Going it Alone: Potential Interstate Problems of Intrastate Clean Power Plan Compliance

Contribution of Adrienne Thompson, GW Energy Law Scholar and SEI Research Associate.

As evidenced by the 27 states that are suing the EPA, the agency's recently-finalized Clean Power Plan(CPP) is controversial to say the least. In addition to the legal challenges facing the rule, there are also concerns over grid reliability posed by the large number of coal-fired generator retirements anticipated in the near term. Although much ink has been spilled on analyzing the Clean Power Plan, aside from discussions over grid reliability, little attention has been paid to other potential interstate effects posed by intra-state CPP compliance efforts, and vice versa. Despite the pitfalls posed by discordant state implementation plans within a region, the CPP nonetheless does not require regional collaboration. As argued in this essay, however, by failing to collaborate, states may not only put their own and neighboring states' CPP compliance plans at risk, but also jeopardize existing and future regional electric system planning efforts. 

Finalized on October 23, 2015, EPA's Clean Power Plan seeks to reduce carbon dioxide emissions (CO 2 ) from power plants 32 percent below 2005 levels by 2030. Through section 111(d) of the Clean Air Act, the agency established state-specific fossil-fuel electric generating unit CO2 emission performance rates. Referred to as the "best system of emissions reduction . . . adequately demonstrated" (BSER) in CAA parlance, the final rule breaks down the performance rates into equivalently expressed rate-based or mass-based goals that states can choose between as a means of achieving compliance. To reach the nation-wide 32 percent CO2 reduction goal, the individual state performance rate reductions range from 7 percent in Connecticut to 47 percent in Montana . 

The rule gives states flexibility in achieving their emission performance rates, and one of the first questions state implementers must decide is whether to pursue a rate-based or mass-based approach. Under a rate-based approach, fossil-fuel generators would be prohibited from exceeding a certain amount of carbon per unit of produced power, usually expressed in megawatt hours. A mass-based plan, on the other hand, would set a state-wide cap on total carbon dioxide emissions from the electric power sector. To further facilitate state and regional compliance, the final CPP allows states to enter into trading schemes with other states that implement the same rate- or mass-based approach. 

Absent an order to stay the rule while pending litigation proceeds, states will have until September 6, 2016 to submit their implementation plans to EPA, with a possible 2-year extension. A federal implementation plan will await any state that fails to submit a plan, or submits an inadequate plan. 

A legal victory for EPA is by no means assured; the legal challenges cover the gamut, from whether EPA is impermissibly regulating beyond the "fence line" to whether the agency even has the authority to regulate carbon dioxide emissions under CAA section 111(d) at all. Aside from these law suits, another long-standing concern is whether the projected wave of coal-fired plant retirements will threaten the reliability of the nation's electric grid. The most prominent voice of this criticism has been the North American Electric Reliability Corporation (NERC), the nation's Electric Reliability Organization, which highlighted its concerns in a report in November 2014, prompting NERC's oversight body, the Federal Energy Regulatory Commission, to solicit feedback from stakeholders through a series of meetings and technical conferences. In a resulting letter to EPA from the Commission, FERC noted that although "existing processes for identifying and addressing reliability issues . . . are generally adequate," any lingering reliability concerns could be allayed through, for example, including a backstop "safety valve" to prevent closure of critical grid assets during unanticipated reliability events. EPA adopted FERC's "reliability safety valve" suggestion for the final rule, and promised to coordinate with FERC and DOE to ensure grid stability throughout the rule's multi-year implementation. 

But stabilizing the grid is not the same as modernizing it, and when it comes to Clean Power Plan compliance, EPA's concern (along with FERC and NERC) is the former, not the latter. States, on the other hand, are at the forefront of CPP compliance as well as grid-modernization reforms -- as exemplified by ongoing proceedings in states like New York, Minnesota, Hawaii, Maryland, Massachusetts, and California, as well as the District of Columbia.

It remains up to the states, therefore, to consider what effect their CPP implementation -- and that of their neighboring states -- will have not only on reliability but also on existing and future efforts to modernize their regional systems. As a result of the interconnected nature of the electric grid, failing to consider the interstate effects of individual state CPP-compliance could spell trouble in numerous ways. As states continue crafting their implementation plans, here are some questions they should ask themselves...and their neighbors.

The significance of these questions goes beyond simply ensuring regional grid reliability. Indeed, EPA's final rule included FERC's suggestions that were designed to keep the lights on, and the agency has furthermore committed to cooperating with FERC and DOE toward that end as well. Rather, the point here is to illustrate the wide-reaching effects that an individual state's Clean Power Plan compliance may have on its neighbors and vice versa. Intra-state clean power plan compliance may be sufficient to satisfy the EPA and forestall blackouts, but without considering the inter-state implications, states risk misaligning their policy goals and stunting existing and future regional electric system planning efforts. 

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