Southwest Power Pool: $2.9 Billion Annual Price Tag to Comply With EPA ‘Dirty Air’ Rules

Apr 9, 2015

 

Grid operator Southwest Power Pool (SPP) said Wednesday that it would cost up to $2.9 billion a year to develop a regional plan to comply with President Obama’s proposed Clean Power Plan (CPP) that the federal Environmental Protection Agency is expected to hand down later this summer.

The Little Rock grid operator said in a statement that a regional compliance approach to cut carbon emissions by 30% at existing power plants from 2005 levels by 2030 is doable, but at a cost of nearly $3 billion annually – based on estimated capital investment and energy production costs across SPP’s regional footprint.

SPP’s analysis, which is the second such study by the regional power grid operator, also indicates up to 13,900 megawatts of coal-fired production would likely have to be taken offline, which goes beyond SPP’s current transmission-planning assumptions for power generation across eight different states.

“Regional compliance with the (Clean Power Plan) by 2030 is possible, and is likely to be less costly than state-by-state compliance,” said Lanny Nickell, vice president of engineering for SPP. “Our evaluation of a regional approach showed applying a carbon-cost adder is effective, but would still require incremental changes to current resource plans. That will increase the amount of necessary capital investment and lead to higher energy production costs.”

Nickels added: “This second analysis does not alter our earlier conclusion that additional infrastructure – and time – is needed to meet the (EPA’s) proposed carbon emission goals. It takes time to develop a stable, secure, efficient and effective bulk electric power system necessary to support changes of the magnitude being proposed by the CPP.”

SPP, which has over 570 employees, is one of the nation’s 12 regional transmission organizations (RTOs) that independently operate the nation’s electric energy grid. Currently, SPP ensures that power gets to consumers safely and reliably across parts of eight states, including Arkansas, Kansas, Louisiana, Missouri, Nebraska, New Mexico, Oklahoma and Texas.

PRESSURE BUILDS AS EPA PLANS TO ADOPT NEW RULES IN JUNE
Southwest’s analysis of estimated costs to comply with the president’s controversial carbon emission plans comes while state regulators, energy stakeholders, business lobbies, environmental groups and politicians are ratcheting up pressure on the EPA ahead of the federal agency’s self-imposed June 1 deadline to adopt the proposed carbon emission rules.

Gov. Asa Hutchinson has questioned the legality of so-called rule 111(d), saying that the Obama administration’s environmental mandate will drive up power costs across the state, reduce jobs and lower the standard of living for most Arkansans.

“This means that additional mandates … that close coal powered plants or increase the cost of generating power from coal will cause an increase in costs to Arkansas’s residents and manufacturers,” Hutchinson argued in his letter to EPA Administrator Gina McCarthy on Dec. 1. “Such increases will negatively affect the economic growth and well-being of Arkansans.”

More recently, Federal Energy Regulatory Commissioner Colette Honorable warned Arkansas regulators during an appearance in Little Rock in late March that they should not get “caught flat-footed” by waiting until the EPA adopts proposed greenhouse gas rules before making plans on how to clean up carbon emissions from the state’s coal-fired power plants.

“This (EPA) rule will come out this summer, and I know Arkansas has certainly joined the litigation effort as there has been several other states who have, but my point has been this … that (legal) tract can move along and it will, but we are not harmed and we are better served if we engage in this effort now,” said the former Arkansas Public Service Commission (PSC) chairwoman.

Last week, ADEQ Director Becky Keogh told Talk Business & Politics that she fully expects the EPA to adopt proposed guidelines in June, although she was uncertain what those rules would look like.

“We fully expect the EPA to move forward with final plans sometime in the mid-summer,” Keogh said in an interview. “We are looking at what that means for Arkansas. We are in conversations (or debate) about what Arkansas actions should take – in terms of developing a state plan or watching to see what the final rule will say.”

Keogh said she believes that comments submitted to the EPA by Arkansas stakeholder groups will be taken into consideration in the final rules. “We believe those comments are being listened too, and anticipate there will be some changes,” Keogh said. “Right now, as an agency, we are trying to evaluate what’s the best route forward and really understand what is being asked of the state … to make sure we have factored in both environmental and economic development (considerations).”

Also, when SPP rival Midcontinent Independent System Operator (MISO) announced the grand-opening of its new $22 million regional command center in West Little Rock on March 24, CEO John Bear said the regional grid operator will remain neutral concerning the ongoing EPA debate on the stringent “dirty air” rules, despite the fact the costs to comply with the president’s mandate could reach as high as $90 billion over 20 years.

Like SPP, MISO has conducted an internal analysis that estimates potential costs to comply with the EPA order will top about $3 billion annually to cut carbon emissions at existing power plants in the grid operator’s 15-state footprint across the U.S.

“Our view is that the rules are going to be what the rules are going to be,” Bear said. “We are going to figure out the most efficient and reliable way to implement it, whatever it comes out to be.”

SPP spokesman Tom Kleckner said the Little Rock grid operator is currently conducting a third study, which will look at state-by-state costs to comply with the EPA’s carbon emission rules. To date, Arkansas regulators and stakeholders have not decided whether to submit a regional or state compliance plan to the EPA.

According to the EPA, states will have a year after the final rules are adopted in June to create their own long-term strategies to reduce emissions, whether through cutting coal consumption, increasing renewable energy, or implementing a cap-and-trade program. Similar to the Affordable Care Act, if states don’t make a plan of their own, then the federal government would step in and create one for them.