Should states opt to "just say no" to U.S. EPA's Clean Power Plan proposal by either not submitting compliance plans or creating mechanisms that do not follow the agency's building blocks? During today's OnPoint, Peter Glaser, a partner at Troutman Sanders LLP, explains why he believes this could be a viable option for some states. He also discusses his expectations for the Federal Energy Regulatory Commission's technical conferences on the power plan proposal.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. With me today is Peter Glaser, a partner at Troutman Sanders. Peter, thank you for joining me.
Peter Glaser: Thank you for having me.
Monica Trauzzi: Peter, you've written about the state option to just say no to EPA's Clean Power Plan. Under EPA's proposal, states are required to create compliance mechanisms for meeting the plan's targets. Explain the concept of saying no and whether it's a viable option for states.
Peter Glaser: Sure. By just say no, we mean two things. One is the possibility that states simply would not submit a Section 111(d) plan at all. They would just not submit a plan. The other option for states would be to submit a plan that would not be compliant with what EPA is requiring. EPA is requiring a four-building-block plan. States don't think that should be required under the Clean Air Act. They might submit what's called an inside-the-fence plan that would only have emission reductions that would be achievable from efficiency improvements at coal plants, maybe a couple of a percent of emission reductions rather than the much larger reductions EPA wants. That would be a just say no plan.
Monica Trauzzi: And then what? What happens if a state does submit a just say no plan like that?
Peter Glaser: Yeah, I think that what would happen in that event, and EPA has now signaled this in an announcement it made shortly after the first of the year, is that EPA would impose a federal plan. And the just say no option is something that states are thinking about, recognizing that EPA might indeed impose a federal plan, but the states would think about it anyway for a number of reasons. One is you have a number of states, maybe a large number of states, who think that the requirements that EPA are imposing are hugely negative for the state's citizens, and they frankly don't want to be the public face of it. They don't want to be involved in implementing it. They also think that there is a high degree of likelihood that courts will overturn the EPA regulation in the end. They know that preparing an EPA-compliant plan, the plan that EPA wants, would be hugely time consuming, very costly, very controversial, and at the end of the day, if the whole thing gets overturned in court, it's all for naught. Hence they look at what would happen if they just said no, either a noncompliant plan or no plan at all. They know that the option instead would be a FIP, and they look at it and they think, would that really be the end of the world, and our view is it would not.
Monica Trauzzi: A FIP being a federal implementation plan. Is there momentum in this direction for states to go this route, and which states have reason to resist the Clean Power Plan?
Peter Glaser: Yeah. I think that when we saw EPA's statement, as I mentioned, after the first of the year, that they were going to propose a federal plan at the same time that they adopted the final Section 111(d) rules. That was very interesting because it does indicate that EPA is concerned that there are rising voices in the states for taking the just say no strategy. This is just something I think they felt like they had to respond to and say, look -- I think actually they had two messages. One is, look, we're looking at the proposed rule and we may make some changes, so maybe it won't be so bad, but at the same time, we're putting the stick out there and letting you know that there will be a federal plan, and that reflects rising EPA concern, I think, as to the number of states that may be looking at this.
Monica Trauzzi: Bob Sussman, the former senior counsel at EPA, says this of the just say no option. "I think that it's dangerous thinking. I think that it's likely to backfire on states because when they see the EPA's federal implementation plan, they will probably say, 'Gee, we could have done a much better job if we had utilized the discretion that EPA is giving us under the Clean Power Plan.'" Could states eventually regret a decision to not comply?
Peter Glaser: Well, obviously every state has to make its own decision, and with EPA proposing a plan at the same time that it finalizes 111(d) rules, of course states will have a chance to take a look at what a federal plan would look like. Bob's a really smart guy, very knowledgeable, but I think I just disagree with him here. I think that the notion that a federal plan would be worse than a state plan is based on the idea that the state plans -- in a state plan, EPA would offer states a great deal of flexibility that wouldn't be available in a federal plan. We just don't see it like that. We think, particularly for states where the control requirements, the emission reduction requirements are so stringent, the states have to come up with ways of actually meeting those reduction requirements, and we know that the only way to do that is to reduce operation of the coal plants and, therefore, get CO2 emission reductions. And that's the case under a state plan and it's the case under a federal plan. I'm not really sure, in the end, that there really is that much difference.
Monica Trauzzi: Utilities are already moving to diversify their portfolios as much as possible, and that's not necessarily a function of pending regulations. A lot of it has to do with just market realities, consumer expectations, declining pricing on renewables and also low load growth. Doesn't EPA -- doesn't their proposal just move in the direction that we already see the power sector moving in?
Peter Glaser: Actually strongly disagree with that. I know that EPA likes to say that the decline in coal generation in the United States is a function of natural gas prices, and I would agree with that statement insofar as it reflects a short-term trend of low natural gas prices, but electric utilities have been down this road before where natural gas prices have declined, a great deal of natural gas generation got built, and lo and behold, under the laws of supply and demand, natural gas prices went up, making people very sorry in the end that they had invested so heavily in natural gas. What's driving coal plant retirements now, the actual physical shutting down of the coal plants, taking them off the market, is EPA's regulations. It is the inability of these plants to support the massive control costs that EPA is imposing. That's why this short-term phenomenon of reduced coal generation in favor of gas generation is being turned into, under EPA's rules, a longer-term phenomenon.
Monica Trauzzi: FERC is beginning a series of technical conferences this month to discuss infrastructure challenges associated with the Clean Power Plan, among other topics. What do you anticipate the key headlines coming out of those conferences will be?
Peter Glaser: Well, I think there are a great deal of people who are very concerned about the reliability of the grid under the EPA proposal. I think that was signaled by the NERC report. NERC is the grid reliability coordinator nationally. They issued a very critical report. We've had a number of the regional transmission organizations doing the same. The Southwest Power Pool warned of, I think it was cascading outages and voltage collapse, fairly dramatic language. And I thing FERC has finally decided that they need to take a look at this, and I think that they will, and hopefully that will be good input for EPA as they come up to finalize the rule.
Monica Trauzzi: OK. We'll end it there. Thank you for coming on the show.
Peter Glaser: Thank you very much.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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