Bracewell & Giuliani's Segal says agency overstepping authority with 'Utility MACT'

Has U.S. EPA conducted adequate analysis of hazardous air pollutants to move forward with its recent "Utility MACT" proposal? During today's OnPoint, Scott Segal, a partner at Bracewell & Giuliani and president of the Electric Reliability Coordinating Council, explains why he believes EPA is overstepping its authority with this air rule. He also gives his take on the latest efforts to block EPA from moving forward on greenhouse gas emissions regulation.


Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Scott Segal, a partner at Bracewell & Giuliani and president of the Electric Reliability Coordinating Council. Scott, thanks for coming on the show again.

Scott Segal: Good to be here.

Monica Trauzzi: Scott, EPA recently moved on its Utility MACT proposal and it's seeking to regulate hazardous pollutants from power plants. Why do you believe EPA is going too far here?

Scott Segal: Well, back in 1998, when EPA first made its findings under Carol Browner, and I would say somewhat not notorious for her great support of industry, but when Carol Browner made her findings that led exactly to this rule, she said, "There are some benefits, health benefits, to addressing mercury, but there are no health benefits associated with addressing the other hazardous air pollutants, the so-called non-mercury HAPs." And yet this rule is all about addressing non-mercury HAPs. They are the major cost driver within this rule. That's why we see cost ranges from EPA at the low end, a tempo at $9 billion, to over $100 billion in other estimates. So, they've done very little additional homework since 1998. In fact, none at all on the benefits analysis, yet they've expanded the rule by order of some magnitude.

Monica Trauzzi: You're getting over a cold. How did they come to the conclusion then that they needed to regulate these non-mercury HAPs?

Scott Segal: Well, I think the world has changed for the EPA since that time and I believe that there is a coordinated exercise to marginalize the use of coal-fired power in the American electrical system. And I think that same, not just in the context of Utility MACT, but also in the context of the National Ambient Air Quality Standards, the Transport Rule, the 316(b) rule on coolant and even the treatment of ash.

Monica Trauzzi: So, you're saying we don't really know what the measured benefits of this rule will be.

Scott Segal: Well, what I'm suggesting is, is that there are no incremental health benefits associated with this rule. I brought with me -- at the risk of having a prop, I brought with me the actual regulatory impact analysis of the proposed rule. It's 450 pages long, so I just took the executive summary, and there's a very curious statement in here. And the statement reads, "EPA was unable to quantify or monetize the value associated with hazardous air pollutant reductions." Unable to quantify or monetize the actual reductions in hazardous air pollutants. This rule is supposed to focus on hazardous air pollutants. What the agency did instead was focused on the co-benefit of reducing particulate matter. And you may say to yourself, particulate matter, that sounds familiar. Doesn't the agency already work on particulate matter? And indeed they do, because the agency already has, at its disposal, National Ambient Air Quality Standards for particulate matter, which they have revised from time to time and which they already get these same benefits from. The agency is essentially double counting their health benefits. If a private company were to have two different product lines and were to have the same profit figures for both product lines, we would be in violation of federal law on disclosure. But, of course, maybe it's good enough for government work to double count the benefits. That's what the agency is doing here. They already get those particulate matter benefits from the particulate matter designed parts of the Clean Air Act. That is not what a hazardous air pollutant rule is supposed to do and the agency admits in its regulatory impact analysis they've done no homework to even estimate what the benefits might be from actually reducing the hazardous air pollutants. That's the purpose of this thing and yet the cost is $100 billion associated with it. The possible sequestering of 30 percent of coal-fired capacity or of coal-fired electric generation in the United States. And that's when coal-fired generation accounts for some 50 percent of the entire U.S. electricity picture. It's the worst example of failing to do your homework, but showing up on time and expecting to get a good grade. So that's what the agency has done.

Monica Trauzzi: This means what for utilities then? Are we going to see plants shutting down? I mean what are the economic impacts and the trickle-down from this specific rule?

Scott Segal: Well, it's a very good question and, frankly, it's difficult to tell from EPA's own regulatory analysis exactly how many coal plant retirements we're likely to see. We've seen high range and low range numbers. We think 25 to 30 percent of the coal fleet will be in grave danger if this rule were adopted as proposed. So, we hope that it won't be the case. We hope that's not what's going to happen. Now, the agency seems to think that there will be very little in the way of closures. So you have to really drill down and figure out, how did the agency come to that conclusion, but the regulated community came to such a radically different conclusion? Is it just are we looking at different numbers? What's going on? Like so many times in Washington, and I hate to say this, this is so boring sounding, you've got to follow the footnotes. In order to figure out how the agency came to this very, very intriguing conclusion, that they could cost this much money, have this much of an impact, but not sequester that much capacity, what you have to do is look at their question of what types of technology can actually be deployed to reduce those non-mercury HAPs, like acid gases, like HCL for example. What is the technology that they claim is 90 percent efficient, that would not require the use of scrubbers? You know what's very interesting? It all comes down to a single study and a footnote. That study is not a study, it's a PowerPoint presentation that was made at a regional industry dialogue and was presented by the folks that are selling this particular type of dry sorbent technology. And one of the explicit recommendations, even in that 11-page PowerPoint presentation, that was only three weeks' worth of experience with the technology, is, you know, we ought to do a study on this and see if it's scalable. The agency draws a circle around that and says that that is evidence for 90 percent of the reduction they are associating with these so-called acid gases. It is the worst case of shoddy work done on the benefits analysis and on the technological assumptions. And that's why the agency is able to, I must say, no pun intended, through smoke and mirrors, reduce what is the apparent economic impact of this rule, when they well know that is likely to be substantially an order of magnitude higher than they predicted.

Monica Trauzzi: So, mix this in with all the other rules coming out of EPA in the short term. What's the overall impact? How does this sort of add to the crush that many utilities say they're feeling?

Scott Segal: There is a very rocky road ahead for electric reliability, price and supply in the United States in the decade from say where we sit today, 2011, to 2020. That decade is going to be a very serious time, because during that period we will see global greenhouse gas rules hit, permitting obligations associated with greenhouse gases. We will see new source performance standards. We will see National Ambient Air Quality standards for ozone, new ones for P.M., which I assume they will be citing the exact same benefit analysis they're citing here. And then first and foremost among them, the Utility MACT, because it hits on the quickest timeframe. Plus water rules, plus waste rules dealing with ash, all of that hits together at one time. The EPA has not done a single analysis, not one that attempts to estimate the overlapping impact of all of these rules hitting at once. Now, two people have spoken to that issue, one is President Barack Obama, who, in his executive order, said we should look at overlapping impacts. We should look at the system and see if it's not imposing unintended costs in that way. The agency has not heeded the recommendation of their own chief executive in that executive order. The other folks that have looked at overlapping impact, frankly, are NERC, the nation's grid operator, the brains behind the nations grid operator if you will, who did look at least at four of those elements and came to the conclusion that we were looking at a substantial threat to reliability, particularly in those regions that are dependent on coal.

Monica Trauzzi: Before we go I want to get your thoughts on what's happening in Congress.

Scott Segal: Yeah.

Monica Trauzzi: Because there are some very strong attempts to stop EPA from regulating emissions. We've already seen some motion in the House. Can it pass the House? How far do you see it going and is this more symbolic?

Scott Segal: Well, the legislation carefully tailored to address global greenhouse gas authority, we definitely are going to see that passed the House of Representatives. I think that will be without much problem. And I also want to compliment the supporters of that legislation for doing a pretty good job in markup, both at subcommittee and full committee level. They ran an open process. They allowed lots of amendments. This is very, very different than the process that we saw, for example, when the Senate considered greenhouse gas authorizing legislation in the last Congress. So we've seen a lot of an open process there. I think you'll see an open process on the floor and I think it will pass on the floor. In the Senate, a different story. We have had kind of a truncated debate going on over the small business bill where Mitch McConnell and others proposed taking the Inhofe legislation, which focuses on foreshortening GHG authority within the federal government, and applying it there. We saw Senator Baucus, you know, advance an alternative amendment which would essentially codify part of the so-called tailoring rule, limiting GHG authority to sources of 75,000 tons a year or greater, and also eliminating the applicability to agriculture. I do not believe that gambit is going to draw many votes away from those who would otherwise support limiting EPA authority. Just taking agriculture for a moment. One should recall that the U.S. Farm Bureau strongly opposed the passage of the Boxer legislation, even though it too did not apply to agriculture and even though it too allowed at least the basis for agricultural offsets. The reason? Agriculture, like 20 other manufacturing sectors in the United States, is increasingly energy intensive and is trade exposed. So, if you increase the price of electricity, both through rules like this MACT rule or through global greenhouse gas regulations, you make our ag sector less competitive, whether you say the rules apply to them or not, because it increases the cost of energy, the critical driver to keep those industries, the manufacturing sectors and ag, competitive in a global marketplace.

Monica Trauzzi: All right, Scott, we're going to end it right there. Thank you for coming on the show, as always.

Scott Segal: Super! Good to see you.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

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