With several pollutant regulations coming online in the near term, U.S. EPA is facing criticism for making it too difficult for industry to do business. Can the utility sector keep up with the new regulations and maintain system reliability? During today's OnPoint, Michael Bradley, executive director of the Clean Energy Group, and Sue Tierney, a managing principal with the Analysis Group and a former assistant secretary for policy at the U.S. Department of Energy, discuss a new report that investigates the impact of pending EPA regulations on electric system reliability. They explain why they believe businesses will be able to keep up with the new rules and how the government can help the private sector meet these new standards.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. With me today are Michael Bradley, the Executive Director of the Clean Energy Group, and Sue Tierney, a managing principal with the Analysis Group. Sue is a former Assistant Secretary for Policy at the U.S. Department of Energy. And Michael and Sue are co-authors of a new report that investigates the impact of pending EPA regulations on electric system reliability. Thank you both for being here.
Michael Bradley: It's great to be here.
Sue Tierney: Thank you.
Monica Trauzzi: Michael, so this new report zeros in on the series of pollutant regulations that are coming online in the short term that utilities will be forced to comply with. What's the bottom line here? Can EPA implement all these regulations and can utilities comply with them without seeing some major supply disruptions?
Michael Bradley: Well, we're pretty convinced that that certainly can be achieved, but one of the major objectives of the report that we produced in August was to highlight the challenges that are out there and highlight the fact that there's a whole host of management tools and policy tools that could be brought to bear if the companies involved and the regulators and the system operators all look at this situation sooner rather than later and identify the challenged areas and then we can mitigate them.
Monica Trauzzi: Sue, utilities would argue that this can't be done without major disruptions to supply, that they're going to be at an economic disadvantage needing to comply with all of these regulations. What's your take on that?
Sue Tierney: I actually think it's a little bit more complicated story than that. There are some companies who have actually put on the systems and stand positioned to do well in this situation. There are a number of companies who have to do something and, as a result of that, there's going to be some pockets of places where people have to respond. I think the industry can take a good job of addressing this. They've stepped up to the plate on things like this very well in the past, so I think they can do it.
Monica Trauzzi: So, we will see plants shutting down, some plants will set down. Does that mean we're going to see energy costs go up?
Sue Tierney: I think there's a lot of plants who are shutting down principally because the industry's conditions are changing. I mean when natural gas prices declined in the past two years, in part because of the discoveries of accessibility for shale gas and other things, that opened up more opportunities for natural gas and it actually put a lot of pressure on coal plants. And many of those coal plants are ones that just don't operate very much. So, in that sense, we've already seen many proposals for retirements and there will be some more, but there still will be a lot of coal plants that are going to go forward with compliance with the EPA rules. I think there will be cost impacts, for sure, and what I read and understand about the EPA rules is that that's a worthwhile investment in terms of the savings on healthcare issues and a variety of other things.
Monica Trauzzi: So, Michael, as you pointed out, the report talks about planning as a key part of making this all work. Is it a little late in the game though to be planning ahead for something that's pretty imminent?
Michael Bradley: Well, I think the good news is that many companies have already announced their plans to retire units and replace them with gas, energy efficiency, energy demand response, a whole host of strategies. So, out of the 25 to 70 gigawatts of retirements that varied analysts are claiming could happen, you know, somewhere around 20 percent of that has already been announced and companies are already taking the responsible steps to deal with replacing that power.
Monica Trauzzi: Sue, do we know what the cost-benefit analysis of all of these regulations will be?
Sue Tierney: EPA has adopted benefit-cost studies for each of its regulations and, in fact, I don't have it off the tip of my tongue about the size of the net benefits, but for EPA to go forward there have to be net benefits. So, in that sense, this is a worthwhile thing to do.
Monica Trauzzi: OK, proactively managing this transition, how do you do it? How do the utilities need to do it?
Michael Bradley: Well, each utility understands which of their plants is not economically viable. They're typically 40 years, 50 years old, low in size, 200 megawatt, 300 megawatt, and uncontrolled, no emission control systems or minimal. So they step in and they say, OK, we can close down a variety of these and replace it with gas generation, use the same transmission that is onsite or they can add aggressive energy efficiency or demand-side management strategies, which a number of companies like TVA has announced their intent to do. It also opens the opportunity for a whole host of energy players to come in and compete for replacing that capacity, including renewable sources, solar, wind, biomass, other things.
Monica Trauzzi: Sue, what tools do EPA, FERC, DOE have to moderate the impact of all of these regulations? What can they do?
Sue Tierney: Well, EPA has some ones that I'll ask Michael to jump in on in a minute, but under some of the rules they have the ability, under certain circumstances, to delay implementation. Other rules, they look at plant by plant to see whether or not there's something that needs to be postponed for up to two years on some of them. The Department of Energy has a card that can be pulled when there's a real reliability problem. And I hope that we would not get to that point, but, push come to shove, if there were a situation where a plant needed to operate in order to maintain reliability, the DOE could issue an emergency requirement, as could the president. FERC has important authorities in terms of encouraging transmission operators to do a lot of system planning very early on. One of the things that we're hoping will come out of the attention and interest at this point is that there begins to be much more aggressive studies of patterns of flows on the electric system, so that if a plant is removed for a planned retirement or something where you want to find out if a plant were not able to operate or even during an outage for installing compliance, what would happen to the system reliability. FERC can encourage that kind of work to be done. And, at the end of the day, FERC has reliability responsibility under the new Energy Policy Act.
Monica Trauzzi: So Michael, Sue mentioned EPA's right to grant extensions. Is that something that you think they would consider doing? I mean considering the Obama EPA, do you think that they're willing to help utilities out and give them that extra time?
Michael Bradley: Absolutely. I think this particular team at EPA in the Air office is very practical and, you know, they're going to do what's right at the right time. But, you know, I think their mission is to provide public health protection and these rules will provide that. One piece of flexibility that Sue didn't mention with the transport rule is trading, emission trading that can maximize the cost effectiveness of the reductions that are required for SO2 and NOX, particularly NOX. I think EPA is trying to, under the restrictions that were imposed on them by the court, they're still trying to maximize the flexibility when it comes to emission trading, which is key.
Monica Trauzzi: All right, we're going to end it there. Thank you both for coming on the show.
Sue Tierney: Thank you so much.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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