Following this week's hearing of arguments on the Clean Power Plan before the U.S. Court of Appeals for the District of Columbia Circuit, how is industry reacting and preparing for the next phase of potential litigation? During today's OnPoint, former Rep. Jim Matheson (D-Utah), CEO of the National Rural Electric Cooperative Association (NRECA), discusses the arguments and the steps NRECA's member organizations are taking to expand their use of renewables as market dynamics shift.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. With me today is former Congressman Jim Matheson, CEO of the National Rural Electric Cooperative Association, NRECA. Congressman, thank you for coming on the show.
Rep. Jim Matheson: I'm glad to be here. Thank you.
Monica Trauzzi: So a busy week for Clean Power Plan watchers following the D.C. Circuit's hearing of oral arguments this week. Many analysts are saying at the end of the day EPA seems to have the edge. What is your organization's reaction to this week's court proceedings?
Rep. Jim Matheson: A couple of reactions. One is we're glad that the court took a lot of time. It ended up taking a lot longer and more time in the day than anyone anticipated, but that tells you that everyone had the opportunity to make their case, have a good back and forth with the justices and it reflects the complexity of this set of issues.
By the way, it's a set of issues. I think we got to be careful about how we anticipate how this comes out because it's not necessarily one side wins everything and one side loses everything. There's going to be a nuanced set of decisions being made about a number of issues being raised in this case, but at the end of the day the co-ops felt good about the opportunity to have the time and have a delivery process. That's what we need to have in major public policy decisions.
Monica Trauzzi: As the litigation plays out we see states and industry moving in the direction of the plan despite the fact that the Supreme Court has stayed the rule. Would you agree that this is the market trend right now moving in the direction of more renewables, less coal?
Rep. Jim Matheson: There's no question that the marketplace has moved. When you look at it in a national aggregate there's no question about it. In fact, in 2016 the electric industry writ large has already met the emissions targets that the Clean Power Plan had set for 2030. So clearly the market's had a big impact.
There are two big drivers on that in no particular order. One is natural gas prices are so low and gas is so available and it's replaced a lot of coal production.
Secondly, the cost of renewables has definitely dropped just in the last two or three years, both wind and solar. So you've seen a market reaction that's affected the overall generation mix in America.
That doesn't mean that on an individual basis for certain utilities, and particularly co-ops, they're in a different set of circumstances. It depends on how much flexibility you really have to react to those market conditions.
Some co-ops are rather small. They may have ownership in one plant and they don't have the flexibility that larger utilities do to adjust their resource mix based on market conditions.
In history, when you look at back at the history of the electric utility industry, utilities make long-term decisions. These are capital-intensive assets. When you build them they're built to last for decades. When you only have one of those, you have a little less flexibility than some others.
Monica Trauzzi: So you've said that the Clean Power Plan is not a sensible regulation. What would a sensible regulation look like?
Rep. Jim Matheson: Well, first of all, it'd be nice to go through a process where people can actually provide appropriate comments and go through the rulemaking process as it's defined by the Administrative Procedures Act.
One of the co-ops' great concerns is that what ultimately was published did not go through that process at all. That the EPA changed it so much that there wasn't an opportunity for input for various affects parties.
Monica Trauzzi: But EPA says that the changes reflected the comments that were made on the draft.
Rep. Jim Matheson: Well obviously that's where there's a point of disagreement, and that was one of the issues that was discussed in the oral arguments before the D.C. Circuit.
Monica Trauzzi: So what would you like the role to look like?
Rep. Jim Matheson: Well, clearly we want a lot more flexibility. We're looking for time. Time is an important factor when you have these long-lived assets, not necessarily that very much depreciated, a lot of debt associated with those assets. That's a big issue for the co-op world where —
By the way, federal policy encouraged movement into coal back in the late '70s, early '80s when the Fuel Use Act said you can't use natural gas for power generation. So policy has pushed us in one direction. Now policy's going in another direction.
In an industry where long-term decisions are the norm, you need time to pivot. You also need time beyond the actual asset life to also have time to implement new structures, new capacities for moving forward. So I think that's an important factor for the co-op world is looking for time and flexibility to adapt to a new set of rules.
Monica Trauzzi: At the same time though, co-ops are expanding their use of renewables. How are your member organizations balancing the challenges of these long-term coal contracts with new consumer demands for more renewables?
Rep. Jim Matheson: Well, by definition the co-op business model is we are member-owned organizations and we have 42 million consumers around this country that are members of co-ops and we respond to our members and across those co-ops in 47 different states. Some members have greater appetite for renewables than others, but you're correct in what you said. The co-op community has been quite active in development of renewable resources.
In fact, if you look at the issue of community solar plants around the country, 75 percent of all community solar in the United States is with co-ops.
So clearly we respond to member interests, but we do so purely from the member consumer perspective. We're consumer-owned. We're nonprofit entities. When new rules or regulations come in place that create new costs, 100 percent of that goes directly to our consumer, our ratepayer. We don't have investors that can absorb some of the impacts of these things. It all affects our ratepayers.
So when we make these decisions from a member-driven perspective, we try to make sure the members are well-informed about what those decisions are going to mean for them.
Monica Trauzzi: You served in Congress from 2001 to 2015. You were a member of the House Energy and Commerce Committee. I imagine you still have many friends there.
Rep. Jim Matheson: Sure.
Monica Trauzzi: How are you hoping that your time in Congress will aid in your ability to lead NRECA?
Rep. Jim Matheson: Well, as far as we're concerned, the rural electric co-ops are a nonpartisan organization that has a great footprint on Capitol Hill on both sides of the aisle. I've confirmed that since I've been in this job in terms of talking to folks I know on Capitol Hill on both sides of the aisle.
We plan on being the leading voice for the electric industry because we are the consumer voice. In the current era we have right now where populism seems to be a big factor in politics in America both on the left and the right, we're by definition a populist organization. We have 42 million consumers across America served by co-ops. It's a grass-roots network that has a voice and it's directly affecting consumers in terms of whatever policies come their way.
So we believe and I believe that America's electric co-ops are a really powerful and important voice on Capitol Hill, and we're going to continue to be so.
Monica Trauzzi: All right. We will end it right there. Thank you for coming on the show. Nice to see you.
Rep. Jim Matheson: Thank you. Glad to do it.
Monica Trauzzi: Thanks for watching. We'll see you back here tomorrow.
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