As the voices of concern over the Clean Power Plan's impact on grid reliability grow louder, do states have the ability to ensure reliability in their compliance plans by using tools currently at their disposal? During today's OnPoint, Susan Tierney, senior adviser at the Analysis Group, explains why she believes reliability issues will be solved as stakeholders proceed "in parallel" with compliance. She also discusses the growing support for states to employ the "just say no" option for power plan compliance.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. With me today is Sue Tierney, a senior adviser at the Analysis Group. Sue, great to have you back on the show.
Susan Tierney: So nice to see you.
Monica Trauzzi: Sue, there have been many concerns raised from a wide range of stakeholders on the impact of EPA's Clean Power Plan on reliability. As the voices of concern grow louder, is this debate a constructive one?
Susan Tierney: If -- it can be if people remember the reason why reliability organizations say, "Oh, we're looking ahead. We see there's going to be a problem." Usually what that does is get the industry focused on solving the problem. That's the way it always works, and so if that's how we think about it, I think it's a constructive thing.
Monica Trauzzi: Is that what the NERC report did? Did it get people focused on it or did it sort of stir things up a bit and cause even greater concern?
Susan Tierney: Well, I do think it stirred things up, but I'm thinking back to a couple years ago when NERC came up with a study that looked at the effect of the mercury and air toxics rule, and they identified that there'll be a lot of problems associated with the industry implementing that rule, but in fact, what we found was that it got people's attention. People solved the places where there would be problems, and that's where it's continuing to go, so I see it very similarly.
Monica Trauzzi: In a recent report, you say reliability issues will be solved by the dynamic interplay of actions by regulators, entities responsible for reliability and market participants with many solutions proceeding in parallel. This is assuming, though, that all of these stakeholders are on the same page. That does not seem to be the case right now on the state level within states, so how do states overcome that challenge of not being on the same page and getting to the point where they are truly moving in parallel?
Susan Tierney: That's a really good question, but in some sense, that isn't different than what we've seen in the past, except the fact that there are these state plans that have to be built. So the reason I say that is we've seen a lot of prior environmental regulations in the past where either the states who represented the companies in their state felt like they didn't really like the fact that they had to do something that the federal government was doing, but at the end of the day, when push came to shove, they got their act together and the industry did what it needed to do. What I see right now is there's certainly a lot of jockeying that is always the case when there's a rule that's in proposal form. And we will see a final rule at some point in time. I do hear a lot of people who own power plants saying, really, let's just figure out what we need to do rather than keeping this level of uncertainty going for many, many years. And we actually see market participants who see this as an opportunity coming forth with a lot of proposals. In places like PJM, where we studied, there's just about as much responding to the market signals and coming forth with proposals to build new power plants than there are power plants being retired.
Monica Trauzzi: So you think that the PJM, it's a unique example, and you think that they will not face reliability challenges?
Susan Tierney: The part that's unique or similar to other places that are heavily dependent on coal-fired power plants, that puts it almost in, you know, the most active place where somebody has to respond to these new rules. At the same time, PJM has done a lot of work to analyze what if the rules look like this, what if the states propose plans that are multistate as opposed to single state, and I think the thing that's a clear takeaway from that process is that, if the states honor, in some sense, the fact that they've got an interstate electricity market and try to follow that construct in their state plans, they're much more likely to have a wider set of reliability tools and a cheaper response to the rule in the end.
Monica Trauzzi: So what current tools can you point to that exist for states to ensure reliability as they work towards their compliance mechanisms?
Susan Tierney: Well, a perfect example exists, again, in the PJM place, but it's not unique to PJM. Right now, if a power plant wants to retire, they have to get approval from the balancing authority or the grid operator to say that it's OK if you take that offline, and the power flows will still be OK after that without violating reliability requirements. So in PJM right now, there are several hundred requests for small units and large units that are going to be retired or deactivated. PJM has identified reliability problems and solved them. So they've been solved with either reliability must-run contracts for a limited period of time or some kind of transmission solution or rejiggering of conductors or something or another. A lot of things are going on that allow for a reliable response.
Monica Trauzzi: Going back to the NERC report, NERC had raised initial concerns with reliability, and they sort of talked about the need for transmission upgrades as a key element. Could the U.S. find itself in a position, though, where we have these regulations in place and the infrastructure is not in line?
Susan Tierney: Hypothetically, of course. But in fact, one -- the experience is that if there are transmission lines that are needed for reliability purposes, they have a much easier track record, so to speak, of getting their permits and approvals in a timely way. Harder sometimes for what we call economic transmission upgrades. Somebody's advantage economically is viewed as a disadvantage to somebody else, but the ones that are identified as needing to be done for reliability purposes, those move forward.
Monica Trauzzi: A growing number of voices are calling for states to just say no to the Clean Power Plan. We're hearing that phrase a lot. The plan, the way it's structured, it only works if states comply, so if enough states just say no, could they derail the Clean Power Plan?
Susan Tierney: Well, you're probably going to get lots of answers from lawyers on that question. I'm not even a lawyer, so I understand that there will be a proposed, almost default federal implementation plan proposed by EPA as part of what we might see this summer. Ironically, what I hear from industry people is that it may not serve them well to have their state just say no. That makes their situation much more difficult. They may be held responsible at the end of the day for making sure that there is compliance with emissions reductions. So I see a lot of counterpressures, plus I hear some of those states that are gearing up to file suit also having a lot of meetings to talk about a Plan B.
Monica Trauzzi: All right. We're going to end it right there. Thank you for coming on the show. Nice to see you again.
Susan Tierney: Thank you.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
[End of Audio]