As the electric power and regulatory sectors are taking steps to prepare for U.S. EPA's release of its final Clean Power Plan, what challenges are posed by the U.S.'s current transmission infrastructure? During today's OnPoint, Kenneth Irvin, co-leader of Sidley Austin's global energy practice, discusses the outlook for transmission, demand response and natural gas facilities under the power plan. He also weighs in on ongoing discussions between EPA and the Federal Energy Regulatory Commission on the role the commission should play on power plan compliance.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. With me today is Ken Irvin, co-leader of Sidley Austin's global practice. Ken, thank you for joining me.
Kenneth Irvin: Monica, thanks for having me in.
Monica Trauzzi: Ken, as we await a final Clean Power Plan rule from EPA, as soon as early to mid-August, all elements of the electric power and regulatory sectors are taking a look at next steps. What doors could the Clean Power Plan open for new transmission infrastructure, and is there enough of an acknowledgment that this is a critical element of meeting the plan, improving transmission?
Kenneth Irvin: I think that's a great question. I think there's a lot of opportunity for new transmission as well as other types of technology in the generation space. Transmission can often be a substitute for generation, and the Clean Power Plan has the potential to result in the closure of certain power plants -- coal-fired power plants, for example. The Clean Power Plan is a pretty dramatic change for what the energy markets have been dealing with. There's a lot of concern about reliability and how that's going to affect the dispatch and the operation of the RTOs, so I look forward to seeing how that all gets digested and rolled out as the markets adapt to the Clean Power Plan.
Monica Trauzzi: And do you think that there's enough of a discussion at this point among stakeholders on the transmission element?
Kenneth Irvin: [Laughs] I think there's a lot of discussion. I don't know exactly that there's enough thinking about transmission. Transmission is complicated because you have a lot of siting issues, you have a lot of "not in my backyard" type of concerns, and prior efforts at locating transmission haven't always been successful, but there is a lot of interest in the private sector to invest in transmission. There are new lines coming on, so I think it's something worthy of exploration. I'd like to see more discussion about transmission development because it allows us to take advantage of the resources and areas that otherwise don't find as broad a market.
Monica Trauzzi: How do you think the power plan affects the long-term viability of natural gas facilities?
Kenneth Irvin: I think it's ultimately positive for natural gas facilities. Natural gas is equal to or maybe even slightly ahead of coal-fired generation on many days, and with the constraint on carbon, natural gas will find support for more penetration in the supply stack. An interesting aspect about natural gas is the just-in-time supply function of it. Unlike a coal plant that will have a big pile of coal in the front yard for fuel, natural gas is delivered just in time, and we've seen that create reliability issues in the cold winter months. As we deal with CPP, managing for that issue will have some complexity, but the Federal Energy Regulatory Commission is attuned to that and trying to adapt to those issues even as we speak.
Monica Trauzzi: Demand response? What do you see as the future under the power plan?
Kenneth Irvin: I think demand response is an important element of the wholesale energy markets. Obviously, it's before the Supreme Court about who has regulatory authority, but demand response is a way to bring an additional type of resource to the energy markets, especially when we have peak demand issues and when it may be cost-effective to throttle back some demand in favor of firing up new generation. So demand response as well as energy efficiency, I think, are key ways to bring about compliance with the Clean Power Plan.
Monica Trauzzi: The utility industry is sort of already rapidly warming to the idea of the evolving business model. We're beginning to see more of a focus on partnerships, which was previously unheard of in this space. What do you think the future of the grid looks like?
Kenneth Irvin: Well, I think we have a lot of opportunity for development. One of the things that I think about with the Clean Power Plan is does it also help us harden the grid, build a resilience into the grid that we have a need for otherwise? I think the development of other types of resources, whether they're efficiency or price response of demand, as well as renewable resources, enhance the reliability of the grid and help us deal with the loss, potentially, of coal-fired power plants that the CPP would otherwise see retired.
So I think it's going to be positive. It's going to take a lot of attention -- the state versus regional issues of state environmental plans versus regional transmission markets will require attention. The effect on FTRs and ARRs and the other kind of congestion products in those markets will require attention. But I have a degree of competence -- confidence and optimism that the markets will be able to adapt, and I look for solutions that look to markets to price the solution as opposed to a regulated mandate.
Monica Trauzzi: Right, but to that end, Colette Honorable, commissioner on the Federal Energy Regulatory Commission, last week, she encouraged a proactive role for FERC in helping stakeholders comply. Do you think that's necessary based on what you were just saying?
Kenneth Irvin: I think there's an important role for FERC. The reliability safety valve issue is going to have to figure prominently, both with regard to planning and review of these implementation plans as well as in the moment. The unique thing about electricity, obviously, is supply and demand must be kept in constant balance, and we could run into situations where a plant that is otherwise qualified to run has used up its allotted time under a CPP plan, but must, nevertheless, be dispatched because some other plant has gone offline or a transmission line has gone down. How we manage for that, how the EPA and FERC coordinate on those issues, is going to be something that requires careful attention.
Monica Trauzzi: And do you see EPA and FERC getting past some of the back-and-forth that's going on right now between the two agencies?
Kenneth Irvin: I do. I certainly hope so. Chairman Bay and the other commissioners at FERC are very serious, highly competent professionals. Ms. McCarthy and the folks at the EPA, obviously, take their job very seriously, and they appreciate, I'm sure, the importance of reliability of figuring out how to deal with this. I think it would be a disappointment for all of us if there came to be a conflict where they couldn't work it out, and somehow, we had to go to court or something to deal with some kind of reliability issue. That would seem disappointing.
Monica Trauzzi: The D.C. Circuit Court recently rejected an attempt by 15 states to block EPA from finalizing its Clean Power Plan. Most analysts say that this doesn't really tell us anything or indicate what future court action might look like. What are your predictions for what the court battles could look like on the plan?
Kenneth Irvin: That's a tough question. The recent decision from the Court of Appeals is really not that surprising to me because there's not a final order, and the courts are pretty clear about, "Bring us final orders. Bring us things that we can actually address and lock horns with." Ultimately, there will come judicial review -- there always is -- and it's pretty common in D.C. that the agencies don't get it right the first time. So it would not surprise me to see parts of it remanded and some further adjustments. That's commonplace with FERC orders, certainly commonplace with EPA orders. Ultimately, I think, probably, it gets approved, some form of it, like we saw with CSAPR and the other EPA rules do go forward, will have an impact on the market, so I look to the power markets to figure out how to digest these, how to adapt to these requirements.
Monica Trauzzi: Just might take a little time.
Kenneth Irvin: Yeah, I think it will take some time.
Monica Trauzzi: All right, we'll end it there. Thank you for coming on the show. Nice to see you.
Kenneth Irvin: Thank you so much.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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