POLITICS: PennAve

New EPA rules may speed up changes in how you get power

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Climate Change,EPA,PennAve,Energy and Environment,Coal,Zack Colman,Electricity,Power Plants

New rules on carbon emissions likely won't cause a change in direction as much as a change in pace for the U.S. electricity system.

Regulations proposed Monday by the Environmental Protection Agency could accelerate several trends currently reshaping how the average American household gets its power.

That includes more prominent roles for third-party power and services firms that have chipped away at the traditional dominance of electric utilities. Natural gas, which has eaten away at coal's share of the electricity pie in recent years, will gain a larger market share. The way state regulators design and approve rates also could change.

"The conversation is now what's the utility of the future going to look like? And they're having a lot of initiatives that are pushing that forward on top of what the states are doing," Rob Thormeyer, a spokesman with the National Association of Regulatory Utility Commissioners, said last week of changes facing the utility industry.

The EPA said it wanted to recognize what states are currently doing on renewable energy adoption, energy efficiency measures and reliance on coal-fired power. It also considered the limiting factors to shifting away from coal, such as whether a state can reasonably provide significant amounts of wind power.

That means coal will stick around for quite a while longer — the EPA estimates it will provide 30 percent of the nation's power in 2030, compared with 42.5 now. As such, it likely won't be too burdensome for utilities to adapt, experts said.

"The proposal is actually quite pragmatic and quite centrist," said Joshua Freed, director of the clean energy program at nonpartisan think tank Third Way.

Electric utilities stressed they were still assessing the 645-page proposed rule, but that it appeared to be an agreeable first effort from the EPA.

“While we are still assessing the overall proposal, EPA appears to have allowed for a range of compliance options to reflect the diversity of approaches that states and electric utilities have undertaken and may undertake to reduce [greenhouse gas] emissions," Thomas Kuhn, president of the Edison Electric Institute, which represents investor-owned utilities, said in a statement.

The utility industry has looked at ways to address the changing nature of electricity delivery for several years.

The influx of distributed generation sources, more efficient appliances and new service providers have transformed the century-old model in which revenues were tied to electricity consumption.

Last fall, the industry tried to get on top of it — the Electric Edison Institute, which represents the nation's investor-owned utilities, partnered with the Natural Resources Defense Council on a statement of principles designed to soften the landing for the electric utility industry.

The EPA proposed rule carbon emission rule figures to speed that process, experts said. They said it's still too early to tell whether electricity prices will rise, though rate changes will vary by region. Whether states choose to pursue an overhaul of utility rates will also depend on a myriad of factors.

Coal-producing states like Kentucky, North Dakota and Wyoming will have to cut the least amount of carbon out of their diets between now and 2030, when the EPA hopes to reduce power sector emissions 30 percent below 2005 levels. That could shield those states from more dramatic changes in the way they deliver electricity to consumers.

Some states will likely see increases in electricity prices — chiefly, states where a large portion of electricity generation comes from older coal-fired power plants. That largely means the Southeast, as many would have to slash carbon emissions based on 2012 output by more than 30 percent between now and 2030.

Two large utilities that operate in that region, American Electric Power and Southern Co., were less than enthusiastic about the proposed rule, which is scheduled for finalization in June 2016. Their fleets would require the most significant transitions away from coal, which could result in electricity price increases as they pass the cost of new investments off to ratepayers.

"It appears that for many states where we operate, the reduction requirements could be much more than 30 percent by 2030. Climate change is a global issue, and some states should not bear a disproportionate share of the cost of U.S. action to cut emissions," Columbus, Ohio-based American Electric Power said in a statement.

But a climate change regulation — especially the most sizable one ever taken by the EPA — was always going to most greatly affect those utilities, said Craig Moyer, a partner with law firm Manatt, Phelps and Phillips LLP. That's because older, dirtier plants that have already been paid for will come offline, along with all the hardened equipment such as distribution lines that come with them.

"They're not going to be happy about losing those. I don't know how to avoid having somebody's ox getting gored in a system that reduces carbon," Moyer said.

The writing is on the wall for utilities that have depended on coal for decades, said Scott Hempling, a utility regulation attorney and former executive director of the National Regulatory Research Institute.

Hempling said that it might not be traditional utilities who win out in the long run. Third-party power marketers, such as owners of wind generation who work the wholesale market to provide "balancing" services when demand outstrips supplies, might be suited to plug holes currently dominated by utilities.

"I promise you, no incumbent utility will go quietly," Hempling said in a recent interview. "The debate is about democratizing demand and diversifying supply."

How the utility and state regulators choose to replace coal-fired power coming off the grid is where things can get interesting, Moyer said.

"The rubber will meet the road at the power-generating facilities, so every state is going to be looking at this within their own borders," he said.

It could lead to some changes in how utility commissioners in each state structures rates, and it could also push states into a cap-and-trade scheme that allows those that rely on coal-fired power to include offsets from neighbors that don't.

"It's a bit of the survival of the fittest, Darwinian wonk-fest where the best state policies that make the people the happiest may win out over time," Brian Turner, deputy executive director for policy and external relations with the California Public Utilities Commission, said last week at a Washington event in anticipation of the proposed rule.

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