House Panel Hears Testimony from Federal Energy Regulators on EPA’s Clean Power Plan

[EPA’s Clean Power Plan] has the potential to comprehensively reorder the jurisdictional relationship between the federal government and states as it relates to the regulation of public utilities and energy development. . . . .[States] will have entered a comprehensive “mother-may-I?” relationship with the EPA that has never before existed. — FERC Commissioner Tony Clark

Five Commissioners of the Federal Energy Regulatory Commission (FERC) testified today on EPA’s Clean Power Plan before the House Energy and Commerce Subcommittee on Energy and Power.

FERC’s Tony Clark

EPA’s Clean Power Plan establishes carbon dioxide (CO2) emission reduction targets for the electric power sectors of 49 states. The Plan outlines four “building block” strategies states are likely use to meet their respective targets: (1) improve the efficiency of coal power plants, (2) shift base load generation from coal to natural gas, (3) shift electric generation from fossil fuels to renewables and nuclear, and (4) reduce electricity consumption through demand-side management (DSM) programs.

In his briefing memo, Subcommittee Chairman Ed Whitfield (R-Ky.) asserts that EPA’s proposed rule “would require significant changes to the way electricity is generated, transmitted, and consumed in States across the country.” Two witnesses spoke directly to that point.

FERC Commissioner Philip D. Moeller described the fundamental change contemplated by the Clean Power Plan as a switch from “economic dispatch” to “environmental dispatch”:

For decades we have relied on the concept of “economic dispatch” of electric generation. Simply put, the power plants with the lowest operating cost are called first to generate electricity — with various reliability requirements and other factors as part of the decision, depending on the structure of various markets. By moving to what is essentially “environmental dispatch,” units will be called to generate primarily based upon the emission profile of the unit.

It is hard to imagine how giving low-carbon generation priority over low-cost generation would not increase electric rates. It is also not hard to imagine how pushing renewables higher in the “merit order of dispatch” could complicate the task of balancing loads and ensuring grid reliability.

Commissioner Tony Clark views the basic change in political terms. The Clean Power Plan replaces cooperative federalism with a hegemonic system in which EPA has final say on how states generate, transmit, and consume electricity:

More than any regulation I have seen during the time I have been involved in the energy sector, this EPA proposed rule has the potential to comprehensively reorder the jurisdictional relationship between the federal government and states as it relates to the regulation of public utilities and energy development. . . . What was once a relationship of interacting and cooperating entities will be one in which there is a clear senior partner. . . .[States] will have entered a comprehensive “mother-may-I?” relationship with the EPA that has never before existed. 

Nor is that all. Once EPA either approves or imposes an implementation plan, state policymakers may lose their ability to change course as to how the state “regulates public utilities and its electricity sector as a whole.” Clark explains:

To use just one example, if a future legislature decides that its renewable portfolio standard is not working for the citizens of its state, that legislature may effectively be prevented from changing course, because its “EPA-approved” RPS will still be in full effect; and likely enforceable by either the EPA or subject to a private party lawsuit. The same would apply to any future state utility commission action to the degree it implicates an EPA approved plan. And because basically everything in the electricity sector affects carbon output in some manner, if a state “plays ball” with the EPA, the proposed rule could effectively lock a state into a comprehensive carbon integrated resource plan that can only be changed with the acquiescence of the EPA.

In addition to providing written testimony, each of the commissioners submitted responses to “preliminary questions” from the Subcommittee.

To me, the most important question is the last one, no. 6, especially the words in bold italics:

6. The Clean Power contemplates significant increase in energy efficiency and demand-side management. How would the increased role of energy efficiency and demand side resources impact wholesale energy markets? Reliability? Can FERC regulate such resources, particularly given the recent court ruling vacating FERC’s Order No. 745?

Here the Subcommittee refers to Electric Power Supply Association v. FERC, a case in which the D.C. Circuit Court of Appeals ruled that the Federal Power Act “unambiguously restricts” FERC from regulating retail electricity demand, because retail markets are a matter Congress left “exclusively within state control.”

The implication for the Clean Power Plan is obvious. Through the Clean Power Plan, EPA seeks to control state regulation of retail electricity markets. If FERC, the federal energy agency, lacks authority to regulate electricity demand under the Federal Power Act, how is it possible that EPA, the federal environmental agency, has such authority under the Clean Air Act?

Alas, the Subcommittee did not put the question so bluntly. Instead, the Subcommittee asked whether the Court’s ruling prohibits FERC’s participation in the Clean Power Plan.

Commissioners Cheryl A. LaFleur, John Norris, and Norman Bay each replied that the issue is unresolved, because FERC seeks a rehearing en banc of the Court’s decision. Commissioner Moeller opined that FERC’s “role in fostering DSM [demand-side management] remains clouded in light of the recent DC Circuit decision pertaining to Order 745.” Commissioner Tony Clark stated that if the Court’s decision stands, agencies other than FERC would wield the “jurisdictional hammer” over demand reduction policy.