Clean Power Plant Proposed Rule

With great flourish, the U.S. Environmental Protection Agency (“EPA”) has proposed its first rule limiting carbon emissions from existing power plants. Under this proposal, known as the Clean Power Plan, EPA targets a 30-percent reduction in carbon emissions from power plants by 2030. EPA also anticipates reductions in particulate matter, nitrogen oxides, and sulfur dioxide by more than 25 percent as incidental benefits to the Clean Power Plan. While the Clean Power Plan provides states with a number of options to address carbon emissions from existing power plants, the first-of-its-kind rule is expected to have a significant impact on electric power providers and their customers. The rule’s heavy emphasis on the use and development of low-emitting power sources could severely curtail the ability of power plants to use coal as a cost-effective source of power and could also raise natural gas prices as utilities increase usage of natural gas in place of coal.

The Clean Power Plan has been proposed under EPA’s Clean Air Act § 111(d) authority and consists of two main components: state-specific goals for reductions in carbon emissions from power plants, and guidelines to assist states in developing plans to meet those goals. With respect to the development of state-specific goals, EPA has proposed a two-part goal structure in which an “interim goal” must be met on average from 2020–2029, and a “final goal” must be met by 2030. State-specific goals are to be calculated as a rate: carbon dioxide emissions from fossil-fuel power plants in pounds (Adjusted CO₂), divided by state electricity generation from fossil-fuel power plants and other low- or zero-emitting power sources (i.e., renewable and nuclear) in megawatt hours (Net MWh). In this way, EPA believes that the Clean Power Plan will account for the different types and quantity of generation in each state when formulating state-specific goals. Should states prefer to express their emission performance requirements in absolute tons, the Clean Power Plan allows states to convert the rate-based goal to a mass-based goal if they so choose. The state-specific goals included in the proposed rule were based on EPA’s review of 2012 emission data for each particular state, any existing programs in that state to reduce CO₂ emissions, and application of the “building blocks” discussed below that EPA believes collectively represent the “best system of emission reduction (“BSER”) . . . adequately demonstrated.”

The second component of the Clean Power Plan is a set of proposed guidelines to assist states in developing, by mid-2016, state-specific plans to meet the goals proposed by EPA. EPA has identified four “building blocks” that it has collectively identified as BSER and that serve as cornerstones for carbon reduction:

1. Increase efficiency of fossil fuel power plants by improving average heat rate for coal steam electric generating units by 6 percent.
2. Increase use of low-emitting power sources by dispatching to existing and under-construction natural gas combined cycle units to up to 70-percent capacity target utilization.
3. Expand zero- and low-emitting power source capacity by dispatching to new clean generation, including nuclear generation under construction, moderate deployment of new renewable generation, and continued use of existing nuclear generation.
4. Use electricity more efficiently by increasing demand-side energy efficiency to 1.5 percent annually.

While EPA derived the state-specific goals through the application of each of these items, EPA has stressed that states will still have flexibility when choosing how to meet their goals from one or more of these mechanisms. State-specific plans can include, but are not limited to, demand-side energy efficiency programs, renewable energy standards, efficiency improvements at plants, boiler co-firing or conversion to natural gas, transmission efficiency improvements, development of energy storage technology, retirements, expansion of renewables or nuclear, market-based trading, and/or energy conservation programs. The proposed rule also allows states to submit multistate plans in order to reduce costs and to increase efficiency.

States must submit initial or complete plans to EPA by June 30, 2016. Individual state plans are eligible for a one-year extension to June 30, 2017, while multistate plans are eligible for a two-year extension to June 30, 2018 (with a progress report due in June 30, 2017). Upon receipt of a complete plan, EPA will review and make a determination of approval or disapproval within 12 months.

EPA will accept comments on the Clean Power Plan for 120 days after publication of the proposed rule in the Federal Register. EPA will also hold four public hearings on the proposed Clean Power Plan during the week of July 28, 2014 in Denver, Atlanta, Washington, D.C., and Pittsburgh.

Given the intent of the rule is to encourage increased natural gas usage in place of coal, the Clean Power Plan could significantly affect the costs of power generation and numerous types of manufacturing that depend on low natural gas prices. Manufacturers and power generators alike should consider the likely implications of the rule and whether to provide comments on it.

If you have any questions concerning the Clean Power Plan or need any assistance in preparing comments to the proposed rule or in future planning in light of the proposed rule, please do not hesitate to contact Peter Tomasi at peter.tomasi@quarles.com / (414) 277-5677, Cynthia Faur at cynthia.faur@quarles.com / (312) 715-5228, Raphael Ramos at raphael.ramos@quarles.com / (414) 277-5539, or your Quarles & Brady LLP attorney.