Harming the economy, degrading the U.S. grid: another day at the EPA

Lisa Jackson's Power Play WSJ.com 12/22/11

Harming the economy, degrading the U.S. grid: another day at the EPA.

At an unusual gala ceremony on the release of a major new Environmental Protection Agency rule yesterday, chief Lisa Jackson called it "historic" and "a great victory." And she's right: The rule may be the most expensive the agency has ever issued, and it represents the triumph of the Obama Administration's green agenda over economic growth and job creation. Congratulations.

The so-called utility rule requires power plants to install "maximum achievable control technology" to reduce mercury emissions and other trace gases. But the true goal of the rule's 1,117 pages is to harm coal-fired power plants and force large parts of the fleet—the U.S. power system workhorse—to shut down in the name of climate change. The EPA figures the rule will cost $9.6 billion, which is a gross, deliberate underestimate.

In return Ms. Jackson says the public will get billions of dollars of health benefits like less asthma if not a cure for cancer. Those credulous enough to believe her should understand that the total benefits of mercury reduction amount to all of $6 million. That's total present value, not benefits per year—oh, and that's an -illion with an "m," which is not normally how things work out in President Obama's Washington.

The rest of the purported benefits—to be precise, 99.99%—come by double-counting pollution reductions like soot that the EPA regulates through separate programs and therefore most will happen anyway. Using such "co-benefits" is an abuse of the cost-benefit process and shows that Cass Sunstein's team at the White House regulatory office—many of whom opposed the rule—got steamrolled.

As baseload coal power is retired or idled, the reliability of the electrical grid will be compromised, as every neutral analyst expects. Some utilities like Calpine Corp. and PSEG have claimed in these pages that the reliability concerns are overblown, but the Alfred E. Newman crowd has a vested interest in profiting from the higher wholesale electricity clearing prices that the EPA wants to cause.

Meanwhile, the Federal Energy Regulatory Commission, which is charged with protecting reliability, abnegated its statutory responsibilities as the rule was being written.

One FERC economist wrote in a March email that "I don't think there is any value in continuing to engage EPA on the issues. EPA has indicated that these are their assumptions and have made it clear that are not changed [sic] anything on reliability . . . [EPA] does not directly answer anything associated with local reliability." The EPA repeatedly told Congress that it had "very frequent substantive contact and consultation with FERC."

The EPA also took the extraordinary step of issuing a pre-emptive "enforcement memorandum," which is typically issued only after the EPA determines its rules are being broken. The memo tells utilities that they must admit to violating clean air laws if they can't retrofit their plants within the EPA's timeframe at any cost or if shutting down a plant will lead to regional blackouts. Such legal admissions force companies into a de facto EPA receivership and expose them to lawsuits and other liabilities.

The economic harm here is vast, and the utility rule saga—from the EPA's reckless endangerment to the White House's failure to temper Ms. Jackson—has been a disgrace.