Last Friday I posted excerpts from a Richmond-Time Dispatch article on the Virginia State Corporation Counsel’s (SCC’s) blunt comments on the Clean Power Plan — EPA’s proposed rule to reduce carbon dioxide (CO2) emissions from state electric power sectors. To recap, SCC staff argue the Plan exceeds EPA’s statutory authority, raises “alarming regional reliability concerns,” and would “substantially” increase consumer electric bills.
Over the weekend, a colleague sent me the SCC comment letter. Although 57-pages long, the letter is accessible and well worth reading. The SCC has been regulating Virginia electricity markets for more than 110 years to ensure reliable service at reasonable prices. These folks know whereof they speak. Today’s post delves into the SCC staff’s argument.
First, some quick background. EPA proposes to establish, for each state, existing source performance standards (ESPS) for power-sector CO2 emissions. The statewide standards, expressed in tons CO2 per megawatt hour, translate into statewide CO2 reduction targets. Clean Air Act §111(a)(1) defines “standard of performance” as:
a standard for emissions of air pollutants which reflects the degree of emission limitation achievable through the application of the best system of emission reduction which (taking into account the cost of achieving such reduction and any nonair quality health and environmental impact and energy requirements) the Administrator determines has been adequately demonstrated [emphasis added].
SCC staff identify six main reasons EPA’s proposed CO2 reduction targets for Virginia are not valid performance standards.
I. The Clean Power Plan unlawfully imposes a standard for existing generating units that is more stringent than the standards for new units.
As discussed previously on this site, EPA is proposing ESPS under CAA §111(d), an obscure provision used to promulgate only five rules in the history of the CAA (four rules in 1979 and one in 1996). The ESPS in each of those rules was less stringent than the prior — and prerequisite — corresponding new source performance standard (NSPS) for new facilities.
Why? Because performance standards must take cost into account, and it is cheaper to incorporate emission control technology into sources not yet built than to retrofit existing sources with the same control technology.
Contrary to precedent and statutory logic, EPA’s proposal “requires existing fossil fuel units located in Virginia to achieve a carbon emission rate that is as much as 26% lower than the carbon emission rate that the EPA recently determined can be achieved by new units using the best available control technology.” Specifically, EPA would require Virginia’s power sector to reduce emissions to 884 lbs. CO2/MWh in 2010 and 810 lbs. CO2/MWh in 2030 — well below EPA’s proposed NSPS for new coal generation (1,100 lbs. CO2/MW) and new natural gas combined cycle (NGCC) generation (1,000 lbs. CO2/MWh).
“Thus,” SCC staff observe, “a new fossil unit in Virginia – which can only be constructed using the absolute best control technology and without physical and other engineering limitations attendant to existing infrastructure – faces a far less stringent compliance requirement than existing units.”
Staff ask: “Would it be rational to require the current owners of automobiles or lawnmowers throughout Virginia, for example, to meet an emission standard that is 26% more stringent than required for the production of new cars or lawnmowers that must use the best available technology?”
An inevitable consequence of this “topsy-turvy” rule is higher electricity prices for consumers:
Turning regulation on its head in this way – requiring older, but still useful equipment to meet a standard that the EPA admits cannot be achieved even by entirely new equipment – is a recipe for stranding prior investments and requiring significant additional investment, both of which will likely be paid for in large part, if not entirely, by consumers.
SCC staff pull no punches:
Existing generating units cannot rationally be expected to achieve more than new units of the same type. There is no legal or rational basis to set Virginia’s Mandatory Goals for existing units below the standards required for new units. This is arbitrary and capricious regulation at its plainest.
II. Virginia’s targets cannot be achieved even if all coal-fired generation is replaced with best-available natural gas generation, raising obvious reliability and compliance cost concerns.
As noted, EPA’s proposed ESPS for Virginia is lower than the emission rate of a new NGCC unit. Consequently, even if it were feasible, replacing all existing coal power plants with new NGCC plants “would not satisfy EPA’s Mandatory Goals proposed for Virginia.”
Clearly, the Clean Power Plan aims at a “rapid transformation” of the power generation fleet serving Virginia, raising “obvious concerns about cost impacts, resource adequacy, and reliability in Virginia.”
Data from EPA’s Integrated Resource Planning (IRP) model indicate that the Plan “will cause 2,851 MW of generation retirements in the Dominion [Power] transmission zone before 2020” — nearly 14% of the state’s grid-based power (my calculation). EPA data also indicate that Virginia will have to shut down approximately 9 million megawatt hours of coal generation by 2020 — an amount roughly equal to the electricity consumed by 830,000 U.S. homes (my calculation).
Replacing 2,851 megwatts or 9 million megawatt hours will “require the immense addition of base load generation and transmission infrastructure” to maintain reliable service. Yet EPA’s modeling would replace it with 351 MW of non-dispatchable offshore wind. SCC Staff comments:
It is not clear how EPA concludes (if indeed it has) that reliability could be maintained in the Dominion transmission zone given this significant net reduction in capacity that the model EPA relied on to develop its Proposed regulation.
EPA data further indicate that, to meet its 2020 CO2 reduction target, Virginia would have to “add the equivalent of approximately 1,140 MW of nuclear generation.” However, due to high cost, lengthy regulatory reviews, and the years required to build nuclear facilities, “construction of 1,140 MW of additional nuclear capacity by 2020 is utterly unrealistic for Virginia or anywhere else in the nation.” For perspective, approximately 2,200 MW of nuclear capacity is under construction at Plant Vogtle in Georgia, and those units “are estimated to cost more than $14 billion, with construction after all permitting spanning at least seven years.”
As for renewable technologies, Staff argue that even if the intermittency of those sources could be managed, “there is still zero probability that wind and solar resources can be developed in the time and on the scale necessary to accommodate the zero-carbon generation levels needed to meet the Mandatory Interim Goal in 2020.” Virginia would need to add 3,300 MW of wind by 2020, or 4,100 MW of solar, or some combination thereof. For perspective, Virginia had 10 MW of installed solar capacity as of March 2013, and currently has zero MW of installed wind capacity.
Despite its vaunted “flexibility,” the Clean Power Plan leaves Virginia with the “risky option of retiring all its coal-fired power plants, at a significant stranded cost, replaced by new natural gas infrastructure (for which there is not currently pipeline capacity to supply the necessary fuel) and energy efficiency goals that are overly ambitious and beyond the scope of the Clean Air Act.”
Dominion Power’s Base Case IRP already includes significant increases in nuclear, gas, and renewable generation, reducing CO2 emissions by 28% below 2012 levels. EPA’s proposal, however, requires Virginia to cut power-sector CO2 emissions by 38% below 2012 levels in 2020 and 43% below in 2030.
Staff estimate those targets would require Dominion to spend an additional $5.5 billion to $6 billion. Such costs, I would assume, exceed the combined nationwide compliance burdens of all previous 111(d) rules combined. EPA gave short shrift to cost and energy requirements when setting Virginia’s CO2 reduction targets, which consequently are “unlawfully and arbitrarily determined.”
III. The Clean Power Plan fails to recognized significant and recent environmental investments, which, if stranded, will contribute to higher electric rates and electric bills.
From 2005 to 2012, CO2 emissions from Virginia power generation facilities declined by 40% due to increased use of nuclear power, heat rate improvements, coal unit retirements, new gas generation, and energy efficiency. As noted, Dominion’s IRP includes additional investments and retirements, which are projected to decrease CO2 emissions by another 28%. SCC staff regard those recent and planned “infrastructure improvements” as “reasonable and prudent.”
The Clean Power Plan, in contrast, could turn many recent investments, including “significant expenditures for environmental controls,” into stranded costs — debt on non-performing assets that utilities can pay off only by raising electric rates.
Because replacing all of Virginia’s coal power plants with new NGCC would not be enough to comply with the Clean Power Plan, premature retirement of productive assets may be unavoidable. Recent coal-related investments at risk of being lost include:
- Virginia City Hybrid Energy Center (“VCHEC”), placed in-service in 2012, at an initial capital cost of $1.8 billion;
- Chesterfield Power Station scrubbers placed in-service in 2011 and 2008, at an initial capital cost of $275 million; and
- The Clover Power Station constructed and placed in-service in 1995 and 1996, at an initial capital cost of $1.2 billion, and with a planned service life of over 50 years.
Staff also note that “Virginia and West Virginia ratepayers have only recently begun paying for more than $2 billion in environmental controls necessary for Appalachian Power Company to comply with a 2007 EPA Consent Decree.”
Thus, “billions of dollars of useful plant in Virginia (and West Virginia) are likely to be stranded, with a cost to Virginia residents and businesses that is not accounted for by the Proposed Regulation.”
SCC staff is deeply skeptical of EPA’s claim that although electric rates will go up, electric bills will go down due to mandated improvements in energy efficiency:
The Virginia SCC Staff is unaware of any electric energy efficiency resource deployable in Virginia that both: 1) has a cost less than its associated avoided variable operating costs, and 2) is scalable to a level that would meet the Proposed Regulation. While energy efficiency may possibly be a least cost measure for addressing some portion of the Proposed Regulation, it is extremely unlikely that energy efficiency can both reduce aggregate bills and produce compliance given the Mandatory Goals proposed for Virginia.
IV. The Clean Power Plan fails to recognize Virginia’s significant investment in nuclear generation and instead penalizes Virginia by including “at risk” nuclear generation in the calculation of the State’s CO2 reduction targets.
EPA classifies part of Virginia’s nuclear generation as “at risk” of retirement, allowing the agency to require CO2 reductions commensurate with the emissions those allegedly “at risk” assets would avoid if kept in service. But, staff contend, no part of Virginia’s nuclear fleet is “at risk.” The state, which obtains 3,500 MW or 40% of its electricity from nuclear power, spent $500 million since 2010 to uprate its nuclear capacity by an additional 150 MW. Moreover, Dominion Power plans to build an additional 1,450 MW of capacity (albeit not by 2020).
Thus, the Clean Power Plan:
illogically penalizes Virginia for its nuclear fleet by including “at risk” nuclear production in the denominator of its mathematical formula and basing the Mandatory Goals on 2012 generation levels. Including an “at risk” nuclear component in the formula for Virginia . . . has the effect of driving the Proposed Regulation’s emission rates for Virginia unreasonably and unlawfully low.
V. The Clean Power Plan uses generic and unsupported expectations of levels of renewable generation and energy efficiency that, when applied to Virginia, are extremely ambitious, almost certainly unachievable, and uneconomic under traditional standards.
Virginia’s CO2 reduction target assumes the state can obtain 16% of its generation from renewables. EPA gets that figure by averaging the future RPS requirements of six other jurisdictions in the “East Central” region: District of Columbia, Delaware, Maryland, New Jersey, Ohio, and Pennsylvania. But Virginia, by deliberate policy choice, does not have an RPS program.
Those other jurisdictions have no authority to determine Virginia’s electricity policies any more than Virginia has to determine theirs:
If, as EPA assumes, the legislature of one state can speak to what is achievable in another, which it cannot in this context, that assumption would have to work both ways. There are many reasons, including geographic and economic, why States have approached renewable generation differently. And, just as Virginia’s legislative decision not to impose RPS requirements in Virginia was not intended to, and cannot, speak to what is achievable or unachievable in other States, the decisions of other States to impose RPS requirements were not intended to, and cannot, demonstrate what is achievable in Virginia. To foist in-state decisions upon other States, and to do so while ignoring the contrary decisions of other States, is arbitrary, capricious, and unlawful.
Staff go on to point out that the CAA requires performance standards to be “adequately demonstrated.” Whatever aspirations may be expressed in other states’ RPS statutes, as of 2012, renewable generation in the “East Central” region ranged from 1% to 3%, with Virginia at 3% for that year. “This is the level of renewable generation that has been adequately demonstrated in Virginia.”
Moreover, it is silly to determine Virginia’s renewable quota from a simple average of six other states. That ignores the fact that it is cheaper to obtain a given percentage of renewable electricity in jurisdictions with relatively little generation (D.C., Delaware, Maryland, New Jersey) than in states with much larger base loads (Pennsylvania, Ohio, Virginia, West Virginia). “There is no rational basis – legally or mathematically – for giving such undue and unintended influence to certain legislatures at the expense of others, including Virginia.”
Weirder still, Virginia’s Clean Power Plan 16% renewable generation goal is at the top end for states in the East Central region. “Thus, even though EPA relies on the legislative determinations of States with renewable requirements to determine what is achievable across a region, the final result of EPA’s calculation is that States with such requirements are actually expected to achieve less than Virginia, which has no renewable requirement.”
The Clean Power Plan’s assumptions about the level of energy efficiency achievable in Virginia are also “generic,” based the other states’ policies, and so are arbitrary and capricious as well:
That Virginia has an energy efficiency goal, rather than a requirement, is disregarded and, in effect, “vetoed” by the different policies of other States – States with demographics, climates, load and generation profiles different from those of Virginia. This approach to setting Virginia’s carbon emission rate is arbitrary and capricious and does not establish what is achievable, much less what has been adequately demonstrated, in Virginia.
VI. The Proposed Regulation is based on an unprecedented and unsupportable legal interpretation that the “best system of emissions reduction” for existing sources can include homeowners and retail customers that neither generate any power nor produce emissions.
Every previous performance standards adopted under CAA §111 required emission control actions inside the fence line of the designated facilities targeted by the rule. The Clean Power Plan requires states to regulate entities and activities beyond the fence line to include just about anything that affects demand for fossil-generation. “This stretches the Clean Air Act beyond recognition”:
The Proposed Regulation loses sight of the fact that the Clean Air Act provisions under which the EPA purports to act provide for the establishment of “a standard for emissions of air pollutants” from existing sources of emissions. The bounds of the Clean Air Act cannot be exceeded simply because there is a relationship between customer load and the level of generation needed to serve that load.
EPA’s novel definition of “best system of emission reduction” is inherently arbitrary, because, unlike emissions from a designated facility, which can be directly measured, or mathematically inferred from fuel inputs, the efficiency of an entire power sector can only be guesstimated.
Including energy efficiency as part of a “best system of emission reduction” also changes the “standard for emissions of air pollutants” for existing sources of emissions from a measurable standard for which accountability can be ensured to a compliance requirement based on layer upon layer of assumptions and estimates.
Quoting EPA’s admission that states use different “input values and assumptions to measure energy savings” from demand-reduction programs, SCC staff caution that:
To use such estimates – which require many assumptions about, among other things, how retail customers would have acted but for such energy efficiency programs – to calculate an emission standard for existing sources of pollutants moves an emission standard from science to, at best, a realm of art where there are many different schools of thought.
Enforcing such murky standards would raise a constitutional issue. Suppose retail customers and homeowners don’t behave the way demand-reduction programs assume they will. Under what authority would EPA require states to change consumer behavior? As staff note, “most aspects of a homeowner’s everyday life that affect his or her electricity consumption are not matters of interstate commerce, much less the regulatory construct of the Clean Air Act.”
At a minimum, the Clean Power Plan trashes cooperative federalism, because it “commandeers significant state resources” — including states’ policy choices — to accomplish its objectives. The Plan “would place plainly excessive demands on state governmental resources for the foreseeable future.”