Monday, September 26, 2011

EPA insiders accuse EPA of undermining the security & reliability of US electric power

Inside the EPA       Review & Outlook    9/26/11

Memos show that even other regulators worry about its rule-making.

The Environmental Protection Agency claims that the critics of its campaign to remake U.S. electricity are partisans, but it turns out that they include other regulators and even some in the Obama Administration. In particular, a trove of documents uncovered by Congressional investigators reveals that these internal critics think the EPA is undermining the security and reliability of the U.S. electric power supply.

With its unprecedented wave of rules, the EPA is abusing traditional air-quality laws to force a large share of the coal-fired fleet to shut down. Amid these sacrifices on the anticarbon altar, Alaska Republican Lisa Murkowski and several House committees have been asking, well, what happens after as much as 8% of U.S. generating capacity is taken off the grid?

A special focus of their inquiry has been the Federal Energy Regulatory Commission, or FERC, which since 2005 has been charged with ensuring that the (compact florescent) lights stay on. That 8% figure comes from FERC itself in a confidential 2010 assessment of the EPA's regulatory bender—or about 81 gigawatts that FERC's Office of Electric Reliability estimated is "very likely" or "likely" to enter involuntary retirement over the next several years. FERC disclosed the estimate in August in response to Senator Murkowski's questions, along with a slew of memos and emails.

FERC Chairman Jon Wellinghoff, a Democrat, has since disavowed the study as nothing more than back-of-the-envelope scribblings that are now "irrelevant," as he told a recent House hearing. OK, but then could FERC come up with a relevant number? Since he made the study public, Mr. Wellinghoff has disowned responsibility for scrutinizing the EPA rules and now says that FERC will only protect electric reliability ex post facto once the rules are permanent, somehow.

This abdication is all the more striking because the documents show that EPA's blandishments about reliability can't be trusted. In its initial 2010 analysis—a rigorous document—FERC notes in a "next steps" section that the reliability office and industry must "assess the reliability and adequacy impacts of retirement of at risk units." In part, this was because the office believed the EPA analyses to be deficient. One undated memo specifies multiple weaknesses in EPA reliability modelling.

However much power is lost, whether 81 gigawatts or something else, the electric grid is highly local. Even subtracting a small plant could have much larger effects for regions, such as blackouts. The older and less efficient coal plants that are slated for closure are often the crucial nodes that connect the hubs and spokes of the grid. If these "sensitive" interconnections are taken out, as the memo puts it, the power system becomes less stable, harder to manage and may not be able to meet peak-load demand or withstand unexpected disturbances.

When large swaths of Arizona, New Mexico and parts of southern California including San Diego went dark this month, preliminary reports blamed it on a Homer Simpson who flipped the wrong switch. But the incident shows that even minor mistakes or degraded systems can ramify throughout the grid. The EPA scanted these technical, regional issues when writing the rules, even though another "summary of interagency working comments" within the Administration explicitly told the EPA that reliability needed "more discussion."

And according to the FERC minutes of a 2010 meeting between its reliability office and the EPA, EPA staffers waved off those concerns. "The EPA concluded the discussion by stating that it felt the Clean Air Transport Rule and Mercury MACT rule"—two of the most destructive new regulations—"were the highest priority given that these regulations were more finalized." In other words, the agency's green political goals are more important than the real-world outcomes, never mind the danger.

For our part, we've opposed this "highest priority" because the rules are written in a way that maximizes the economic costs, with terrible effects on growth, hiring, investment and consumer prices. And well, well: More than a few people in the Administration seem to agree.

The interagency memo explains that the EPA used its "discretion" to structure one rule so that it is more "stringent" than it needs to be. The agency could achieve the same environmental benefits with "substantial" cost-savings, which "would be far more preferable to the proposed approach," says the memo. It sensibly adds that, "The current economic climate dictates a balancing of economic and environmental interests."

Under pressure from Democrats and the EPA to disavow his own agency's analysis, Mr. Wellinghoff now says that FERC favors only a "safety valve" that would give it the authority to overrule the EPA on a case-by-case basis if its regulations might lead to blackouts. But even this is a tacit admission of EPA's overkill. You don't need a safety valve if there isn't a threat to safety.

The best option would be for the EPA to write less destructive rules that don't jeopardize reliability in the first place. Failing that, we should at least know the risks before it is too late. In a letter to Mr. Wellingoff last week, Mrs. Murkowski simply asks that FERC undertake some kind of study of the EPA's agenda in line with its statutory obligations and the warnings of its own experts. If FERC won't do it, someone else should.

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