Yesterday, all five Commissioners of the Federal Energy Regulatory Commission (FERC) appeared before the House Subcommittee on Energy and Power (within the Committee on Energy and Commerce) to share their expertise on the future of U.S. energy infrastructure under the Environmental Protection Agency’s (EPA’s) proposed Clean Power Plan (a rule that would regulate carbon dioxide emissions from existing power plants). The Subcommittee summoned the right people—since FERC gained new authority through the Energy Policy Act of 2005, the agency has had exclusive jurisdiction over ensuring the reliability of the wholesale power grid in the U.S. Among other things, FERC oversees the planning and build-out of new electricity transmission lines, as well as new natural gas pipelines (and both are central components of the EPA’s Clean Power Plan).
However, rather than resolving questions, the hearing brought to light many uncertainties regarding the implementation of the EPA proposal. The key remaining questions facing FERC, the EPA, and the states include:
1) What is FERC’s role in the EPA’s rulemaking process, particularly in ensuring grid reliability?
2) What is the impact of the proposed EPA rule on state-driven electricity planning processes?
3) How will the rule interfere with current market structures? (Specifically, can the rule be implemented without imposing a tax on carbon dioxide emissions?)
FERC’s Role in Grid Reliability
The role of FERC in the inter-agency consultation process at EPA remains unclear. FERC Chairman Cheryl LaFleur wrote in her written responses to the subcommittee’s questions that she met with EPA officials to discuss the draft Clean Power Plan proposal, but none of the other FERC Commissioners said they were involved in the process. Further, there was no formal partnership between EPA and FERC in coming up with EPA’s power grid reliability assessment for the proposed rule.
The lack of coordination between FERC and EPA is bizarre. FERC’s Office of Electric Reliability has specific expertise in U.S. power grid reliability and was formed in response to the 2003 Northeast blackout under new authorities granted to FERC by Congress in the Energy Policy Act of 2005. One of the office’s major responsibilities is to “coordinate with the applicable Federal agencies…to facilitate energy reliability and security.” The EPA left its best resource untapped.
FERC Commissioner Philip Moeller’s written responses to the subcommittee’s questions reveal the disconnect between EPA and the experts on grid reliability:
Question: “Describe each consultation you have had with EPA regarding the Proposal, including
where it occurred, the date(s) on which it occurred, with whom it occurred and identify any other participating agencies.”
Moeller: “I have had no consultations with EPA on its proposal.”
Question: “The Proposal includes a Technical Support Document entitled ‘Resource Adequacy and Reliability Analysis’. Did FERC prepare this analysis?”
Moeller: “To my knowledge, FERC did not prepare this analysis.”
Question: “Did FERC have an opportunity to review this analysis before the Proposal was announced?”
Moeller: “I am aware that a FERC staffer was allowed to visually review the draft rule prior to its release, but I do not know if that included this analysis.”
Question: “Has FERC independently reviewed this analysis? Does FERC agree with EPA’s conclusion that the “proposed rule will not raise significant concerns over regional resource adequacy or raise the potential for interregional grid problems”?
Moeller: “I am not aware of an independent review of this analysis by FERC.”[i]
Thus, the EPA created its own reliability assessment without asking the experts at FERC. How much weight should interested parties give EPA’s assessment? Chairman LaFleur’s responses suggest that EPA’s analysis is speculative at best.
Question: “Does FERC staff possess the expertise to complete an independent reliability assessment that…evaluates the potential regional, state, and local reliability impacts resulting from such retirements.”
LaFleur: “FERC staff has the…capability to evaluate reliability on regional, state and local levels. However, to do so in regards to the Proposal involves making many assumptions on key factors…. Given the uncertainty and substantial number of assumptions, the results from any study would depend greatly on the assumptions chosen as inputs. Thus, a study could be more speculative than informative, especially for later years.”
In short, the EPA left FERC out of its formal process to evaluate reliability problems despite FERC’s obvious expertise in electric reliability. Furthermore, EPA’s own reliability assessment should be treated as “more speculative than informative” for the reasons outlined in Chairman LaFleur’s written responses.
Impact on State and FERC Processes
FERC Commissioner Tony Clark noted that jurisdictional issues might arise between EPA and the states. That is because EPA is adding a new hurdle for state public utility commissions and utilities—a carbon dioxide constraint that requires new rules and possibly new legislation at the state level. Previously, EPA only regulated pollution at the power source, but now they are setting broader CO2 reduction targets that states must impose, in turn, on electricity producers by somehow changing producers’ generation portfolios.
Specifically, Clark asserted, “In the past, EPA authority extended to specific generating plants or groups of plants, but by a state voluntarily agreeing to seek EPA approval of its overall integrated regulation of the electric industry, it will have entered a comprehensive ‘mother-may-I?’ relationship with the EPA that has never before existed.”[ii] If states do not meet EPA’s approval in the ‘mother-may-I?’ dynamic, the EPA would then impose a federal implementation plan on the state. As Commissioner Philip Moeller testified, “If it isn’t already obvious, the title of the proposed rule, the Clean Power Plan, makes it clear that EPA is creating national electricity policy.”[iii] The problem is that Congress never gave EPA the power to create national electricity policy, but only the power to regulate pollution.
Commissioner Clark argues in his written testimony that the jurisdictional conflict could cause a “train wreck” in FERC’s oversight over Regional Transmission Organizations (RTOs):
“FERC’s ability to alter or reject an RTO-proposed compliance mechanism would present a conflict with EPA’s evaluation of the compliance plans. Absent Congress stepping in and clearly defining FERC authority and EPA authority, it is not hard to envision a future jurisdictional train wreck.”
Impact on Market Structures: Is the EPA Rule a Carbon Tax?
Another area of uncertainty that remains after this hearing is whether the EPA rule is, in practice, a carbon tax. In response to the question, “Would existing organized wholesale electricity markets have to be redesigned to implement EPA’s Proposal?,” Commissioner Moeller wrote:
“Yes, markets would need to be fundamentally altered and redesigned to implement EPA’s proposal to accommodate environmental dispatch…Changing from economic dispatch to environmental dispatch is truly a fundamental change that would require a complete redesign of markets to include essentially a carbon fee on any resources that emit carbon dioxide.”[iv]
To reiterate, FERC Commissioners Moeller and Clark acknowledge that implementing the EPA rule would require a “complete redesign” of electricity markets that has “never before existed.” Essentially, EPA will force electricity markets and regulated utilities that currently operate on a least-cost basis to operate instead on a least-carbon dioxide basis. To fully implement such a redesign, states will have to impose some sort of state-level carbon tax or cap-and-trade scheme. Again, Congress never gave EPA the authority to impose a carbon tax or a cap-and-trade scheme for carbon dioxide emissions.
As IER has previously noted (along with others, including the Wall Street Journal), carbon taxes are highly unpopular with the American people (and perhaps the English-speaking world at large, as Australia just voted to repeal their carbon tax). A survey conducted by the American Energy Alliance revealed that 78 percent of the American public agree that a carbon tax will increase energy prices, 69 percent agree the tax will fall hardest on the poor, the elderly, and those on fixed incomes, and 77 percent agree a carbon tax will force them to pay more for gasoline and electricity.[v] Thus, the EPA’s proposed rule is essentially forcing states to levy a very unpopular carbon tax on people—a tax that would never be approved by the U.S. Congress.
When the American people are told about the costs of EPA’s regulation, they reject the regulation, as a new poll conducted by the American Energy Alliance revealed. The American people do not want to see their electricity prices “necessarily skyrocket” as President Obama promised, especially not for a very, very minimal environmental change.
Because the impact of these carbon dioxide restrictions on power plants is so small (0.02 C reduction in temperature by 2100 according to EPA’s climate model) it is implausible that the point of the regulation is climate change. Maybe EPA’s motivations are better explained by a high-ranking EPA official’s comments on the record about the EPA’s desire to “modify the DNA of the capitalist system.” In John Beale’s sworn deposition during his trial, he revealed:
“Phase 3 [of his long-term project at the EPA] would have been coming up with specific proposals that could be – could have been proposed either legislatively or things which could have been done administratively to kind of modify the DNA of the capitalist system.”[vi]
The hearing yesterday featuring all five FERC Commissioners at the House Subcommittee on Energy and Power highlighted the uncertainties—even among federal agencies—regarding the implementation of the EPA’s proposed carbon dioxide regulations on existing power plants. It also raised key questions about power grid reliability, EPA overreach into FERC or state jurisdiction, and the likelihood of a series of state-level carbon taxes being imposed by federal executive mandate, despite Congress never giving EPA that authority.
[i] Philip Moeller, Commissioner Philip Moeller’s Answers to Preliminary Questions for the Federal Energy Regulatory Commission, House Committee on Energy & Commerce Subcommittee on Energy & Power, July 29, 2014, http://docs.house.gov/meetings/IF/IF03/20140729/102558/HHRG-113-IF03-Wstate-MoellerP-20140729-SD001.pdf.
[ii] Written Testimony of Commissioner Tony Clark Federal Regulatory Commission Before the Committee on Energy and Commerce Subcommittee on Energy and Power United States House of Representatives Hearing on FERC Perspective: Questions Concerning EPA’s Proposed Clean Power Plan and other Grid Reliability Challenges, 7/29/14.
[iii] Written Testimony of Philip Moeller
[iv] Moeller, see note 1.
[v] Institute for Energy Research, Carbon Tax, https://www.instituteforenergyresearch.org/topics/policy/carbon-tax/.
[vi]Institute for Energy Research, Beale Reveals EPA’s Plan to ‘Modify the DNA of the Capitalist System’, January 23 2014, https://www.instituteforenergyresearch.org/analysis/beale-reveals-epas-plan-to-modify-the-dna-of-the-capitalist-system/.