CLEAN POWER PLAN

EPA rule earns ridicule in oil and gas country, but some support percolates

HOUSTON -- If there's one thing traditional oil and gas states don't like, it's being told how energy policy should work.

Consider the ferocity of comments from three of the country's most prominent energy-producing states that followed this week's release of U.S. EPA's Clean Power Plan, which aims to reduce carbon dioxide emissions from power plants.

Texas Gov. Greg Abbott (R) said the federal government seems "hell-bent on threatening" principles of a free market. Oklahoma Gov. Mary Fallin (R) called EPA's plan "one of the most expansive and expensive regulatory burdens ever imposed on U.S. families and businesses." Louisiana Attorney General James Caldwell (R) said EPA's move "will lead to fewer jobs and higher utility bills."

These energy states are among the most vocal opponents of the Clean Power Plan, even as their jurisdictions could see benefits from increased wind, solar or natural gas used in generating U.S. electricity (E&ENews PM, July 24, 2014).

"The idea that the EPA is announcing regulations that all the states have to comply with puts the hair up on the back of the Texas neck," said Cal Jillson, a political science professor at Southern Methodist University in the Dallas area. "Even though it's telling us to continue moving in the direction that we're already moving, it's setting standards that we must meet."

That means the reaction is, according to Jillson: "We'll mind our own business down here. You guys leave us alone."

He called Oklahoma and Texas "classic" energy states, while Louisiana is a little different. But the Pelican State does have Gov. Bobby Jindal as a Republican presidential candidate, which Jillson said comes with a desire to promote states' rights.

To be sure, deep concerns about prices and changes to the electric market have been raised.

The Electric Reliability Council of Texas, the state's main grid operator, said last year that EPA regulations, including the Clean Power Plan, could lead to the retirement of thousands of megawatts of coal-fired generation while possibly raising prices and affecting reliability (EnergyWire, Nov. 18, 2014). The operator said it's reviewing the final rule.

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Still, the reality is different in this region than in states such as West Virginia and Kentucky, which are synonymous with coal.

Texas leads the nation in installed wind capacity, according to the American Wind Energy Association. And the state is considered poised to add substantial solar power. Oklahoma also has boasted of its renewable potential. Those states, as well as Louisiana, are known for ties to natural gas, including production and processing businesses.

But Bruce Bullock, director of the Maguire Energy Institute at SMU, said that when it comes to an agency such as EPA, Texas businesses might fear that "if you give 'em an inch, they're going to take a mile." He said the final carbon rule may have been an overreach by the Obama administration, and he said there's concern about control of large segments of the economy from Washington, D.C.

"I don't think the natural gas producers want to be a part of that any more than anybody else does," Bullock said.

State responses

The Clean Power Plan seeks to reduce carbon emissions from power plants 32 percent by 2030 compared with 2005 levels. That's a deeper cut than the 30 percent figure proposed previously. Targets vary by state, and an interim date has been pushed a couple of years to 2022. States can develop a response or face a possible federal plan.

Texas, Oklahoma and Louisiana have somewhat less stringent interim and 2030 goals compared with earlier proposed figures, according to state fact sheets from EPA, while groups and officials continue to comb through details of the plan. The final Clean Power Plan also has shifted toward renewables and somewhat away from natural gas (ClimateWire, Aug. 4).

John Fainter, president of the Association of Electric Companies of Texas, said companies have variations in fleets and fuel mixes that affect their outlooks. In the end, Fainter said he hopes Texas takes part in any discussion even as litigation is expected.

"I think the state is better off being at the table bargaining with the federal government than saying 'we're not going to do that' and we end up with a federally mandated program," Fainter said.

The Texas Commission on Environmental Quality said concerns remain over legal and practical aspects of the Clean Power Plan, while the state has questions on issues such as usurping states' authority.

"We will review the final rule against those concerns and determine the appropriate response," the commission said in a prepared statement.

Texas Attorney General Ken Paxton (R) has left little doubt about a plan for litigation over the Clean Power Plan. He said this week that Texas won't "back down in fighting this aggressive overreach in court."

Paxton does face a possible distraction in the form of being charged with securities fraud, as reported by the Associated Press and other outlets. AP has said the attorney general is expected to plead not guilty.

In Oklahoma, Fallin signed an executive order earlier this year that sought to prevent the state from submitting a state implementation plan. Scott Pruitt (R), the state's attorney general, has vowed to continue fighting EPA's plan after earlier litigation attempts.

Caldwell, the Louisiana attorney general, has been part of efforts in litigation, and he said another attempt would be coming.

Mike Reed, a communications director for Jindal, said the carbon plan "undermines the role of states in the federal Clean Air Act in an effort to realize a radical, liberal agenda that will lead to increased energy costs." He said the plan should be withdrawn and that the state is considering its options, although the next governor may have to deal with the issue further.

Entergy Corp., a major Louisiana-based power company, said it is reviewing the rule but continues to have concerns about the legality of the approach.

Different calculations

David Spence, a professor of energy law and regulation at the University of Texas, Austin, said there likely will be a "tsunami" of litigation over the carbon plan.

That's in part because of the level of change it seeks in the power sector, including with coal, he said. Then there's the ideological factor, he said, as challenges are smart politically in certain areas. Spence also said the rule could be stretching the Clean Air Act, and courts will have to face points of interpretation.

He said a company with a large amount of gas-fired generation might wonder "what my elected representatives are thinking" in their responses. The same might be true for some gas producers, Spence suggested.

But he said a large oil and gas company might think, "What industry are they going to come after next?" The answer could be refineries, he said.

"It's a different calculation for each player, but certainly for the small gas producers who don't own downstream facilities like refineries, they stand to gain a lot from this," Spence said.

John Hall of the Environmental Defense Fund in an online piece outlined what he considers opportunities for Texas through the Clean Power Plan.

"We have an abundance of wind, sun, and natural gas -- plus the transmission infrastructure to get them on the grid," Hall wrote. "We've barely begun to tap into the potential of resources that help households and businesses reduce their utility bills, like energy efficiency and demand response."

Jillson said the plan would "put the federal thumb on the scale against coal ... and in favor of natural gas and even more in favor of renewables." That also could put some Texas coal-fired plants in the crosshairs.

Luminant, a power producer whose fleet includes coal and nuclear generation, said it's reviewing the final plan before commenting in detail, but it noted the importance of having a mix of generation sources. In the past, the company has raised issues with how the carbon proposal could affect costs and reliability.

Calpine Corp., which has a number of gas-fired plants in Texas, has offered support for the Clean Power Plan.

"This flexible, market-based solution will reward the companies that invest and have invested smartly in cleaner generation," CEO Thad Hill said in a statement this week.

At CPS Energy, San Antonio's municipal gas and electric utility, there has been talk of a lower-carbon future and hope of Texas' engagement on the issue.

"We've kind of stayed agnostic to the political aspect of this conversation," said Rudy Garza, vice president of external relations at CPS, adding that "our strategy aligns with ... what the EPA is trying to do here."

Room for discussion

Some leaders in neighboring Arkansas have indicated opposition to the final Clean Power Plan while leaving the door open to discussions.

"While we will continue to fight the final rule, we will also work with our industries and consumers to determine a lowest cost option to compliance," Gov. Asa Hutchinson (R) said in a statement this week.

The governor said he directed leaders at the Arkansas Department of Environmental Quality and the state's Public Service Commission "to fully review this rule and develop the best response for our state."

In Oklahoma, Whitney Pearson of the Sierra Club's Beyond Coal Campaign touted the potential of the Clean Power Plan as a way to reduce carbon emissions, adding that Oklahoma is a leader in developing renewable energy.

"Rather than blocking a state-developed plan, we should support a program that is created here in Oklahoma and works best for our state," Pearson said in a statement.

Casey DeMoss, CEO of the New Orleans-based Alliance for Affordable Energy, said Louisiana is vulnerable to sea-level rise and stronger storms, meaning that cutting carbon pollution should be important given the cost of potential destruction. She called for an open process to help work on the issue.

"This plan is critical toward meeting our country's global commitments to decrease carbon pollution," DeMoss said.

Al Armendariz, a former regional administrator at EPA, said President Obama "took a huge step" in showing that the United States is serious about the climate.

"From the perspective of Texas, Louisiana and Oklahoma, unless we want even hotter summers and even more frequent drought, we have to deal with climate change," said Armendariz, who's involved in Sierra Club's Beyond Coal campaign.

He said the new rule will kick-start a transition away from coal toward renewable energy in Texas, meaning a number of coal-fired power units may retire.

Armendariz called for Texas to develop a transition plan to help replace jobs related to lignite that's burned in power plants, and he said it may turn out that Texas has to deal with a federal plan for the carbon rule.

As far as the potential for changes in generation, Armendariz said the Sierra Club prefers to move from coal to renewable energy and to use as little gas as possible.

"There could be an increase in the use of natural gas, and that might be good for certain Texas oil and gas producers, but I think EPA intentionally designed this final rule with longer timelines," he said, which could help maximize renewables. He said a shift from coal could see electric bills remain roughly flat or perhaps save people money.

In Houston, which often is called the energy capital of the world, climate action is on the agenda. Mayor Annise Parker (D) embraced the issue this week in a joint statement with the mayor of Los Angeles about action that's underway.

Still, state leaders in Texas won't necessarily fall in line with EPA's plan without a fight. That wouldn't be the Texas way, according to one observer.

"When the feds say white, we say black," said SMU's Jillson. "When they say black, we say white."

Twitter: @edward_klump Email: eklump@eenews.net

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