TODAY’S STUDY: THE OBAMA CLEAN POWER PLAN WILL WORK

Electric System Reliability and EPA’s Clean Power Plan: Tools and Practices

Susan Tierney Paul Hibbard Craig Aubuchon, February 2015 (Analysis Group)

Executive Summary

Since the U.S. Environmental Protection Agency (EPA) proposed its Clean Power Plan last June, many observers have raised concerns that its implementation might jeopardize electric system reliability.

Such warnings are common whenever there is major change in the industry, and play an important role in focusing the attention of the industry on taking the steps necessary to ensure reliable electric service to Americans. There are, however, many reasons why carbon pollution at existing power plants can be controlled without adversely affecting electric system reliability.

Given the significant shifts already underway in the electric system, the industry would need to adjust its operational and planning practices to accommodate changes even if EPA had not proposed the Clean Power Plan.

In the past several years, dramatic increases in domestic energy production (stemming from the shale gas revolution), shifts in fossil fuel prices, retirements of aged infrastructure, implementation of numerous pollution-control measures, and strong growth in energy efficiency and distributed energy resources, have driven important changes in the power sector. As always, grid operators and utilities are already looking at what adjustments to long-standing planning and operational practices may be needed to stay abreast of, understand, and adapt to such changes in the industry.

The standard reliability practices that the industry and its regulators have used for decades are a strong foundation from which any reliability concerns about the Clean Power Plan will be addressed.

The electric industry’s many players are keenly organized and strongly oriented toward safe and reliable operations. There are well-established procedures, regulations and enforceable standards in place to ensure reliable operations of the system, day in and day out.

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Among other things, these “business-as-usual” procedures include:

• Assigning specific roles and responsibilities to different organizations, including regional reliability organizations, grid operators, power plant and transmission owners, regulators, and many others;

• Planning processes to look ahead at what actions and assets are needed to make sure that the overall system has the capabilities to run smoothly;

• Maintaining secure communication systems, operating protocols, and realtime monitoring processes to alert participants to any problems as they arise, and initiating corrective actions when needed; and

• Relying upon systems of reserves, asset redundancies, back-up action plans, and mutual assistance plans that kick in automatically when some part of the system has a problem.

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As proposed by EPA, the Clean Power Plan provides states and power plant owners a wide range of compliance options and operational discretion (including various market-based approaches, other means to allow emissions trading among power plants, and flexibility on deadlines to meet interim targets) that can prevent reliability issues while also reducing carbon pollution and cost.

EPA’s June 2014 proposal made it clear that the agency will entertain market-based approaches and other means to allow emissions trading within and across state lines. Examples include emissions trading among plants (e.g., within a utility’s fleet inside or across state lines), or within a Regional Transmission Organization (RTO) market. In this respect, the Clean Power Plan is fundamentally different from the Mercury and Air Toxics Standard (MATS) and is well-suited to utilize such flexible and market-based approaches. Experience has shown that such approaches allow for seamless, reliable implementation of emissions-reduction targets. In its final rule, EPA should clarify acceptable or standard market-based mechanisms that could be used to accomplish both cost and reliability goals.

Moreover, EPA has stated repeatedly that it will write a final rule that reflects the importance of a reliable grid and provides the appropriate flexibility.1 We support such adjustments in EPA’s final rule as needed to ensure both emissions reductions and electricity reliability.

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Some of the reliability concerns raised by stakeholders about the Clean Power Plan presume inflexible implementation, are based on worst-case scenarios, and assume that policy makers, regulators, and market participants will stand on the sidelines until it is too late to act. There is no historical basis for these assumptions. Reliability issues will be solved by the dynamic interplay of actions by regulators, entities responsible for reliability, and market participants with many solutions proceeding in parallel. Some of the cautionary comments are just that: calls for timely action. Many market participants have offered remedies (including readiness to bring new power plant projects, gas infrastructure, demand-side measures, and other solutions into the electric system where needed).2 Indeed, this dynamic interplay is one reason why a recent survey of over 400 utility executives nationwide found that more than 60 percent felt optimistic about the Clean Power Plan and either supported EPA’s proposed current emissions reduction targets or would make them more stringent.3

We note many concerns about electric system reliability can be resolved by the addition of new load-following resources, like peaking power plants and demand-side measures, which have relatively short lead times.4 Other concerns are already being addressed by ongoing work to improve market rules, and by infrastructure planning and investment. A recent Department of Energy (DOE) report found that while a low-carbon electric system may significantly increase natural gas demand from the power sector, the projected incremental increase in natural gas pipeline capacity additions is modest (lower than historic pipeline expansion rates), and that the increasingly diverse sources of natural gas supply reduces the need for new pipeline infrastructure.5

Some other comments raise the reliability card as part of what is – in effect – an attempt to delay or ultimately defeat implementation of the Clean Power Plan. We encourage parties to distinguish between those who identify issues and offer solutions, and those who (incorrectly) suggest that reducing carbon pollution through the Clean Power Plan is inconsistent with electric system reliability.

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In the end, because there are such fundamental shifts already underway in the electric industry, inaction is the real threat to good reliability planning. Again, there are continuously evolving ways to address electric reliability that build off of strong standard operating procedures in the industry.

There are many capable entities focused on ensuring electric system reliability, and many things that states and others can do to maintain a reliable electric grid.

First and foremost, states can lean on the comprehensive planning and operational procedures that the industry has for decades successfully relied on to maintain reliability, even in the face of sudden changes in industry structure, markets and policy.

Second, states should take advantage of the vast array of tools available to them and the flexibility afforded by the Clean Power Plan to ensure compliance is obtained in the most reliable and efficient manner possible. Given the interstate nature of the electric system, we encourage states to rely upon mechanisms that facilitate emission trading between affected power plants in different states. Doing so will increase flexibility of the system, mitigate many electric system reliability concerns, and lower the overall cost of compliance for all.6

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In this report we identify a number of actions that the Federal Energy Regulatory Commission (FERC), grid operators, states, and others should take to support electric system reliability as the electric industry transitions to a lower-carbon future. We summarize our recommendations for these various parties in tables at the end of our report. In the end, the industry, its regulators and the States are responsible for ensuring electric system reliability while reducing carbon emissions from power plants as required by law. These responsibilities are compatible, and need not be in tension as long as all parties act in a timely way and use the many reliability tools at their disposal.

We observe that, too often, commenters make assertions about reliability challenges that really end up being about cost impacts. Although costs matter in this context, we think it is important to separate reliability considerations from cost issues in order to avoid distracting attention from the actions necessary (and feasible) to keep the lights on. There may be “lower cost” options that reduce emissions some part of the way toward the target reductions, but that fail to meet acceptable reliability standards. We do not view such ‘solutions’ as the lowest cost solution precisely because they fail to account for the cost of unacceptable system outages to electricity consumers.

Any plan that starts with consumer costs and works backward to reliability and then to emission reduction is one that fails to consider the wide availability of current tools that have served grid operators for more than a decade to meet reliability needs. There is no reason to think that cost and reliability objectives cannot be harmonized within a plan to reduce carbon pollution…

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