Federalism Red Alert: President’s Reported Climate Plan Would Subject State Energy Planning to EPA Control

by William Yeatman on May 19, 2014

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President Obama reportedly is considering a climate change plan that would upend oversight of the electric industry in all 50 States– without a popular mandate from either the Congress or a single State Legislature.

The regulation of electricity provision has been the primary preserve of the States since the New Deal. With the passage of the Public Utility Holding Company Act in 1935, the Congress facilitated State oversight of electric utilities; the law was intended to inhibit speculation in electric utilities, a cause of the Great Depression, by dividing the market into 50 parts (i.e., States).  As such, all 50 States have a regulatory body, usually known as a “Public Utilities Commission,” that functions to overlord electricity production within State borders. If, for example, a utility needs to build a power plant or raise rates, it must get PUC permission. And if a State Legislature were to enact a law affecting the electricity industry, such a mandate would be implemented by the PUC. Thus, States control the electricity industry within their borders.

This state-centric model for electricity oversight would be altered radically by the climate plan President Obama reportedly is considering for release next month. Per Bloomberg:

According to two people familiar with the discussions, the administration is considering an approach that would require a cut of 25 percent in emissions in two stages. In the five years starting in 2019, only limited reductions at the plants would be mandated. Deeper cuts would required from 2024 to 2029 to reach 25 percent, one of the people said…

The rules could achieve steeper cuts at a lower cost if the targets are based on a more holistic view of an electrical system—the operating generating units, power lines, opportunities for renewable energy, and even reductions in use by customers.

Setting aside the conspicuous legal problems attendant to such a “beyond the fence” approach under the Clean Air Act,* the President’s reported proposal raises huge federalism concerns. In practice (as reported by Bloomberg), the President’s plan would bind the hands of all 50 PUCs, by requiring them to re-orient their energy planning to meet a 25% reduction in emissions. In order to achieve the President’s goal, State PUCs would be forced to adopt from among a suit of bad policies, including:

  • Soviet-style green energy production quotas;
  • silly demand-side management programs that force consumers to use less energy;
  • and  regressive ratepayer subsidies to owners of rooftop solar systems.

Because the President’s climate plan is based on the Clean Air Act, EPA would have the authority to impose a Federal Implementation Plan—i.e., a regulatory take-over—if the agency disagrees with a State on energy policy. Pursuant to this authority, EPA would have the power to impose energy Federal Implementation Plans on the States.

Simply put: the President is considering a climate plan that would give EPA the authority to impose a variety of terrible energy policies on unwilling States. That’s not hyperbole in the least; rather, it’s the unavoidable legal consequence of what the President is mulling. Remember, neither the Congress nor a signle State Legislature have enacted a law explicitly enabling this gross expansion of federal power. That the EPA proposed this outrageous plan to the White House, and the President is considering it seriously, should give the reader an idea of how little this administration thinks of the American system of federalism.

To be sure, I’m dissatisfied with the current, state-centric model of electricity regulation, which I’ve labeled “socialist” in the past. But EPA’s proposal would make matters much worse, by adding yet another layer of bureaucratic control onto the electricity market. For an idea of what good reforms would look like, see this post.

As I’ve explained previously, EPA has run roughshod over the States’ rightful prerogatives when it comes to environmental policymaking. Now, the agency is eyeing a usurpation of States’ authority on energy policymaking. Every single one of the EPA’s reported 111(d) compliance “options” are policies that, in practice to date, were born in State legislatures and implemented by State PUCs; under such a proposal, the agency would gain the authority to impose these policies. This out of control agency needs to be reined in.

*By “beyond the fence,” I mean EPA’s requiring measures like “the operating generating units, power lines, opportunities for renewable energy, and even reductions in use by customers” that do not pertain to any single power plant. To date, the provision at hand has been interpreted such that EPA could only require regulation on a plant-by-plant basis.  For an explanation of the legal problems with EPA’s “beyond the fence” approach, see this UARG brief. In fact, there’s a case to be made that the Clean Air Act explicitly forbids EPA from regulating existing power plants to begin with. For more on that, see this Forbes article by Brian Potts.

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