Wednesday, June 20, 2018

EBA Panel: CPP’s Demise not Certain — and it Doesn’t Matter

By Rich Heidorn Jr.

WASHINGTON — The Trump administration may not succeed in killing EPA’s Clean Power Plan — and it doesn’t matter anyway because the power industry’s decarbonization will continue without the rule, speakers told the Energy Bar Association’s annual meeting last week.

EBA trump clean power plan

Panelists left to right: Doniger, Bumpers and Connor | © RTO Insider

The Natural Resources Defense Council’s David Doniger, utility attorney William M. Bumpers and J.P. Morgan investment banker Ian C. Connor gave a general session audience their predictions on how the power industry will respond to President Trump’s March 28 executive order directing EPA to undo the CPP.

Here’s a summary of what the EBA audience heard.

NRDC: The ‘Trumpocene’ Era Won’t Last

EBA trump clean power plan

Doniger | © RTO Insider

David Doniger, director of the NRDC’s Climate and Clean Air program, said that most of the players in the electric industry have adjusted to the CPP’s goals and are unlikely to reduce decarbonization efforts because of Trump’s executive order. (See Trump Order Begins Perilous Attempt to Undo Clean Power Plan.)

“We’re now entering what I’ve started to call the ‘Trumpocene,’ which … I hope [will be] a very short geological era with a maximum life of four years,” Doniger said. “Many people in the industry have to be thinking, ‘How long is the Trumpocene? Do I change my plans because of this coal industry- and ideologue-driven executive order and attempt to roll back the Clean Power Plan? Do I bet that that will succeed?’

“Because executive orders don’t actually do it,” he continued. “When it comes to changing rules that have been adopted under the Clean Air Act … you can’t tear the building down except by using the same rulemaking methods and procedures that it took to build the building up. So what’s begun here last week is a long slog of rulemaking process that may or may not produce the scrapping of the Clean Power Plan … and if he does that, it may or may not withstand judicial scrutiny.”

Doniger said CPP opponents may fail because they use unrealistic data in support of their case, noting the study contracted by CPP opponents that estimated the cost of compliance at $39 billion, about five times EPA’s estimate. He also noted the president’s executive order requiring changes to the calculation of the social cost of carbon.

“So they’re going to walk into court with an arbitrarily high-cost estimate and an arbitrarily low-benefits estimate. And they’re going to lose. So the CPP ain’t dead yet.

“So if you’re an executive or an adviser to an executive and think, ‘Well I really do think climate change is a real problem’ … and you’re making investment decisions that have a 20-year life or more, do we bet that over those 20 years that the Trumpocene will continue? No. I don’t think that’s a good bet.

“We hear … from companies and state regulators … that they are continuing to plan on the trend of decarbonization — at least that much of it which is supported by market forces. This is based on the anticipation [that] either the repeal plans won’t actually succeed — like say, for example, the immigration plan or the health care plan — or that they will be a mere blip because the next president will return to a path that’s more reality-based.”

Doniger said industry trends favoring low-carbon resources need to be buttressed by government policies.

“I think the markets are running in the right direction. Obviously technology is running in the right direction. But you really can’t foresee that they would make the deep decarbonization in the time frame we need,” he said. “So we need some form of policy. … To paraphrase Donald Rumsfeld: ‘You fight climate change with the Clean Air Act you have, not the one you wish you had.’”

Utility Attorney: CPP Would Be Ineffective

Bumpers | © RTO Insider

Baker Botts attorney William M. Bumpers, who has represented utilities including Southwestern Public Service, Reliant Energy and Entergy, said although he is a strong advocate of reducing carbon emissions, he is not a fan of the CPP.

“I really didn’t like the Clean Power Plan for a host of reasons. One is that I think it was going to be largely ineffective,” he said. “Fifty percent of the reductions they were claiming credit for had already been achieved by the industry with no particular help from the federal government.”

Bumpers also said EPA’s regulatory approach “was sort of a square peg, round hole problem.”

“When they overlay basically three different types of emissions trading — most of which wreak havoc with each other — my own view is it was going to create one of the largest bureaucratic messes with regulatory overreach that was going to create more ossified limitations on the development in the industry than it was going to help.”

Bumpers said he would like to see a ruling by the D.C. Circuit Court, which heard arguments on state challenges alleging EPA overstepped its authority in September. The Supreme Court stayed the rule pending resolution of the challenges. (See Analysis: No Knock Out Blow for Clean Power Plan Foes in Court Arguments.)

“In some ways, I think the industry would benefit from having the D.C. Circuit rule because [there are] elements of that plan that the D.C. Circuit would probably strike down — maybe whole large portions of it.”

Bumpers said he represented utilities before EPA in an effort to improve the plan before the final rule was released in August 2015. “We … succeeded to some extent, but [the plan] ended up in bad shape and I ended up representing five companies as part of a challenge,” he said. “I represented probably 20 other companies who were equally as involved who in the end said, ‘We don’t care because it doesn’t affect us. It really doesn’t change our business plan one iota.’

“What it would have done is really substantially affected a handful of states and had no effect on most of the rest. It just didn’t make sense to me.”

Bumpers said his clients would like “a very state-oriented, federalist approach in which states have the opportunity to deploy the resources at their hand based on their resource mix to try to address climate change, and make it less of a nationwide, one-size-fits-all trading program but allow states to tailor their own programs.”

He criticized moves by Trump and congressional Republicans to roll back Obama administration efforts to limit methane emissions from natural gas production. “The path forward is going to result in a whole lot of new natural gas [generation]. … That’s what’s driving coal plants out of business, [and] it’s helping to reduce our carbon footprint within the industry. But if [at] the same time we don’t have rigorous oversight of the drilling and production facilities to reduce methane, we will have shot ourselves in the foot.

“At best, [the CPP] was going to accelerate where the CPP wants us to go by a couple of years. And at this point — given the stay — if it were reinstated, I don’t think it would do anything, assuming there’s a delayed implementation schedule.”

J.P. Morgan: Industry to Decarbonize with or Without CPP

Connor | © RTO Insider

Ian C. Connor, global co-head of J.P. Morgan’s Power & Utility Group, largely agreed with Bumpers’ position on the CPP.

“I think that the CPP — whatever its noble objectives — it’s relatively irrelevant whether or not it’s enforced … I have little doubt, consistent with what Bill said, that the industry will materially decarbonize and outstrip what the CPP is trying to do.”

Connor said the CPP could actually limit options for controlling carbon emissions in the future.

“At a time of rapid change, I think you want to make sure that you keep absolute optionality,” he said. He noted that although the U.S. did not sign the 1997 Kyoto protocol, it has still reduced carbon emissions since then — in part because of improvements in gas drilling practices and increased energy efficiency.

The U.S. has “actually outperformed most of the signatories of Kyoto. It’s also outstripped the Waxman-Markey objectives as well,” he said, referring to the cap-and-trade bill that faltered in Congress in 2009. “That’s largely driven by technology. Going back to 1997 … no one had any idea the shale revolution was coming.”

The drop in the costs of natural gas has eroded coal’s share of the generation mix. And now, renewables’ dramatic cost reductions are providing competition to gas.

“Today, renewables on a levelized cost basis — wind and solar — are cheaper than an efficient [combined cycle] natural gas plant. And all of these are materially cheaper than coal,” he said.

“To give you an idea of how [quickly] things are moving … six months ago we were talking about a [power purchase agreement] being signed for wind at $20/MWh. … That’s shockingly low. Today it’s $15 to $17/MWh. So in six months the cost of wind has declined 15 to 25%.”

Nuclear not Coming Back

Bumpers and Connors also agreed in their gloomy view of nuclear power’s role in a low-carbon future.

“Nuclear is not coming back,” Bumpers said. “Nobody can afford the balance sheet risk associated with a nuclear plant. So unless we get some super cheap, modular technology, I don’t see that happening.”

Connor noted the cost overruns at plants being built for Southern Co. and SCANA and the bankruptcy filing by Westinghouse, the main builder of the plants.

“It’s really hard to go in to your regulators or anyone else and say ‘I need to build this thing if the levelized cost is way up here and wind and solar are way down here and gas is down here.’ You can’t make the argument anymore.”

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