The EPA Cannot Be Trusted to Keep the Lights on

While campaigning for the Presidency, then-Senator Barack Obama told the San Francisco Chronicle that he would “bankrupt” the coal industry. Today, the Environmental Protection Agency busily endeavors to fulfill the President’s pledge by imposing unnecessary regulations that are virtually impossible for coal-fired power plants to achieve.

Consider the Utility MACT rule, which seeks to cut US power plants’ emissions of mercury from 29 tons a year to just five. Yet EPA itself estimates that cutting even as much as 41 tons out of total emissions of 105 tons “is unlikely to substantially affect total risk.” In order to achieve these non-existent benefits, the EPA set emissions thresholds that no power plant currently meets.

Then there’s the Cross-State Air Pollution Rule. Texas was excluded from the proposed rule. In the final rule, however, Texas was included, due to the supposed need to slightly reduce emissions as monitored 500 miles away in Madison County, Ill.—a locale that meets the EPA air-quality standards in question. The EPA ordered the Lone Star State to reduce sulfur-dioxide emissions 47 % within 6 months, despite the fact that it takes 3 years to install sulfur “scrubber” retrofits on coal-fired power plants.

Already, the electricity industry is sounding the alarm that the regulatory burden is going to take a big toll on power production. Earlier this month, Southern Power, the largest American utility, reported that the EPA’s proposed regulations would necessitate the closing of 4,000 megawatts of coal-fired power, and also $10 to $18 billion for new emissions reductions equipment. In June, American Electric Power, the third largest utility, announced that its plan to comply with pending air quality regulations would shutter 6,000 megawatts of coal power, and spend $6 billion to $8 billion on emissions controls.

According to the influential Edison Electric Institute, the breadth and speed of the EPA’s regulatory war on coal could lead to the retirement of up to 90,000 megawatts of coal-fired electricity generation. And a preliminary assessment by the Federal Energy Regulatory Commission Office of Electric Reliability showed 40,000 MW of coal-fired generating capacity “likely” to retire, with another 41,000 megawatts “very likely” to retire.

“Bankrupting” that much electricity generation poses a very consequential question: Will the lights stay on?

The American electricity grid is a delicate engineering marvel. At any given time, the power that enters the system must equal the power that leaves the system. Supply must equal demand, to a remarkably fine precision, or else the system breaks down and the lights go out. The EPA’s regulatory assault further complicates the task of operating the electricity infrastructure.

From a reliability perspective, the potential problems are primarily local. In utility-parlance, “load pockets” are areas of concentrated electricity consumption (like a city) that have insufficient local generation to meet demand, and therefore have to import electricity using transmission lines. Power plants that are proximate to “load pockets” tend to be vitally important to local reliability. As a result, grid operators usually must make transmission upgrades to buttress local reliability, whenever an electricity generating unit near a “load pocket” retires. According to PJM Interconnection, a grid operator in the northeast, “more than half” of historic and pending power plant deactivations have required transmission upgrades.

The need for infrastructure investments comports uneasily with the EPA’s rushed regulatory schedule. Utilities are one of the most capital-intensive industries in America. Investments in generation and transmission are made with 40 year horizons in mind. Moreover, utility-scale investments are almost always delayed by environmentalist or NIMBY (“not in my backyard”) opposition. All of this is to say that utilities investments play out slowly over the long-term. The EPA, however, is proposing to reconfigure the electricity market away from coal in only three years.

To be sure, the EPA claims that its raft of anti-coal regulations won’t affect reliability. In the Cross-State Air Pollution Rule, for example, the EPA listed ensuring electric reliability as a “key guiding principle.” And in the proposed Utility MACT, the EPA stated that, “Our analysis shows that the expected number of retirements is less than many have predicted and that these can be managed effectively with existing tools and processes for ensuring continued grid reliability.”

Reliability experts, however, dispute the EPA’s analysis. This month, in a response to questions posed by Senator Lisa Murkowski, FERC Commissioner Philip D. Moeller wrote that “[FERC staff] believes that the [EPA’s reliability analysis] does not consider certain reliability issues.” Much more damning are comments submitted to the EPA on August 4th, by the PJM Interconnection, whose job it is to ensure reliability in much of the northeast. According to PJM, “The empirical evidence of apparent and likely retirements and PJM’s own analysis points to a volume of potential retirements that could well be more than 10 times the amount of capacity that the EPA has estimated…”

So the EPA is low-balling the impacts of its regulations. Nothing new there—EPA long has underestimated the cost of its regulations. Expensive energy is bad enough; unreliable electricity is worse still. Demand-driven blackouts are a hallmark of developing countries. They are known in America only to Californians, where rolling brownouts have been an unfortunate side-effect of silly green energy policies.

In light of these recent, troubling revelations about the EPA’s reliability analysis, the Congress should consider carefully whether the EPA is competent to avoid plunging this country into darkness.