The sparring match in Washington over Environmental Protection Agency (EPA) regulations has been centered on whether EPA policies would harm the already struggling economy.  If you are unfamiliar with suite of regulations currently being proposed or revised by EPA, see my last blog post.  Environmental advocacy groups have long argued for more stringent regulation of the electric generating industry, arguing that power plants (particularly coal-fired plants) are among the biggest polluters.  The industry mantra has been that the suite of EPA regulations with overlapping compliance timelines could cause the retirement of significant generating capacity (particularly coal units), increase electricity prices, put jobs at risk, and potentially impact electric reliability – the regulatory “Train Wreck.”

President Obama tacitly acknowledged the potential over-regulation by pulling the plug this week on any revisions to the National Ambient Air Quality Standards (NAAQS) ozone rule (see article from The Hill), which had been assailed by business and industry groups as a threat to job creation.  Legislation to repeal, delay, or require more analysis of proposed regulations was put at the forefront of House Republicans’ fall agenda, outlined in a letter issued on August 29^th from House Majority Leader Eric Cantor (see Cantor’s blog).  One of the bills on the agenda is legislation that would require an interagency task force to review the cumulative impacts of new and proposed EPA regulations (H.R. 2401, Transparency in Regulatory Analysis of Impacts on the Nation Act, aptly nicknamed the “TRAIN Act”).  The Republican agenda reflects a growing concern that multiple environmental regulations aimed at the electric generating industry could have deleterious impacts on the economy.

The debate has been influenced by industry reports and environmental group reports each documenting their viewpoint.  The latest input to the debate is a report from the non-partisan Congressional Research Service (CRS), EPA’s Regulation of Coal-Fired Power: Is a “Train Wreck” Coming?  The report covers the issues raised by industry and makes salient points that the regulatory confluence is a result of legal disputes and court actions to remand rules back to EPA for revision.  Because the regulatory timeline (and compliance dates) are still uncertain, the CRS report concludes that any estimates of impacts to the electric power industry and electric reliability are premature, given this state of uncertainty.  The report also points out that the majority of coal retirements would be older, less efficient units lacking pollution controls that don’t operate much anyway, driven to retirement by economics and the price of natural gas.  However, the report overlooks three important points:

• The report assumes that EPA estimates for the costs of proposed regulations are accurate.  In fact, industry and EPA often have differing estimates of compliance costs and regulatory impact.  Whose estimate is correct?  It really doesn’t matter – what is important is the range in uncertainty, which is too often overlooked.

• Assuming that old coal-fired electric generating units that don’t run much aren’t important for maintaining electric reliability reflects a fundamental misunderstanding of how electric markets and transmission systems operate.  While it is true that inefficient coal units don’t run much, what is important is when they run (hint: hot summer days when all our a/c units are on full blast).  Coal peaking units are important for maintaining electric system reliability.  If a coal plant is repowered to natural gas to replace the retired coal capacity, reliability can be maintained.  However, this is not possible in all cases, particularly in areas where permitting new capacity is fraught with regulatory delays. The CRS report appropriately points out that gas-fired generation would be subject to some of these regulations as well, so that is not simply a gas-versus-coal issue.  The assumption that excess capacity (termed reserve margins) can be effectively utilized to displace coal unit retirements fails to consider delivery of that power by the transmission grid.  Maintaining electric reliability is a function of both generating adequacy (how much generating capacity) and transmission security (limitations on the wires that deliver the power).

• Capitol Hill leaders have another definition of “train wreck” which also considers jobs.  In fact, employment impacts are at the crux of the legislative push to delay or prevent EPA from moving forward with some of these regulations. Some regulations (i.e. Boiler MACT rule, greenhouse gas regulation) would also impact manufacturing and commercial industries.  So the issue is not just electric reliability, but economy-wide impacts.

There are numerous methods for maintaining electric reliability, including permitting variances, reliability-must-run contracts, and the construction of new transmission infrastructure.  Reliability can be maintained if timelines for compliance, projected outages, planned retirements, and transmission upgrades are considered in crafting new environmental policies.  The issue of jobs is a little murkier.  Not many studies have been conducted of job impacts from the proposed regulations, and EPA has conducted none of those studies.  Rising electricity prices due to compliance costs have the potential to seriously impact profitability (and thus jobs) in the manufacturing sector, the extent of which has not been fully quantified.  What is clear is that avoiding a “train wreck” while still establishing environmental protections will require more analysis, forethought, and planning.