NERC's Polite Review of the Clean Power Plan: A "Challenge"

By J. Wylie Donald

When the draft of EPA's Clean Power Plan was promulgated in the Federal Register last June, one of the critical questions raised by those in the electricity space was: what about reliability? If you shut down all those coal plants, will you have enough generation from other sources to keep the lights on? Even if you have enough generation, will you have enough natural gas at the times and places when you need it? Is there enough time to get the needed generation and resources in place under EPA's schedule? And even if all those things map out as EPA hopes they will, what unanticipated consequences will still upset the apple cart?

On April 21 the North American Electric Reliability Corporation (NERC) weighed in and released Reliability Impacts of EPA's Proposed Clean Power Plan; EPA undoubtedly is not happy. Following the release of the proposed CPP rule, NERC undertook to assess "the potential risks to reliability that may arise from the implementation of the CPP rule and potentially accelerate the transformation of the resource mix in North America." Report at v. The conclusions provide regulatory heft to support the concerns of the electric industry.

NERC's first point was obvious and is not subject to dispute by anyone. Indeed it is the whole point of the CPP: "the proposed CPP is expected to accelerate fundamental change in electricity generation mix in the United States and transform grid-level reliability services, diversity, and flexibility." Id. at vii. What NERC brings to the analysis, however, is, among other things, the expertise to explain that 500 MW of coal generation is not the same as 500 MW of natural gas generation because the essential reliability services are not exactly the same. For example, plant replacements are unlikely to be in the same locale. Instead satisfaction of CPP requirements will likely result in new transmission requirements. For example, remote wind resources offshore or in northern Maine have no local demand. But in such cases, "Where power is transferred over longer distances to the point of interconnection, higher amounts of reactive resources are required to maintain voltage stability and voltage support." Id. at 33. One won't find this analysis in the proposed CPP.

NERC's second point was one on which industry has been extremely vocal: "Industry needs more time to develop coordinated plans to address shifts in generation and corresponding transmission reinforcements to address proposed CPP CO2 interim and other emission targets." Id. at vii. In the spirit of cooperation, NERC only refers to the timing issues as challenges, but its conclusion in the separate chapter devoted to "Timing Implications" leaves no doubt about the significance of those challenges. It lays out the time required to build transmission (6-15 years), new natural gas combined cycle plants (5 years on average) and "even small interstate pipeline projects" (3 years). Id. at 41. And since EPA requires 80% of its proposed reductions by 2020, id. at viii, one might reasonably conclude that finding comfort on Procrustes' bed might be easier.

Third, NERC identifies a negative feedback loop that has not gathered much attention. Coal plants that are not shut down are likely to find themselves in peaking rather than baseload usage. But peaking plants have low capacity factors and "[b]ased on industry experience, very low capacity factors for traditionally base loaded plants will significantly increase overall costs due to required upgrades, repairs, staffing needs, and expected forced-outage rates." Id. at ix. Thus, "the eroding plant economics ... renders their continued operation at risk and subject to potential retirement." Id. In other words, even more coal plants may be retired than current estimates envision, requiring more new generation, new transmission and new pipelines.

Which leads us to the last (and again obvious) point made by NERC: "energy and capacity will shift to gas-fired generation, requiring additional infrastructure and pipeline capacity." Id. at ix. As we have mentioned in an earlier post, the gas pipeline needs to comply with the coming coal plant retirements will dwarf by many times the XL Pipeline.

There is a theory of constitutional law that says one executive agency cannot sue another because it violates the separation of powers (the judiciary is asked to resolve a dispute within the executive) and there is no "Case or Controversy" (there can be no judicable dispute between the same party). This Unitary Theory of the Executive may be the reason we will never see NERC (although not strictly a federal agency) squaring off against EPA before an Article III court. However, NERC has the right and obligation to enforce the reliability standards, and when a utility is squeezed between NERC enforcement and CPP enforcement, the confrontation may occur by proxy (i.e., the utility in both regulators' crosshairs) and the "challenge" may not be so politely addressed.

   J. Wylie Donald, a partner at McCarter & English, LLP, counsels and litigates for clients on insurance coverage, environmental and products liability matters. Mr. Donald co-chairs the firm's Climate Change and Renewable Energy Practice. He draws on his substantial environmental experience, his prior non-legal technical work, and his deep involvement in risk management to assist clients in understanding and controlling the coming regulatory and non-regulatory impacts of climate change. He has tried cases and argued appeals in the state courts in New Jersey and Maryland, conducted private arbitrations and mediations, and argued motions in federal courts across the nation.

Read more at Climate Lawyers Blog by McCarter & English, LLP.

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