U.S. ELECTRIC RELIABILITY AND THE EPA
- DECEMBER 6, 2011
If the Lights Go Out
Regulators are letting EPA compromise U.S. electric reliability.
- Say what you will about Obama Administration regulators, their problem has rarely been a failure to regulate. Which makes the abdication of the Federal Energy Regulatory Commission especially notable—and dangerous for the U.S. power supply.
Last week FERC convened a conference on the wave of new Environmental Protection Agency rules that are designed to force dozens of coal-fired power plants to shut down. The meeting barely fulfilled the commission’s legal obligations, but despite warnings from expert after expert, including some of its own, the FERC Commissioners refuse to do anything about this looming threat to electric reliability.
The latest body to sound the EPA alarm is the North American Electric Reliability Corporation (NERC), which last Tuesday released its exhaustive annual 10-year projections. “Environmental regulations are shown to be the number one risk to reliability over the next one to five years,” the report explains.
NERC’s forecasts are the gold standard for the U.S. power system because they are built from the bottom up, starting with finely grained data from individual plants. NERC has been doing this work since 1967, and since 2005 it has operated under the FERC umbrella as an “electric reliability organization” similar to Finra, the securities regulator with quasi-governmental duties.
The threat is that the EPA is triggering what NERC calls “an unprecedented resource-mix change,” with utilities switching to natural gas from coal. For the first time in U.S. history, net coal capacity is in decline. On top of the 38 gigawatts of generation that is already being run below normal levels or slated for early retirement, NERC predicts another 36 to 59 gigawatts will come offline by 2018, depending on the “scope and timing” of EPA demands. That could mean nearly a quarter of all coal-fired capacity.
According to the report, “the nation’s power grid will be stressed in ways never before experienced” and reliability depends on building new power plants to cover the losses. But the electric industry has only three years to comply under one EPA regulation known as the utility rule that is meant to target mercury and is due to be finalized soon, while many other destructive rules are in the works.
Replacing power is not like replacing a lost cellphone. There are bottlenecks in permitting, engineering, financing and building a new plant and then tying it to the electricity network. Over this same three-year window, NERC estimates that between 576 and 677 plants will need to be temporarily shut down to install retrofits like scrubbers or baghouses.
All of this has been obvious to anyone paying attention. In its draft utility rule the EPA itself warned that “sources integral to reliable operation” may be forced to shut down, before it sanitized these concessions from the final proposal. Twenty-seven states say their regional reliability is at risk, concerns echoed by FBR Capital, Credit Suisse, Fitch, Bernstein Research and several grid operators. FERC’s own Office of Electric Reliability produced an alarming study, before its work was disowned by Chairman Jon Wellinghoff, as we reported in the September 26 editorial “Inside the EPA.”
Southern Co., the utility that covers states from Mississippi to Georgia, says the EPA’s timeline can’t be met “at any cost” and that in its region “reliability cannot be maintained without load shedding”—that is, rationing power to large industrial consumers. American Electric Power, which operates in 11 Midwest states, says that option may be a “last resort” as well. This is the kind of political overhang that harms economic growth.
Keep in mind that the EPA estimates that the benefits to society from the mercury reductions in the utility rule max out at $6.1 million, total, while imposing $11 billion in compliance costs annually. That is a crazy tradeoff even if it didn’t endanger the electric grid.
The best option would be to kill the utility rule and put the EPA on probation, but second best is a longer phase-in to give utilities more time to comply. FERC could do some practical good by formally issuing a “215 finding” that the EPA utility rule endangers reliability. Or the White House budget and regulatory office could require the EPA to repropose the rule with more flexibility. Or President Obama could declare that the rule endangers national security. Or Congress could block the rule, though that would take more fortitude than Senate Democrats have shown so far.
None of this is likely to happen because it would interfere with the larger Administration priority to kill as much coal power as rapidly as possible to serve the global warming agenda. But when the brownouts and cost-spikes occur, don’t blame the utilities. Blame their regulator.
