On June 2, 2014, the administrator of the U.S. Environmental Protection Agency, Gina McCarthy, formally announced the issuance of new rules that will significantly impact how electricity is generated in the United States. The objective of the EPA rules, known as the “Clean Power Plan,” is to reduce the carbon dioxide coming from existing U.S. power plants by 30 percent of 2005 levels by the year 2030. These rules follow another set of rules proposed last fall for new power plants.
Whether you support or oppose the proposed rules for existing plants, they represent one of the most significant shifts in energy policy that has occurred in this country in decades. If implemented as drafted, the rules would require all electric utilities in the United States to adjust their power supply mix to include more natural gas, renewable energy and energy efficiency efforts, and less coal-fired generation.
As member-owned, nonprofit electric utilities, electric co-ops are carefully examining the proposed rules to evaluate how they will be implemented and whether or not they will result in higher electricity costs for co-op member-owners. Once the rules are published in the Federal Register, we will have 120 days to file formal comments and suggest changes to the rules. The EPA plans to adopt final rules next June. Anyone who is interested will have the opportunity to provide comments at a public hearing in Denver on July 29.
The approach the EPA has taken to regulate carbon dioxide emissions differs from its approach regarding other pollutants. While the agency usually sets emission standards for individual power plants — the so-called “inside the fence” approach — the new rules require utilities to reach a certain emission rate through a combination of power plant improvements, fuel switching, energy efficiency and other measures. This is referred to as the “outside the fence” approach. It is not completely clear that the agency has the authority to take this approach under the Clean Air Act, so it is likely there will be legal challenges to the rules.
The rules comprise some 1,600 pages of documents, so it will take some time for all utilities, including Colorado’s electric co-ops, to fully evaluate whether we can meet the objectives outlined in the rules at a reasonable cost.
One of the key “building blocks” of the rules is the EPA’s assumption that utilities can rely more heavily on natural gas power plants to provide electricity. Since electric utilities all across the United States are already shifting to natural gas due to the currently low cost of that fuel, it might seem that this requirement in the rule will not increase costs to electric co-ops. Our concern, however, is that the increased reliance on natural gas is likely to result in an increase in the cost of that commodity, which would translate to higher costs for electricity.
The rules require each state to develop implementation plans to achieve the emission reduction rates established by the EPA. Given the complexity of the rules, it’s not clear how each Colorado utility will be affected by this rate and what actions will be required to meet the standard. It is also not clear as to what extent actions taken by utilities to reduce their carbon output in the years leading up to the adoption of the rules will be counted toward compliance. (Colorado’s electric co-ops have added significant amounts of renewable energy that does not emit carbon to their power supply mix and those efforts should be recognized by the EPA.) There are many details to be worked out, and the states will play a critical role in determining how the rules are implemented.
Electric co-ops exist to serve the needs of our member-owners in the most reliable, affordable and environmentally-responsible way and we will be spending a great deal of time and effort in the coming months examining the proposed EPA rules and considering whether modifications are necessary. This is a process that will take many months, and probably years, to resolve and we will keep you informed all along the way.