States have a long history of collaborating to achieve energy and environmental goals at lower cost and with greater efficiency than they could achieve alone. Collaborating to implement EPA’s forthcoming 111(d) rule may once again offer across-the-board benefits to the power sector, EPA, and the states themselves.
Better for the Electric Power Sector
Reliability is the sine qua non of the electric power sector, and electric utilities found that reliability could be greatly improved by enlarging their operations and interconnecting with other utilities. When one power plant went out of service, customer load could still be served by other generating units. Such regionality is evident in today’s best practices: the reliability of the U.S. electric system is governed and maintained by regional and subregional organizations (e.g., NERC, ISOs, RTOs, regional power pools, etc.).
Utilities also recognized significant cost advantages through regional approaches, pooling resources in a formal market, and dispatching generating units on a cost basis to meet regional electricity demand – running the lowest-cost plants most often. Similar market dynamics were introduced for environmental obligations with the federal Acid Rain Program in the 1990s. Just as broadening the universe of generating units enhanced the ability of utilities to meet reliability obligations, spreading emission reduction obligations over a broader universe of sources provided more compliance opportunities. Power plants able to reduce emissions at lower cost could make disproportionate reductions, covering more cheaply the emission reduction obligations of units where controlling emissions would be more expensive. As a result, overall compliance costs were billions less than originally estimated.
Regional approaches have demonstrably increased the reliability of the electric system and reduced environmental compliance costs, and will likely have similar effects if used for 111(d) compliance.
Better for the EPA
As a federal agency, EPA has a good political antenna. The agency recognizes that reliability and cost are the greatest concerns of policymakers, so these are the key issues it must address to ensure successful promulgation of a 111(d) rule. Entities responsible for maintaining reliability and keeping costs affordable (e.g., the ISO/RTO Council) have strongly recommended that EPA allow states to comply with 111(d) on a regional basis. If these entities recommend a path that will mitigate one of EPA’s key worries, you can bet that the agency will listen. EPA cannot force states to participate in a regional approach, but it can certainly encourage them in that direction.
Regional approaches may also work better for EPA internally. The agency faces budget constraints, critical staff retirements, and, most challenging, the President’s schedule, which requires states to submit 111(d) plans 13 months after the final rule is adopted – just two years from now. Under its existing regulations, EPA must approve state submittals in just four months – or else impose Federal Implementation Plans (FIPs) within six months.
EPA and the states are both inexperienced at regulating greenhouse gases and applying the flexibility allowed by 111(d). So, neither the development of 111(d) plans by states, nor their review and approval by EPA, is apt to be expeditious. EPA would undoubtedly prefer receiving a manageable number of regional 111(d) compliance filings over 50 individual state 111(d) plans.
Better for the States
If regional approaches work better for the power sector in terms of reliability and cost, they should also work better for states and their citizen-ratepayers. But states also stand to reap direct benefits. By definition, broad regional collections of states will face fewer market-distorting issues across borders. Absent a regional approach, for example, a power plant in one state may be regulated differently than one in the state next door – even if the two plants serve the same market. Problems concerning “who gets credit” for emission reductions attributable to energy efficiency would also be mitigated if both states participated in a common regional 111(d) compliance plan.
States should see lower regulatory costs as well. Implementation of 111(d) will likely necessitate new or expanded emissions monitoring, reporting, assessment, and enforcement programs which can impose new costs. Under a common regional approach, these costs would be spread over the participating states, reducing each individual state’s costs. Further, these costs vary with program design. Some regional 111(d) approaches have very low evaluation, measurement, and verification (EMV), administrative, and enforcement costs, which can reduce the total cost passed on to ratepayers.
Other benefits may be less tangible, but no less important. States may enjoy “strength in numbers” by pursuing regional approaches. No state plan will be approved simply because it is regional, but EPA will surely try harder to reach approval for a plan that incorporates several states as opposed to just one. This is especially true where multiple EPA regional offices are involved.
Complying with 111(d) will be a complex endeavor, and the process of hammering out regional approaches will necessarily foster shared learning and greater understanding than any individual state would likely achieve on its own.
Regional Approaches: Better Overall
Whatever regional compliance plans may eventuate, the benefits of this approach appear universal. Consideration of joint 111(d) implementation by multiple states will strengthen relationships and understanding between energy and environmental regulators. Participation in a joint forum to explore regional approaches is likely to create unparalleled collaboration through identifying and addressing 111(d) concerns, conducting modeling and analyses, mitigating risks, and recognizing and securing opportunities. As a result, states will be better prepared to work with EPA in crafting a workable final rule, better positioned to develop and implement a state 111(d) plan that works best for them, and more likely to enjoy safe, reliable, affordable, and cleaner electric service.
-- Ken Colburn, senior associate (5 May 2014)