Call to Order and Roll Call
The 1st meeting of the 2015 Federal Environmental Regulation Impact Assessment Task Force was held on Monday, August 24, 2015, at 1:00 PM, in Room 131 of the Capitol Annex. Representative Jim Gooch Jr., Chair, called the meeting to order, and the secretary called the roll. The members briefly introduced themselves.
Present were:
Members: Senator Jared Carpenter, Co-Chair; Representative Jim Gooch Jr., Co-Chair; Senators Brandon Smith and Robin L. Webb; Representatives Tim Couch and Fitz Steele; Rusty Cress, Jeff Derouen, Eric Evans, John Fischer, Greg Higdon, Michael Kurtz, Andrew McNeill, James See, Tom Underwood, and Jim Ward.
Legislative Guests: Representative Rocky Atkins.
Guests: John Lyons, Assistant Secretary for Climate Policy, Energy and Environment Cabinet; and Sean Riley, Chief Deputy Attorney General.
LRC Staff: Janine Coy-Geeslin, Stefan Kasacavage, D. Todd Littlefield, and Kate Talley, Committee Assistant.
In introductory remarks, Representative Gooch said that in 2015 he proposed HCR 168 to address reliability and affordability of electricity in Kentucky. Electricity has not only become necessary to our standard of living, but also to our health and safety. The Environmental Protection Agency (EPA) is taking away our ability as a state to use our natural resources, such as coal. The purpose of this task force will be to find out how the new EPA Clean Power Plan (CPP) regulations will affect reliability and affordability of electricity in the state. The EPA’s initial plan said the state had to reduce carbon emissions by 18 percent. The final plan has carbon emissions reduced by 31 percent. This is concerning since our federal government could mislead us about what is expected.
Representative Gooch said that the EPA has admitted that its CPP has no real effect on world climate reductions and climate change. However, it said that it is necessary to provide leadership to other countries. Representative Gooch has found no evidence of this since the rest of the world is racing to embrace coal, which is the cheapest worldwide source of fuel for electricity. Coal use around the world has grown four times faster than renewable energies according to the BP Review of World Energy 2015 Report. There are 1,200 new coal-fired power plants that are planned in 59 countries around the world. However, due to the restrictions on carbon emissions from new power plants under the CPP, there will be no new coal-fired power plants in the US other than one or two currently under construction. Nearly 75 percent of these new plants are in China and India.
Explanation of Differences between US EPA’s Recently Finalized Carbon Dioxide Emission Rate Targets for Power Plants in Kentucky and Previously Proposed Targets
John Lyons, Deputy Secretary for Climate Policy, Energy and Environment Cabinet, explained how the CPP, received in early August, affects Kentucky. The entire plan is over 41,000 pages, and the Energy and Environment Cabinet has not had time to go through all of it. This final plan is significantly different from the proposed plan the cabinet commented on.
On January 8, 2014, section 111(b) standards were proposed. The cabinet submitted comments on these standards on April 22, 2014. On June 18, 2014, section 111(d) standards were proposed. The cabinet commented on these standards on November 26, 2014. The cabinet took full advantage of both of these opportunities to point out that our economy relies heavily on coal powered electricity, with half of our electricity usage going toward manufacturing. The final plan was signed on August 3, 2015, and is scheduled to be published in the Federal Register in early September 2015. Once this occurs, the plan becomes official and is open to litigation.
Section 111(b) applies to new coal generating units. Initially, the proposed plan allowed 1,100 pounds of carbon dioxide emissions per megawatt hour (CO2/MWh). The cabinet commented that this level was below what was technologically feasible for even the most efficient, state-of-the-art new coal-fired plant without carbon capture and storage. The final standard is slightly higher at 1,400 pounds of CO2/MWh, but this emissions limit would still require 20 percent of carbon emissions from a new coal-fired plant to be captured and stored. The standards for reconstructed and modified units did not change much. The standards for natural gas combined cycle technology did not change.
On August 3, 2015, section 111(d) standards were finalized. States are expected to submit a state implementation plan (SIP) by September 6, 2016. A state can receive a two-year extension if they submit an initial SIP that meets all the requirements. The Clean Energy Incentive Program (CEIP) is a new rule designed to give states credit that initiate renewable energy and energy efficiency programs. This rule has three interim periods and a final period with set standards for each. These interim periods begin in 2022 and must be completed by 2030.
The current fleet of power plants average 2,166 pounds of CO2/MWh. The proposed rate was 1,763 pounds of CO2/MWh. This rate was calculated using a four building-block approach, including energy efficiency gain at the plant, redispatch of existing natural gas power, dispatch of no or low-emitting nuclear generation or renewables, and energy efficiency gains made by users. The final rate was calculated using three areas of the United States where electricity is distributed: the Eastern Interconnect, the Western Interconnect, and the Texas Interconnect. The entire Eastern Interconnect’s energy profile was used to determine what emissions reductions Kentucky could accomplish in applying the current four building-block formula. Using this new method, EPA determined Kentucky’s final rate would be 1,286 pounds of CO2/MWh, which amounts to a 41 percent rate reduction from current levels and 27 percent rate reduction from that which was proposed.
Representative Gooch commented that the EPA grossly underestimated the cost while exaggerating the benefits involved in this plan.
Representative Atkins commented that this information is extremely important to everyone in the state. If every coal-fired plant is forced to shut down, it would be challenging to deploy enough gas-fired generation to meet the state’s electricity needs, and it would cost billions and billions of dollars. It is infuriating to see that about 20,000 people in eastern Kentucky have lost their jobs.
Mr. Lyons said that coal-fired generation currently accounts for 93 percent of our power. It would have to drop to 38 percent and be replaced with natural gas to reach the plan’s rate. Given the steep decline in emissions mandated by the finalized plan, the cabinet believes the EPA’s intention is for states not to rely on natural gas, but to develop renewable energy resources.
If a state fails to submit a SIP, a federal implementation plan (FIP) will be implemented. A model FIP was proposed on August 3, 2015, and is expected to be published in the Federal Register in early September. A 90-day comment period will follow. Essentially, the FIP is a cap and trade plan. Either a rate-based plan or mass-based plan will be implemented. The FIP offers less flexibility and mass targets will likely be very onerous.
Representative Gooch said that the Federal Energy Regulatory Commission (FERC) is responsible for protecting grid reliability. Commissioner Tony Clark said, “Whatever EPA believes are the environmental benefits of this regulation, it cannot be said that it will be done easily or inexpensively. Such is the stuff of unicorns and leprechauns.” Congress could not pass a cap and trade plan, but the EPA can force such a plan.
In response to questions from Representative Steele, Mr. Lyons said that the final plan is very different from the proposed plan. The cabinet analyzing the new rules. Several states complained of Kentucky’s proposed rate, and the EPA sought to correct the rate in the final plan. There will likely be plant closures just based on useful plant-life, but it is hard to predict. Mr. Lyons said that the cabinet will not develop a compliance plan for the new rules, but rather only an analysis that will serve as a transitional document for the incoming governor’s administration that will be in power when a SIP will be due.
In response to a question from Mr. Higdon, Mr. Lyons said the nine states that can increase carbon emissions according to the final plan have higher utility rates than Kentucky. Available on the cabinet’s website is a paper published in 2013 on the impact of carbon restrictions on electric rates that may be beneficial to the members.
In response to a question from Bill Bissett (attending on behalf of Dave Moss), Mr. Lyons said that the state can apply for an extension once it submits the SIP. The plan must meet all of the criteria including what steps the state is going to take to comply with the rules and how they are going to accomplish those steps.
In response to additional questions from Mr. Bissett, Mr. Lyons said the rationale for the change from the proposed rule to the final rule was never been explained by the EPA. The final rule focuses on renewable energy sources rather than the previous formula approach. The final rule is expected to go to the Federal Register in early September.
In response to a question from Representative Gooch, Mr. Lyons said that if a SIP is not submitted, there is nothing to approve or disapprove, and a FIP may be implemented immediately. The FIP will likely be a cap and trade plan.
In response to a question from Mr. Underwood, Mr. Lyons said the cabinet had a section on reliability and the need for a safety valve in the comments on the proposed plan. The final plan did address reliability, but not to the extent the cabinet had hoped. It is hard to forecast whether or not it will be an issue.
Senator Webb commented that this plan is an usurpation of power. It defies the balance of power in the American system. There is no fear of litigation by federal agencies. There should be a congressional response to this plan.
In response to a question from Representative Atkins, Sean Riley, Chief Deputy Attorney General, said that Kentucky is actively involved in litigation with 15 other states on this plan. A Petition for Extraordinary Writ has been filed. The EPA has seven days to respond. The states will then have four days to respond to the EPA. Once the final plan has been published to the Federal Register, a petition for review will be filed with a larger number of states involved.
In response to a question from Mr. Higdon, Mr. Riley said that in the Petition for Extraordinary Writ, the states are arguing that the EPA is double regulating carbon dioxide, which is already regulated under a different section of the Clean Air Act. The Petition for Review will discuss all possible legal arguments that the joining states can bring forth.
In response to a question from Mr. Higdon, Mr. Lyons said a regulatory impact analysis was completed on this plan.
In response to a question from Representative Steele, Mr. Riley said the Tenth Amendment reserves powers to the states that are not constitutionally delegated to the federal government. Though it is unclear if the Tenth Amendment will be cited in litigation, every reasonable legal argument will be tendered to the court.
In response to a question from Mr. Cress, Mr. Lyons said the cabinet is constructing a transition analysis. Determining how to comply with the plan will be the biggest challenge.
In response to questions from Senator Carpenter, Mr. Lyons said that having the final plan published as soon as possible is key. This will allow time for litigation. Mr. Lyons also said that utilities take decades to construct Integrated Resource Plans. The EPA will probably reserve the right to implement a FIP if a state proposes changes that the EPA does not find acceptable to an already-submitted SIP.
In response to a question from Representative Couch, Mr. Lyons said the cabinet’s economic impact analysis for the CPP is dated, but they are currently working on an updated analysis that will hopefully be completed by the next task force meeting.
In response to a question from Mr. Ward, Mr. Lyons said that the SIP is submitted by the Governor. In order to change the SIP, a revision would have to be submitted as is currently required.
Representative Gooch commented that during the 2014 session, House Bill 388 was passed that made it plain the legislature does want some input in approving a SIP.
In response to questions from Mr. See, Mr. Riley said the Attorney General’s office has not begun to look at the potential legal action to bring if a FIP were to be implemented. Litigation can always be brought against the federal government when a change is brought to regulations. Mr. Lyons said if a change to the SIP is denied, a petition can be brought against the EPA. However, if a SIP is not submitted and a FIP is implemented, litigation may not be an option. Mr. Riley reminded the task force that a state always has a legal remedy, but whether it is successful depends on the facts of the case.
In response to a comment from Representative Gooch, Mr. Lyons said the plan does mention third-party litigation.
Representative Gooch said that this plan is going to have a huge impact on affordability and reliability. Credits will have to be purchased, and these will add cost to ratepayers. Reliability is another issue that needs to be examined by the task force.
Mr. Bissett said that he would like to hear from the FERC commissioner.
Senator Smith said that he would like the heavy utility consumers in the state to appear before the task force.
The meeting adjourned at 2:50 PM.