The proposed U.S. EPA rules to limit carbon emissions at existing power plants could require an overhaul of how grid operators line up electricity supply, causing significant confusion in power markets, according to federal energy regulators.
Philip Moeller, a Republican commissioner on the Federal Energy Regulatory Commission, confirmed that switching electric markets to power dispatch based on lowest carbon emissions instead of the current system that is based on lowest-priced supply would require approval from FERC and "a complete redesign of markets to include essentially a carbon fee on any resources that emit carbon dioxide," according to his answers to preliminary questions to the Energy and Commerce Subcommittee on Energy and Power. Tony Clark, another Republican commissioner, made similar points in his preliminary answers.
The panel is holding a hearing today on grid reliability in light of EPA's proposed Clean Power Plan, which would place national limits on carbon emissions at existing power plants for the first time through state plans developed individually and with resource flexibility to meet designated state CO2 emission limits. The Energy and Power Subcommittee sent four pages of questions to FERC in preparation for today's hearing and posted the commissioners' responses yesterday (E&E Daily, July 28).
Acting Chairwoman Cheryl LaFleur in her response agreed that changes in how generation is used by grid operators "could have implications for market operations."
The need for FERC to authorize any changes to the generation dispatch order under the Federal Power Act, however, would very much depend on how state design and regional transmission operators (RTOs) implement compliance plans, and it is too early to know that, all four FERC commissioners agreed.
"I note that EPA's proposed rule would give the states significant flexibility to design their own compliance plans, so it would be premature for me to speculate on the changes that might be needed to the design of organized wholesale electricity markets," LaFleur, a Democratic commissioner, said in her response.
"In the past, these markets have been able to successfully integrate state and regional environmental requirements, including greenhouse gas reductions, into their economic dispatch," she said, noting the examples of the Northeast grid operators' successful integration of carbon emission caps from the Regional Greenhouse Gas Initiative into their market operation.
John Norris, another Democratic commissioner, also highlighted California's cap-and-trade program as successfully integrating into that grid's market dispatch. Norris also had praise for RTOs' ability to adapt to new regulations without upending the current system.
"If, however, there is a need for prioritization, RTOs have considerable experience accommodating resource operational restrictions into the market dispatch," he said.
Clark also noted in his response that "the Commission allows generators to recognize various governmentally imposed costs like taxes and cap-and-trade schemes, but this is simply a matter of allowing generators to bid-in costs they have legally incurred."
Clark and Moeller also voiced a more negative view on whether the nation's natural gas and electricity infrastructure is up to supporting the EPA proposed rule -- especially if there were a significant amount of fuel switching to natural gas and renewable power -- although it is something FERC is studying, all four commissioners said.
A fifth scheduled witness, Norman Bay, has been confirmed as a Democratic member of FERC but has not been sworn in yet.
LaFleur, Norris and Bay also said in their written responses that EPA provides sufficient time for states and utilities to prepare the necessary infrastructure before emission limits are put in place.
Overall, a lot of the answers from the FERC commissioners took a wait-and-see approach, given the proposal stage of the rule and lack of state plans.
There had not been much interaction with EPA about the rule before it was released in June, especially by the commission.
EPA met with FERC staff six times to discuss the Clean Power Plan proposal -- five times before and once after the release. Those meetings included only one discussion with acting Chairwoman Cheryl LaFleur and no consultations with any of the other three sitting commissioners, according to the commissioners' responses.
FERC staff is still reviewing EPA's analysis on grid reliability and has not done its own analysis on resource adequacy or fuel diversity in regard to the proposal, LaFleur said.
Scott Segal, who represents the utility industry at Bracewell & Giuliani and directs the Electric Reliability Coordinating Council, said, "despite protests to the contrary, [EPA officials] have not made the appropriate outreach to electric regulators."
"What's clear to me is that EPA has not done their homework on electric reliablity concerns," he said.
Segal said EPA did not finish the "appropriate modeling" because of a "self-inflicted hurry" to finish the rule, which leaves a lot of questions on the table -- some of which FERC commissioners noted in their prepared answers.
Another outstanding question is: What would the federal implementation plan look like if a state doesn't submit a compliance plan?
"Unlike every other time ... the [EPA] has not submitted for comment what a federal implementation would be, and that's problematic," as regulators cannot make informed decisions, Segal said.
Click here to read the responses of LaFleur, Moeller, Norris, Clark and Bay.
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