Power Plant Ping-Pong

This Week's Trend In Brief:

• Last week EPA announced its much anticipated proposal to limit emissions from power plants.
   

• The proposal already faces significant judicial scrutiny, and there are major questions as to whether it could survive a conservative Supreme Court.
   

• Even if the proposal does survive judicial scrutiny, with the 2024 presidential election just 18 months away, electoral politics could also spell the rule’s demise before it even goes into effect, and it remains unclear whether the rule is even technically feasible.
   

• Still, the proposal may feel like Groundhog Day to many public affairs professionals, who have seen now seen three iterations of power plant rules put forward over the past decade, with the previous attempts falling to lawsuits from whichever side – industry, activists, or state officials – felt the rule did not meet their interests.
   

• This perpetual state of regulatory ping-pong, in which electoral whims and judicial rebuffs abound, leaves energy industry leaders without the certainty they need to make smart investments to build a cleaner, more reliable energy future.

Digging Deeper:

 
Last week the Biden EPA  proposed its long awaited rule to regulate emissions from power plants after the Trump and Obama Administration power plant regulations failed to withstand legal challenges. “The endlessly awaited draft rule” would set extremely strict power plant emissions standards, and “rely on ambitious and relatively new emissions reduction technologies, like carbon capture and storage, or CCS, and low-carbon hydrogen fuel. The proposal goes further than the Obama Administration’s proposed Clean Power Plan (CPP), though much to the chagrin of Washington journalists, the rule lacks the catchy name of CPP, or the Trump Administration’s Affordable Clean Energy (ACE) proposal. While the proposed “New Source Performance Standards for Greenhouse Gas Emissions from New, Modified, and Reconstructed Fossil Fuel-Fired Electric Generating Units; Emission Guidelines for Greenhouse Gas Emissions from Existing Fossil Fuel-Fired Electric Generating Units; and Repeal of the Affordable Clean Energy Rule” rule may not roll off the tongue, EPA believes its rule can “conform to the Supreme Court’s June decision in the West Virginia v. EPA case,” and survive judicial scrutiny ACE, CPP, and even the George W. Bush Administration’s New Source Review regulations did not.
 
While EPA believes it has proposed a rule that can survive judicial scrutiny, opponents of the rule are sharpening their legal knives, and legal experts have claimed the rule has “serious legal vulnerabilities.” While courts ruled CPP went beyond EPA’s authority, and ACE “unlawfully ignored other regulatory options,” EPA hopes it has proposed a “Goldilocks rule… after doing too much and then too little, it has now gotten the regulation just right.” Yet opponents of EPA’s proposal, including Republican-led states who “are already planning lawsuits.” Indeed West Virginia AG Patrick Morrissey, has already indicated plans to oppose the proposal. Trade associations including America’s Power, which represents the coal industry, have also questioned the legality of the proposal. Legal experts also believe the proposal is vulnerable to legal challenges. Bracewell’s Jeff Holmstead, who ran EPA’s air office during the George W. Bush Administration recently observed the proposal has “serious legal vulnerabilities,” pointing to the lack of carbon capture projects currently operating as raising red flags about whether the rule meets the Clean Air Act’s “best available technology” standards. McGuireWoods LLP partner Allison Woods similarly pointed to concerns regarding the proven viability of carbon capture and hydrogen as making the rule vulnerable to legal challenges. CGCN Law Founder and former EPA Deputy General Counsel Justin Schwab similarly argued the proposal is “legally dubious, and the agency knows it,” arguing “nonbinding observations in the West Virginia opinion strongly suggest that the EPA’s fuel-switching approach won’t pass muster when it eventually comes under review.”
 
Even if the rule can survive legal challenges, with the 2024 elections only 18 months away, electoral politics could lead to the rule’s demise. While the rule is scheduled to be finalized by June 2024, that timeframe may be optimistic, making the regulation susceptible to Congressional Review Act (CRA) if Republicans can take control of the Senate in the 2024 election. Already Senator Shelley Moore Capito has threatened to lead a CRA effort against the proposal. Further, should a Republican become president, they would almost certainly replace the rule before many of the rules requirements become enforceable.
 
There are also significant questions as to whether the proposal is even technically feasible while maintaining a secure grid. Critics of the rule have questioned whether power suppliers will even be able to meet the standards proposed by the rule without shutting down essential dispatchable generating facilities. Indeed, Electric Power Supply Association President and CEO Todd Snitchler commented regarding the rule, “Once again, aspirational policy is getting ahead of operational reality. If finalized, these aggressive rules will undoubtedly drive up energy costs and lead to a substantial number of power plant retirements when experts have warned that we are already facing a reliability crisis due to accelerated retirements of dispatchable resources.” Marty Durbin of the Chamber of Commerce noted, “EPA’s new powerplant regulations go too far, too fast. Regulations must be grounded in what is technologically feasible and commercially available. Going beyond that, as this regulation does, could threaten electric reliability and raise energy prices to unsustainable levels, harming the entire economy.” NRECA, the trade association which represents electric cooperatives has also raised concerns about the proposal undermining reliability.
 
If finalized as currently written, the proposal faces overwhelming legal, political and technical hurdles to implementation, and is the latest example of the regulatory ping-pong leaving energy industry leaders without the certainty they need. Given the overwhelming headwinds facing EPA, it seems highly possible the rule will follow the trends of its predecessors and find itself resigned to the regulatory scrap heap, with the next administration attempting to write its own rule several years from now. Indeed, as we observed in October 2020, “A Biden EPA will almost certainly replace ACE with a rule even more stringent than the Clean Power Plan. Should a Biden Administration enact these greater CO2 emission limitations” industry could expect a fight over the replacement proposal in several years. As industry continues to find itself stuck in this game of Regulatory Ping-Pong, any sense of regulatory certainty seems more evasive than ever. In order to position themselves best to make smart investments amidst this lack of certainty, energy industry leaders need build a system to help them anticipate where the next regulatory volley might land, and who it might come from.
 

Trends in Energy is your weekly look at key trends affecting the energy industry, brought to you by the competitive intelligence experts at Delve. As the political and regulatory landscape continues to shift, reach out to learn how our insights can help you navigate these challenges.