Regulation

Electric cooperative CEOs meet with McCarthy on Power Plan concerns

As pressure grows for U.S. EPA to change its draft Clean Power Plan proposal, a group of electric cooperative CEOs met with EPA Administrator Gina McCarthy this week to discuss their concerns with the current plan. During today's OnPoint, Duane Highley, CEO of Arkansas Electric Cooperative, and Lisa Johnson, CEO and general manager of Seminole Electric Cooperative, discuss the details of their meeting yesterday with McCarthy. Johnson also talks about her upcoming testimony before a House Energy and Commerce subcommittee on the impact of the Clean Power Plan on electric co-ops.

Transcript

Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. With me today are Duane Highley, CEO of Arkansas Electric Cooperative, and Lisa Johnson, CEO and general manager of Seminole Electric Cooperative. Duane, Lisa, thank you both for joining me today.

Duane Highley: You're welcome.

Lisa Johnson: Thank you for having us.

Monica Trauzzi: So you were both part of a group of CEOs that met with EPA Administrator Gina McCarthy on Monday on the Clean Power Plan and its impacts on your states. Duane, what did you hear from the administrator?

Duane Highley: Well, she's a very good listener so we're really grateful for the chance to meet with her, and she really listened to us express our concerns about the Clean Power Plan and how it would impact cooperatives in particular. So mostly listening, not a lot of comment from her.

Monica Trauzzi: So any indication on any potential changes we could see to the draft of the Clean Power Plan as we had towards that final rule?

Duane Highley: Probably the most deliberate thing we heard from her was a possible change in the interim target, the cliff as we're calling it, for compliance in 2020, possibly some softening of that, although she wasn't specific about details.

Monica Trauzzi: All right, so she did a lot of listening. Lisa, Florida is looking at a 38 percent emission rate reduction. What types of issues did you highlight for the administrator, and did she seem receptive to those concerns?

Lisa Johnson: I talked mostly about one of our key issues is the fact that we have the potential for significant stranded assets. So speaking to Florida specifically, you mentioned the 38 percent reduction. That translates under the current proposed plan into a 90 percent reduction of coal-fired units in the state. So that in turn translates into 27 of 30 units going down by 2020. That's a significant issue from a number of perspectives, but particularly it leaves our cooperative with an asset that has a 30-year remaining useful life that it can't enjoy, and our members will continue to pay for that debt.

Monica Trauzzi: And this is a key issue for co-ops nationwide because about 70 percent of electricity produced is from coal. Why haven't you in Florida done more to diversify your portfolios away from coal?

Lisa Johnson: Well, actually in Florida there's been quite a bit of diversification, and I would say particularly over the last 10 to 12 years, much movement towards natural-gas-fired generation. Specifically Seminole, we actually built and we currently own and operate a natural-gas-fired facility, both a combined-cycle facility and peaking units, and those were both built in the 2000s. So as things have evolved in the state, there's been a natural progress toward natural-gas-fired generation, and to the extent they're available, some renewables.

Monica Trauzzi: Duane, go ahead.

Duane Highley: Well, and we shouldn't forget that the cooperatives' move to coal was largely driven by the federal government policies in the 1970s when the Fuel Use Act was passed. And Jimmy Carter in 1978 was encouraging utilities to move to coal as energy independence. Cooperatives did that in a big way, and the federal government even helped us finance those plants. And now that we're putting the air quality controls on them, we just want to recover that remaining stranded investment over the useful life of that plant rather than prematurely shut the plant down and be stuck with the cost for our members to pay.

Monica Trauzzi: So Arkansas is involved in this week's court challenge to the EPA Clean Power Plan seeking to block the agency from moving forward with a 44 percent emission reduction target that you have in your state. Do you think that enough has been done to reduce emissions by Arkansas, and is this legal challenge just an effort to kind of find some early legal cover because not enough has been done?

Duane Highley: Well, Arkansas has the cleanest and most efficient coal plant in the country right now with Turk, and that's the only ultra-super-critical plant operating in the United States. Many are being built in China; we'd like to see more in the United States. But this Turk plant isn't even included in our base line for the requirements of the Clean Power Plan, so it leaves us with more than a 44 percent reduction before we even get started, to try and cover that. So as we've been trying to go to clean coal -- and we have some of the cleanest and most efficient natural gas in the country in Arkansas, but yet we need a target that's reasonable for our state compared to our neighboring states.

Monica Trauzzi: And how do you both see this week's court proceedings transpiring?

Lisa Johnson: Oh, I think it's too soon to tell. I find it encouraging that the court is actually hearing the case. My sense is that it will go beyond this court most likely, and the time I think is our biggest challenge right now.

Duane Highley: Yeah, this is the unique pen risk. What that decision is, is the stroke of a pen, and it's hard to predict.

Monica Trauzzi: And, Lisa, a lot going on this week. You'll also be testifying before a House Energy and Commerce subpanel on the Clean Power Plan on behalf of the Natural Rural Electric Cooperative Association. How will you be framing your remarks before the panel?

Lisa Johnson: Many of the remarks that I will share with the committee tomorrow follow along the same lines as what we talked about with the administrator today, the concerns about stranded assets, the concerns about reliability, certainly the concerns about cost for our members, and concerns about infrastructure requirements. This is a massive transition that the Clean Power Plan is proposing in terms of our electric industry. That can't happen overnight, and it certainly won't happen in the way it's been proposed without significant cost.

Monica Trauzzi: We've heard a lot in this city for sure and now growing around the country about this "Just Say No" option for power plan compliance. Are either of you backing the Just Say No option in your states?

Lisa Johnson: Well, I don't know that I would describe it as the Just Say No option. So for example, tomorrow in the subcommittee, what is before that subcommittee is consideration of Rate Payer Protection Act. That is a draft that's currently being reviewed, and there are really two components to that. One is allowing for the Clean Power Plan to go through its legal challenges before it actually takes effect, which will give those of us who have to comply the appropriate amount of time to deal with those changes that are required. But it also does have an element that says that state by state, if a governor and a state determines that there is significant harm that would come, either from a cost perspective or a reliability perspective, they can actually contact the administrator of EPA and express the need for some changes. So I don't know that I see that particular act as a Just Say No approach; I find it to be more of an ability for the states to take some control over their unique situations.

Monica Trauzzi: Duane, Just Say No?

Duane Highley: I think states are waiting to see what the federal implementation plan would look like, and that's not coming forward out of Arkansas right now, to just say no. But we need to know what the government's plan would be if the states don't act.

Monica Trauzzi: All right, a lot to look out for. All right, thank you both for your time.

Duane Highley: Thank you.

Lisa Johnson: Thank you, Monica.

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

[End of Audio]

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