase in electricity prices, which could be as much as $41 billion dollars annually. And those are costs that are going to have to be borne by energy consumers. In terms of whether EPA wants to implement rules to ensure that there’s no new coal-fired power plants, there’s probably a way that you could do that in a cost-effective way that’s not going to cause these types of price spikes. The same thing applies with rules on existing coal-fired power plants. If you’re going to phase them out, you have to be able to give utilities and states realistic timelines and opportunities to be able to replace that electricity [capacity]. What EPA has done is come in and say, no, we’re going to have to achieve these cuts. And you’re going to have to use these mechanisms. And you’re going to have very, very tight timelines that you’re going to be able to do it. So we were not really surprised but awfully disappointed with the numbers that we saw in that study.
MM: Would the problems be solved if the timelines were all extended?
MW: I think it’s a combination of both timeline and reduction goals, because if what you’re saying is that you have to reduce carbon intensity by 5% in a state, given these timelines, that could probably work. If you’re going to say you have to reduce it by 20%, but you give companies 15 to 20 years instead of five to 10, then that can probably work. But the combination that we see in this rule of the timelines and the reductions is going to be particularly difficult … It puts the onus back on the states.
“War” on Coal?
MM: Another criticism of the plan that we’ve heard is that some feel that this rule is starting with coal. And it’s a slippery slope. Perhaps we’re going to suddenly find that these rules extend to other power sources. What are your thoughts on that?
MW: We completely agree. We work with the natural gas producers and suppliers all day, every day. The simple fact of the matter is you look at a state like Virginia, where we did a back-of-the-envelope analysis that said if you eliminate every coal-fired power plant and replace it with natural gas, you’re still probably not going to be able to hit these targets. So it really is going to be that you have to bring online new nuclear. And again, the timelines that they’ve put in place don’t allow for new nuclear. They also have a problem that in South Carolina and Georgia where you do have new nuclear facilities that are already under construction and going to be online over the next several years, those will not count towards the reduction capacity, even if they phase out coal, because they’ve already broken ground on those facilities. You have to bring online new renewables in order to get that zero generation capacity. Every state’s going to have to do its own analysis. And that certainly cannot be done on the back of the envelope when you’re talking about long-term electricity programs and plans. So we do feel that this is not just an attack on coal. It really is a program that is going to, ultimately, shake up the entire electricity generation capacity in the country. So as electricity users, that’s why we have this particular concern. There’s a lot of things [to suggest] that EPA clearly is trying to get the states to participate in cap and trade programs and to put in place statewide renewable electricity mandates, which would be the only way that they would be able to meet these goals.
MM: Speaking of cap and trade, just looking at the European experiment, how do you look at what’s going on in Europe comparatively? And what are the lessons learned, or the examples, you look at?
MW: I think the lessons learned are that if you’re going to look at a complex system that’s got a bunch of different moving parts, and a bunch of different fuels that are in the mix, and say, unilaterally, we’re going to take any one of them off the grid and we’re going to do that with unrealistic timelines, then you’re setting yourself up for failure. You know, you look at what happened in Germany where they had a plan to take offline all of the coal. That, in and of itself, was causing tremendous problems in terms of reliability and cost for the consumers. Then after Fukushima, they unilaterally in a knee-jerk fashion said we’re going to take nuclear offline as well. Well, they were able to take the nuclear offline. They shut it down. The problem is that they’re importing electricity generated from coal. And they’re turning their coal-fired power plants back on, which means that their overall carbon emissions are actually going to go up. So I think when you’re talking about establishing a carbon policy, that needs to be done holistically to ensure that we provide electricity for the consumers affordably and reliably.
If EPA Could Have Done It Right…
MM: If you were sitting at the head of the EPA, what type of cost/benefit analysis – or any other kind of analysis – would you do if you were going to try to still tackle this issue without doing it the way they did it?
MW: If you’re going to have a carbon reduction program, and that’s clearly where EPA is going with this, you’ve got to take a look at what are the opportunities that we have has a country to be able to reduce carbon emissions. And the electricity sector is certainly going to be a key component of that. But it’s not the only component of that. Then you have to be able to say, OK, well given our current fleet mix, what are the steps that we can do proactively going forward over a realistic set of timelines to be able to reduce that? If we can reduce carbon emissions from coal-fired power plants by 20%, 25%, or 30% by using new coal-fired power technologies that have been created that are online right now in different facilities around the country and world, why would we not want to explore that instead of unilaterally saying coal is the enemy? We also need to be able to allow for the construction of new nuclear facilities. We need to be able to set it up so that new natural gas baseload facilities, which are new, are going to have the time to get online, that we’ve got the capacity to build pipeline that will get us from the natural gas reserves to these particular facilities, and that you’ve got to be able to work with the states in a much, much more flexible way to allow them to set up the electricity regimes within their individual states. But coming out and saying that we’re going to have a very strict set of timelines, a very strict set of carbon reduction goals, and not give the states any flexibility in terms of how they’re going to get there is not the right way to go about it.
MM: Do you think the EPA will pay attention to those two factors and make some changes in those goals?
MW: We do. You know, what we’re hearing from several states that we’ve been in meetings with, whether it’s with their governors or with their environmental regulators or even their public service commissioner or public utility commission staffs, is that they’re in the process of negotiating and working through these proposed rules with EPA. We hope that as EPA goes through this and they hear from the public, they hear comments from utilities, and from rural electric co-ops, for example, as well as the manufacturers and other consumers like us, that they’ll make sure that this program has enough flexibility in it. Whether it’s through a combination of flexibility on the goals, flexibility on the timelines or both, that we can get there without having price spikes and blackouts.