Are regulators wasting energy by continuing to focus on the nuances of U.S. EPA's Clean Power Plan, following the Supreme Court's stay of the rule? During today's OnPoint, Travis Kavulla, president of the National Association of Regulatory Utility Commissioners and a member of the Montana Public Service Commission, explains why he believes regulators should shift their focus to broader conversations on carbon allowance trading and carbon price risk modeling. He also discusses the existing challenges to giving utilities market certainty. This interview was recorded at the NARUC winter meetings in Washington, D.C.
Monica Trauzzi: Hello and welcome to a special edition of OnPoint from the NARUC winter meetings in Washington, D.C. I'm Monica Trauzzi. Joining me today is NARUC President Travis Kavulla. President Kavulla, thank you for joining me again.
Travis Kavulla: Monica, thanks for coming to our meeting.
Monica Trauzzi: Absolutely. President Kavulla, what an incredibly dynamic moment right now for state utility regulators as the future of the U.S. EPA's Clean Power Plan is uncertain. Following the Supreme Court's stay of the rule, what are the key questions you're hearing from regulators this week at the meeting?
Travis Kavulla: There's a couple. First there's a question on the merits and viability of the rules, which I think is difficult to answer. We really don't even now know how the circuit court is going to rule or the U.S. Supreme Court is going to rule. The fact that the Supreme Court has stayed the regulation indicates a pretty deep-seated skepticism about the rule because it's just highly unusual, really unprecedented for the Supreme Court to take this kind of an action. But it's really kind of a double whammy. It's not just that. It's the untimely passing of Justice Antonin Scalia, and it's difficult that this question reduces into the life or death of a man who had this long tenure. But in reality that is what seems to be the case. There's a lack of clarity on the merits, so instead we're kind of asking about just the mechanics of the stay, if there is a delay associated with the stay, which seems pretty clear, in states' planning how long does that last. And we're trying to get a clear legal answer on that.
Monica Trauzzi: I mean, how difficult is the situation right now for state regulators when they have to go back home and do their planning?
Travis Kavulla: It is difficult. You know, even before the EPA had put forward this rule regulators were trying to incorporate carbon price risk into their planning models. They were talking about low-carbon technologies. Those things will continue notwithstanding the stay, just like they were occurring before the EPA even issued their rule. But in terms of frankly submitting the paperwork or doing the kind of meetings and thinking of all the mundane aspects of how you would comply with either a rate-based or mass-based approach to the EPA rule, a lot of that work almost necessarily stops. It was being driven by a hard deadline, and now that that hard deadline isn't there I imagine people's focus will shift to the more conceptual questions dealing with carbon mitigation.
Monica Trauzzi: But are there any regulators that you've spoken to who have said that they indicate -- their state indicates to move forward with compliance mechanisms as if the rule were in place?
Travis Kavulla: Not really. I mean, I've heard of one state that's said until the EPA tells us we don't need to submit something in the September we're going to plan on doing so, but it's fairly clear the EPA and all elements of this regulation are stayed depending the court ruling.
Monica Trauzzi: So when West Virginia AG Morrissey called on all regulators to put their pencils down, you think he made the right move there with regards to the power plan?
Travis Kavulla: I think it would be to some degree a waste of our energies to focus on the nuances of the regulation at this moment in time. I think we probably need to shift to having a higher-level conversation about how carbon price risk modeling works, how conceptually one could trade allowances. These are conversations that will be helpful if the rule is upheld in its entirety or even if it's upheld only in part, or frankly even if it's reversed and state policies in those more left-leaning states that would enact carbon policies took its place. So we're all waiting to see. It seems that the U.S. Supreme Court would probably take up this issue regardless of how the circuit court rules, and if they do, you know, we're not going to have a clear answer on the viability of this regulation until the middle of next year or even early 2018.
Monica Trauzzi: But if we do see this sort of patchwork created of some states who decide at this moment to move forward with some kind of compliance mechanism as if the rule were in place and other states who don't, are those states who don't at a disadvantage if the rule is upheld in court?
Travis Kavulla: Well, they shouldn't be, because the stay is intended to have the effect of preserving the rights of those states pending litigation. I mean, if the EPA were to say, for instance, that, you know, well, the trick's on you; you should've been planning anyways regardless of the stay -- you know, that's not how a stay works.
Monica Trauzzi: Right.
Travis Kavulla: So I would say to states let's do a little scoping, let's think about the work we can do that will be useful regardless of what this rule is, how it looks, whether it's in place even at all -- let's have that conversation so that we aren't just wasting the next year and all of these meetings that everyone is holding, trying to talk about the details of a regulation that may never come to pass.
Monica Trauzzi: Utilities want certainty, though, and many of their business models are driving in the direction that the Clean Power Plan was going in, is going in. What are you hearing from utilities on how they'd like to see regulators proceed?
Travis Kavulla: Well, utilities do want certainty, but you can't always get what you want, to paraphrase the song. There's a couple market fundamentals that are driving this transition, as you say. Very low natural gas prices are pushing coal to the margins, as well as the declining cost of renewables. But there are all these state and federal interventions besides the Clean Power Plan that have worked to essentially distort those market fundamentals as well: state renewable portfolio standards, federal tax policy, other environmental regulations, as well as these sort of state grand bargains that we're seeing some of where environmentalists obtain a commitment on the part of utilities to close down coal plants and utilities get guaranteed cost recovery for those investments. So, you know, there's a lot of policies besides the Clean Power Plan that are moving in that direction. It still is an open question of how much of a patchwork, a crazy quilt of the states that leaves us at.
Monica Trauzzi: So you've put your pencils down in Montana?
Travis Kavulla: Our governor has suspended the advisory council that we had on the Clean Power Plan, yes.
Monica Trauzzi: And so how are yourself and other regulators proceeding?
Travis Kavulla: Well, I'll put it this way. We expect the largest utility we regulate, Northwestern Energy, to file a resource procurement plan ... in March of this year. And it would be negligent on the part of the utility and on the part of us if that document contained no description of the possibility that carbon will at some point become regulated within the 20-year horizon that they're meant to plan for. So that's a good, concrete example that the council or task force that was meant to address a very concrete regulation isn't doing its work, but that doesn't mean utilities stop thinking and talking about carbon price risk and how it affects the utility plant that they own.
Monica Trauzzi: All right, we'll end it there. Thank you for your time today.
Travis Kavulla: Hey, thank you, Monica.
Monica Trauzzi: And thanks for watching. We'll see you back at the studio tomorrow.
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