REGULATION:

Philip Moeller, Retiring FERC commissioner, says EPA carbon rule may usurp state powers

Emily Holden, E&E reporter

Published: Tuesday, June 2, 2015

REGULATION:

FERC's Moeller sees 'unforeseen consequences' of air regulators planning the grid

Rod Kuckro, E&E reporter

A leading federal electricity regulator yesterday warned market participants of the "unforeseen consequences" of having U.S. EPA and state air regulators essentially take on a job they've never done before -- plan what the nation's electric grid will look like in the future.

Philip Moeller, who is stepping down from the Federal Energy Regulatory Commission when his terms expires at the end of the month, also said he is "very impressed" with new FERC Chairman Norman Bay, commending him for "trying to open up the process and include other commissioners in decisionmaking earlier."

Even Bay "would admit that he is relatively new to this industry" and therefore has a "bigger, steeper learning curve to tackle" as the agency moves ahead, Moeller said.

Moeller was delivering what amounted to a valedictory address at the PJM Interconnection's Grid 20/20 conference on natural gas and electric operability issues at the grid operator's headquarters in Valley Forge, Pa.

The outspoken Republican, who is wrapping up his second term at FERC, said he expects FERC to have a "more robust relationship" with state regulators as compliance with EPA's proposed Clean Power Plan moves forward.

"Let's face it, we have air regulators planning the electricity grid, like it or not. And there's always going to be a lot of unforeseen consequences to that.

"We have a lot of state air regulators who certainly didn't know what FERC was probably 12 months ago, and they will be in a major position to also be planning the electric grid, like it or not," Moeller said to an audience of electric generators and gas pipeline company executives.

"If you haven't gotten to know them, you better do that pretty quickly because it's in your interest and their interest for them to know you and for you to know them."

Moeller has "some faith" that EPA heard the commission's and industry's concerns about the carbon-slashing plan's potential effects on reliable power delivery.

"But again, just like if I was designing an air regulatory program -- with as much work as I try to put into it -- I would make some mistakes along the way because that is not what I have done in my career. I have done energy.

"And similarly, you just have to expect that as air regulators, they're not going to understand the nuances, the fundamental complexities of the grid and how it interacts," Moeller said.

He commended former FERC Chairwoman Cheryl LaFleur for convening a series of technical conferences on the Clean Power Plan earlier this year. "It was certainly something that initially EPA didn't want us to do, because I guess they didn't want the attention. Nevertheless, I think in retrospect even they would say those technical conferences were very beneficial. For goodness' sakes, it gave them some cover for us to talk about these issues," he said.

His chief advice to EPA officials has been to not allow the final version of the Clean Power Plan, expected in August, to "disrupt" the operation of wholesale electricity markets.

"Wholesale competition has done an amazing job of cleaning up the air over the last 15 years. Just incredible, it's taken for granted. And it shouldn't be.

"The thing that they cannot do with the Clean Power Plan is disrupt interstate wholesale markets, or it very likely could lead to a more inefficient grid where generation can be shut in artificially and essentially emissions can go up," Moeller warned.

"The EPA needs to recognize that as they deal with the timeline in compliance plans that pipes and wires are challenging to build. And that has to be taken into account as part of their approval of state implementation plans. You can't assume you can snap your fingers to get that built. It's exceedingly hard to do so, and it's getting harder."

PHOENIX -- States complying with U.S. EPA's Clean Power Plan run the risk of ceding jurisdiction over energy policy decisions to the federal government, according to Federal Energy Regulatory Commission member Tony Clark.

Clark, a Republican and former North Dakota electric regulator, told state regulators at a meeting of the Western Conference of Public Service Commissioners yesterday that EPA's draft regulation to cut power-sector carbon emissions could "fundamentally change everything about how utilities are regulated."

"What EPA is asking states to do, depending on how states choose to write their [state implementation plans], is to give EPA authority over things that it on its own in the Clean Air Act does not have authority to claim jurisdiction over," Clark said.

The Clean Power Plan set individual state reduction goals based on what EPA thought states could achieve through direct changes to coal-fired power plant operations and with systemwide efforts to cut emissions by using more natural gas, building up renewable energy and cutting back on power demand.

But Clark said states that seek credit for renewable portfolio standards and energy efficiency efforts would be giving EPA authority to regulate those programs.

"To the degree that you put that in a plan and it gets a seal of approval from the EPA, that then becomes a federally enforceable plan. So what happens then is the administrator of EPA is really in charge of state energy policy," Clark said. "It simply gives Washington so much authority over the decisions that have traditionally been made by state public utility commissions, legislators and governors."

Clark said he believes states' responses will fall into three categories as they try to avoid giving EPA that power.

First, California and states in the Northeast will likely rely on cap-and-trade programs to set limits on emissions. Clark said he hasn't traditionally been a fan of cap and trade, but from a mechanical standpoint, it might be "the least burdensome way for states to comply," as long as EPA is only enforcing the cap itself.

However, cap and trade is "a political dead leg in a large chunk of the country," Clark said.

Clark thinks a second group of states will submit plans based only on changes that can be made directly at power plants -- which EPA has uncontested authority to regulate. But many states argue they cannot reach their targets with those changes alone, especially without jeopardizing electric reliability or significantly raising costs to consumers.

Last, Clark said a number of states will refuse to send EPA plans and "just say no" until the last lawsuits have been settled in front of the Supreme Court years from now.

Because those states will not be preparing proposals at all, regional carbon-cutting solutions that could be beneficial and keep costs down will be difficult to get off the ground, he noted.

'Rubber-stamping costs'?

Even in states that are hostile to the rule, Clark says it's critical for electric regulators to be talking closely with state energy offices, legislators, governors and environmental regulators responsible for writing plans.

"They absolutely have to be talking with those folks, because if they don't, they could end up in a very, very bad spot where you could have the state environmental regulator committing to certain things that are within the jurisdiction of the [public utility commission] and all of a sudden, the state environmental regulator's writing checks they can't cash," Clark said. "At that point, you're just rubber-stamping costs. ... You don't want to be in that position as a utility commissioner; you want to be in a position of actually helping to shape the energy policy of those states."

In states that have already announced they won't comply, though, regulators are in a "holding pattern," he said.

Clark also offered further insight into FERC's recent advice to EPA on how to avoid risking power outages under the Clean Power Plan (Greenwire, May 18).

"The Clean Power Plan puts FERC in a very interesting and unique position in that it's not our rule; it's EPA's rule ... and yet ... almost all of the potential negative outcomes that could come out of a poorly structured Clean Power Plan are all squarely within our wheelhouse, both at the FERC level and at the local level at public utility commissions," Clark said. "Whether we want to be involved in that fight or not, the fight is coming to us and we need to be engaged."

Clark said that in regional technical conferences on the rule, FERC identified three concerns: that the rule didn't allow enough time for power-sector changes to begin, that someone would need to review proposals to make sure they mesh together, and that there should be a reliability "safety valve" to provide real-time relief from state plans in emergency situations.

FERC's letter did not explicitly call for a review of individual plans, what many have come to call a "reliability assurance mechanism."

But Clark said FERC and the North American Electric Reliability Corp. would want to conduct modeling to see how state plans fit together to affect reliability without making a "qualitative judgment."

"We're not going to be going into the middle of individual state implementation plans and saying, 'Oh, your energy efficiency product that you've worked out with your utility is garbage; you need to change it,'" he said. "Where we have a potential to be helpful is in modeling the reliability of the wider power system."

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