Released February 23, 2015 | SUGAR LAND
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The Clean Power Plan being developed by the Obama administration is "almost certain to be overturned," Peter Glaser, a partner at law firm Troutman Sanders LLP (Washington, D.C.), told the annual meeting of the Colorado Mining Association (CMA) in Denver last week. "Getting a lawyer to make a declarative statement like that is pretty unusual. But the plan is so far out there, and it's such a huge ask," that the federal courts are highly likely to rule against the U.S. Environmental Protection Agency (EPA) (Washington, D.C.), he added.
If Glaser is right, the news would be welcomed by the Metals & Minerals and Electric Power industries, which have struggled with tougher regulations from the EPA. But the lawyer predicted a federal court ruling was at least 18 to 24 months away. "By the time the courts make a ruling, we're going to have a new administration and a new Justice Department," he said, intimating that the Clean Power Plan could be scuttled when a new president is inaugurated in 2017.
President Obama's Clean Power Plan, announced in mid-2013, would lower carbon dioxide (CO2) emissions from existing coal-fired power plants by 30% from 2005 levels by 2030. The EPA released its draft rule last year and it plans to finalize the rule this summer. The rule has drawn extensive comments from industry and environmental organizations.
"This rule is the biggest energy regulation in the history of the United States," Glaser told the CMA attendees. The proposed rule, which took one year to draft, was released in mid-2014. It does not mandate the closure of plants, but rather sets state-wide standards for CO2 emissions and offers the industry four "building blocks" to attain the statewide emissions reductions. For more on the rule, see June 3, 2014, article -- EPA Releases Draft Carbon Dioxide Emissions Rule for Existing Power Plants.
Glaser told CMA attendees on February 17 there were five separate legal reasons why the plan was unlikely to survive a legal challenge. The draft rule already is the subject of two lawsuits filed by Murphy Energy (Tulsa, Oklahoma). The U.S. Court of Appeals for the District of Columbia Circuit is scheduled to hear oral arguments in that case April 16, and a decision may come down this summer.
"I find it hard to believe that the D.C. Circuit Court will overturn a draft rule," Glaser said. That's why the industry will have to wait for that decision to be rendered, and a possible appeal to the U.S. Supreme Court, before digging into litigation over the final rule.
Aside from the legal reasons why the final rule may be vulnerable to court challenge, the Troutman Sanders partner said the four compliance "building blocks" proposed by EPA were dramatic, ill-considered and likely unattainable from an operational perspective.
One building block that Glaser called "stupid" was the goal of increasing the heat rate of all coal-fired power plants by 6%. "No one outside the EPA thinks that's going to happen," he remarked.
Another building block--switching to fuels with lower carbon intensity--may sound reasonable. But in practice, switching to natural gas on that large a scale would require natural gas combined cycle (NGCC) plants to run at about a 70% capacity factor, roughly double what they operate at today. "This rule envisions a massive redispatch to gas from coal, starting around 2020," Glaser said. Even if such a dramatic switch to natural gas was feasible, he asserted EPA's analysis did not allow for the expected surge in methane emissions from natural gas production, processing and transmission that would accompany the changeover to a gas-dominant fuel mix.
Glaser didn't even touch on the technological challenges posed by carbon capture and sequestration (CCS), which has not yet been demonstrated at commercial scale. The technology is very expensive, and it imposes a significant parasitic load on a power plant's production of electricity.
Power-industry officials repeatedly have noted the technological complications of CCS. One type of carbon-capture technology, TRIG, is being deployed at the Kemper County integrated gasification combined-cycle (IGCC) plant in Mississippi, which is two years behind schedule and about $2 billion over budget. For more on that plant, see January 16, 2015, article - Costs for Kemper County IGCC Plant Soar to $6.1 Billion.
Earlier this month, the federal government pulled funding for the FutureGen 2.0 project in Illinois, which was supposed to prove another type of CCS technology at a commercial scale. For more on that, see February 6, 2015, article - U.S. Department of Energy Abandons FutureGen Clean-Coal Power Project.
Glaser also noted the concerns that regional reliability organizations like the Southwest Power Pool (SPP) (Little Rock, Arkansas), the Electric Reliability Council of Texas (ERCOT) (Austin, Texas) and the Midcontinent Independent System Operator (MISO) (Carmel, Indiana) have raised about the way the Clean Power Plan could affect electric reliability and electricity prices. These reliability organizations have raised concerns using "amazing language," such as "cascading outages," "serious resource adequacy issues," and "reduced grid reliability," he noted.
Then there is the wide disparity of estimates as to the cost of implementing the Clean Power Plan. The EPA projected compliance costs will be about $7.4 billion in 2020, $5.5 billion in 2025 and $8.8 billion in 2030. On average, the agency said, the rule would push up electric prices by an average of 5%. But Glaser cited estimates from a wide range of sources to suggest costs could be much higher.
One leading consulting firm, NERA Economic Consulting (New York, New York), estimated compliance costs at between $366 billion and $479 billion, which would push up electric prices by an average of between 12% and 17%. MISO estimated compliance costs for power producers in its region alone at $55 billion to $83 billion. The Kansas Corporation Commission (KCC) (Topeka, Kanas) estimated power producers in the Sunflower State would incur compliance costs of between $5 billion and $15 billion. "I don't know what the costs will be, but that's a pretty large gap," he noted.
Whichever party loses at the D.C. Circuit will likely appeal to the U.S. Supreme Court, Glaser predicted. And that's where Glaser predicted the EPA would face a particularly steep challenge because Congress did not expressly grant the agency the authority to regulate CO2 emissions. The agency has said its authority to regulate CO2 emissions stemmed from a 2007 Supreme Court decision, Massachusetts v. Environmental Protection Agency. Following that decision, the EPA issued a finding in 2009 that CO2 emissions endanger public health.
But Glaser cited a different Supreme Court ruling last year in another case involving the EPA's interpretation of the Clean Air Act, Utility Air Regulatory Group v. Environmental Protection Agency. He predicted that the more recent ruling would apply to the Clean Power Plan as well. In that case, the court held, in part, "EPA's interpretation (of a section of the Clean Air Act) is also unreasonable because it would bring about an enormous and transformative expansion in EPA's regulatory authority without clear Congressional authorization. When an agency claims to discover in a long-extant statute an unheralded power to regulate 'a significant portion of the American economy'... we typically greet its announcement with a measure of skepticism. We expect Congress to speak clearly if it wishes to assign to an agency decisions of vast 'economic and political significance.' "
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
If Glaser is right, the news would be welcomed by the Metals & Minerals and Electric Power industries, which have struggled with tougher regulations from the EPA. But the lawyer predicted a federal court ruling was at least 18 to 24 months away. "By the time the courts make a ruling, we're going to have a new administration and a new Justice Department," he said, intimating that the Clean Power Plan could be scuttled when a new president is inaugurated in 2017.
President Obama's Clean Power Plan, announced in mid-2013, would lower carbon dioxide (CO2) emissions from existing coal-fired power plants by 30% from 2005 levels by 2030. The EPA released its draft rule last year and it plans to finalize the rule this summer. The rule has drawn extensive comments from industry and environmental organizations.
"This rule is the biggest energy regulation in the history of the United States," Glaser told the CMA attendees. The proposed rule, which took one year to draft, was released in mid-2014. It does not mandate the closure of plants, but rather sets state-wide standards for CO2 emissions and offers the industry four "building blocks" to attain the statewide emissions reductions. For more on the rule, see June 3, 2014, article -- EPA Releases Draft Carbon Dioxide Emissions Rule for Existing Power Plants.
Glaser told CMA attendees on February 17 there were five separate legal reasons why the plan was unlikely to survive a legal challenge. The draft rule already is the subject of two lawsuits filed by Murphy Energy (Tulsa, Oklahoma). The U.S. Court of Appeals for the District of Columbia Circuit is scheduled to hear oral arguments in that case April 16, and a decision may come down this summer.
"I find it hard to believe that the D.C. Circuit Court will overturn a draft rule," Glaser said. That's why the industry will have to wait for that decision to be rendered, and a possible appeal to the U.S. Supreme Court, before digging into litigation over the final rule.
Aside from the legal reasons why the final rule may be vulnerable to court challenge, the Troutman Sanders partner said the four compliance "building blocks" proposed by EPA were dramatic, ill-considered and likely unattainable from an operational perspective.
One building block that Glaser called "stupid" was the goal of increasing the heat rate of all coal-fired power plants by 6%. "No one outside the EPA thinks that's going to happen," he remarked.
Another building block--switching to fuels with lower carbon intensity--may sound reasonable. But in practice, switching to natural gas on that large a scale would require natural gas combined cycle (NGCC) plants to run at about a 70% capacity factor, roughly double what they operate at today. "This rule envisions a massive redispatch to gas from coal, starting around 2020," Glaser said. Even if such a dramatic switch to natural gas was feasible, he asserted EPA's analysis did not allow for the expected surge in methane emissions from natural gas production, processing and transmission that would accompany the changeover to a gas-dominant fuel mix.
Glaser didn't even touch on the technological challenges posed by carbon capture and sequestration (CCS), which has not yet been demonstrated at commercial scale. The technology is very expensive, and it imposes a significant parasitic load on a power plant's production of electricity.
Power-industry officials repeatedly have noted the technological complications of CCS. One type of carbon-capture technology, TRIG, is being deployed at the Kemper County integrated gasification combined-cycle (IGCC) plant in Mississippi, which is two years behind schedule and about $2 billion over budget. For more on that plant, see January 16, 2015, article - Costs for Kemper County IGCC Plant Soar to $6.1 Billion.
Earlier this month, the federal government pulled funding for the FutureGen 2.0 project in Illinois, which was supposed to prove another type of CCS technology at a commercial scale. For more on that, see February 6, 2015, article - U.S. Department of Energy Abandons FutureGen Clean-Coal Power Project.
Glaser also noted the concerns that regional reliability organizations like the Southwest Power Pool (SPP) (Little Rock, Arkansas), the Electric Reliability Council of Texas (ERCOT) (Austin, Texas) and the Midcontinent Independent System Operator (MISO) (Carmel, Indiana) have raised about the way the Clean Power Plan could affect electric reliability and electricity prices. These reliability organizations have raised concerns using "amazing language," such as "cascading outages," "serious resource adequacy issues," and "reduced grid reliability," he noted.
Then there is the wide disparity of estimates as to the cost of implementing the Clean Power Plan. The EPA projected compliance costs will be about $7.4 billion in 2020, $5.5 billion in 2025 and $8.8 billion in 2030. On average, the agency said, the rule would push up electric prices by an average of 5%. But Glaser cited estimates from a wide range of sources to suggest costs could be much higher.
One leading consulting firm, NERA Economic Consulting (New York, New York), estimated compliance costs at between $366 billion and $479 billion, which would push up electric prices by an average of between 12% and 17%. MISO estimated compliance costs for power producers in its region alone at $55 billion to $83 billion. The Kansas Corporation Commission (KCC) (Topeka, Kanas) estimated power producers in the Sunflower State would incur compliance costs of between $5 billion and $15 billion. "I don't know what the costs will be, but that's a pretty large gap," he noted.
Whichever party loses at the D.C. Circuit will likely appeal to the U.S. Supreme Court, Glaser predicted. And that's where Glaser predicted the EPA would face a particularly steep challenge because Congress did not expressly grant the agency the authority to regulate CO2 emissions. The agency has said its authority to regulate CO2 emissions stemmed from a 2007 Supreme Court decision, Massachusetts v. Environmental Protection Agency. Following that decision, the EPA issued a finding in 2009 that CO2 emissions endanger public health.
But Glaser cited a different Supreme Court ruling last year in another case involving the EPA's interpretation of the Clean Air Act, Utility Air Regulatory Group v. Environmental Protection Agency. He predicted that the more recent ruling would apply to the Clean Power Plan as well. In that case, the court held, in part, "EPA's interpretation (of a section of the Clean Air Act) is also unreasonable because it would bring about an enormous and transformative expansion in EPA's regulatory authority without clear Congressional authorization. When an agency claims to discover in a long-extant statute an unheralded power to regulate 'a significant portion of the American economy'... we typically greet its announcement with a measure of skepticism. We expect Congress to speak clearly if it wishes to assign to an agency decisions of vast 'economic and political significance.' "
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
