What impact will U.S. EPA's Clean Power Plan have on the country's coal-dependent electric cooperatives? During today's OnPoint, Kirk Johnson, senior vice president for government relations at the National Rural Electric Cooperative Association, discusses his organization's opposition to the rule, citing reliability and affordability concerns.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. With me today is Kirk Johnson, senior vice president for government relations at the National Rural Electric Cooperative Association. Kirk, thanks for joining me.
Kirk Johnson: Happy to be here, Monica.
Monica Trauzzi: Kirk, your organization represents the country's electric cooperatives, a group that is pushing back strongly against EPA's Clean Power Plan. Your CEO has gone as far as calling the Clean Power Plan EPA's scheme. Why is your group so strongly opposed to this rule?
Kirk Johnson: Well, we have a number of very significant concerns about the rule. Fundamentally, we think that EPA is going outside of what the Clean Air Act allows, and it's a law that was built and designed to say to industrial sources and mobile sources, if you're causing a pollution problem, you're going to attach a piece of equipment to the back of that power plant and clean it up. And unfortunately, that's not what EPA is doing here because there's not a piece of equipment that you can tack onto the back of a power plant to reduce CO2 emissions, and so they've gone far beyond what the Clean Air Act would allow.
And then beyond that, when they did that, they looked at a number of assumptions to come up with each state's target, and in developing those targets, they relied on some information that just doesn't help get them the kind of results that they wanted to get -- an overreliance on natural gas, overemphasis on energy efficiency, overemphasis on renewables in some areas, and co-ops are not opposed to any of those. We have co-ops doing energy efficiency. We have co-ops engaging in solar activities, been using hydropower for decades. But all added up, it results in a bottom line that is going to cause a number of problems, serious problems with complying with the rule if it's in its final form.
Monica Trauzzi: So the big issue for your folks is that many of them are extremely coal-heavy. Why haven't the country's co-ops then done more up until this point to diversify their energy portfolios and leaned towards more clean energy options?
Kirk Johnson: Yeah, co-ops have been building a much more diversified approach for a long time, but we have to go back in some history to really understand where we are today. Back in the late 1970s and early 1980s, the traditional areas where co-ops got their power were drying up, so we needed to build more power plants. At that time, it was right after the Arab oil embargo, and the country's focus was on domestic energy sources. Jimmy Carter went on TV and called for a tripling of coal production in this country, and there was a big push to utilize domestic coal to meet our country's energy needs. And as a result, that confluence of activities where we needed more power right at that time and the policy of the country was to push us to use more coal, two-thirds of all the coal plants co-ops have built in our entire 80-plus years of history were built during that period when Congress banned the use of natural gas under the Fuel Use Act and we had the incidence with Three Mile Island, which essentially took nuclear off the table, leaving us with one option. Now, since then, in the past 10 or 15 years or so, we've developed a whole lot of additional renewable resources, including wind, solar, we've been using hydropower for a long time, so it's more accurate to say we are changing as the times change, but we can't do that without looking back at the history and what got us to where we are.
Monica Trauzzi: But you're still at, what, about 70 percent coal?
Kirk Johnson: Of all the electricity we produce, it's just under 70 percent that comes from coal. We produce about half the electricity that we sell at retail. The rest comes from other sources. So when you look at all of our sources, those that we own and those where we buy power from, it's about 58 percent of our power right now comes from coal.
Monica Trauzzi: So which states do you believe will be hit the hardest in terms of affordability and reliability?
Kirk Johnson: Yeah, we have a number of examples of situations where the co-ops there are in particularly dire straits. Arizona and Florida are two that come most to mind, and it's in part because the way EPA developed the building blocks. They're essentially forcing out all coal, or practically all coal in those two states. And in Arizona, for example, we have one generation and transmission co-op that owns just two coal units and a natural gas unit, and they still have debt on all those units because of when they originally built it and the pollution control equipment they've added since then. And so those consumers are still paying off that debt, and if those coal plants are forced to shut down by about 2020, which is when EPA is planned to enforce that change to happen in Arizona, our folks would have to pay twice -- continue paying off the debt that's there from the past investment and new debt to develop new resources that may not even be available due to transmission constraints, natural gas pipeline constraints, et cetera. In fact, one of our co-ops has a power plant that was built and came online in 2006 in Arizona. And under EPA's plan, all coal in Arizona would go away. So leaving people with that kind of stranded asset is, I don't think, the kind of outcome that EPA is really looking for, but we need to find a way to get out of that.
Monica Trauzzi: So at this point, they're signaling that they will make changes to the building blocks and also some of the state targets. What kind of changes can the agency make then to take into consideration some of the concerns that your group has?
Kirk Johnson: Sure. If they are able to look at the data that we and others have supplied on the true availability of natural gas pipeline capacity, to -- of other limitations on natural gas, other limitations on renewables and other alternatives, we think adjusting those numbers for each and every state is very, very appropriate. But you need to really look at the data that's been submitted, and EPA, I think, is trying to do that. They also need to look at some of the other flexibilities that the Clean Air Act, in fact, calls for in here. the Clean Air Act calls for looking at the remaining useful life of an asset before, you know, determining what the plan's going to be to reduce emissions under the Section 111(d) of the Clean Air Act. And so if they're looking at remaining useful life, they need to account for the fact that some of these plants are really relatively new. They're not even teenagers yet, and those plants have a much longer life ahead of them. They need to make all those kinds of adjustments as they go forward.
Monica Trauzzi: Even though many larger utilities have been stepping away from coal just because it's not as cost-competitive at this point.
Kirk Johnson: People make their own individual, you know, judgments. That's the nice thing about electric co-ops being locally owned and controlled. They focus on what's in the best interest of their consumers in their local community. It's not based on what's best for some faraway investors. It's all about what's best locally for those consumers, and that's where we -- that's where we come from on each and every issue that we try to tackle.
Monica Trauzzi: Senate Majority Leader Mitch McConnell recently urged states not to prepare implementation plans. Do you think that's a good idea?
Kirk Johnson: We are desperately looking to see what the final rule looks like before giving sort of any advice on what the appropriate response is. We certainly think, as I said at the beginning, EPA has gone beyond their legal authority by going outside the fence line on the Clean Air Act, and if you went back to inside the fence line and just looked at what you could do at the efficiency of those power plants, you'd come up with a much simpler approach. Unfortunately, it doesn't quite get to the political agenda that is -- that's being driven here of trying to reduce CO2 emissions to get to that 30 percent number. So I'm not sure how all that's going to work out, but we're not going to be making too many prognostications about what folks should do after the fact until we see what it looks like.
Monica Trauzzi: Greenwire reported earlier this year that your group is ramping up lobbying efforts here in Washington, and you spent almost $2 million in the first three quarters of 2014 on lobbying. What kind of influence has that afforded you?
Kirk Johnson: We have always made the best use of our lobbying, not by the folks who work here in D.C., but by the fact that we truly represent the communities that our co-ops serve, and sort of our true strength comes from the grass roots out there of people who actually understand what happens in their communities when energy prices rise, when the electric grid becomes less reliable, and we work really hard to make sure that those folks have a voice here in Washington, and not just the voice of the lobbyists represented by NRECA. But we submitted nearly 1.2 million comments to EPA on both the rule on existing power plants and new power plants coming from those grass-roots supporters. And I think that's really the story of electric cooperatives and the political strength we have here in D.C.
Monica Trauzzi: All right, we'll end it right there. Thank you for coming on the show.
Kirk Johnson: Thanks, Monica.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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