Comments of the American Public Power Association on the Environmental Protection Agency’s (EPA) Proposed Federal Plan Requirements and Model Trading Rules to Implement EPA’s Section 111(d) Rule

January 21, 2016

Press Release

WASHINGTON, D.C., January 21, 2016—The American Public Power Association (APPA) appreciates the opportunity to provide comments on the Federal Plan Requirements and Model Trading Rules (together the Proposed Trading Plan Rule or Proposed Rule) proposed by the Environmental Protection Agency (EPA or Agency) on October 23, 2015, to implement EPA’s Section 111(d) Rule. Given the design, timing, and requirements of the Section 111(d) Rule, appropriately finalizing these proposals is of great importance to improving the affordability and workability of the entire program.

While the final Section 111(d) Rule contained a number of positive changes reflecting some of the recommendations made by APPA and others, it still tries to do too much too fast for public power utilities and their customers in many states. In so doing, the final rule has a high potential for creating stranded costs and curtailing the remaining useful life of existing electric generating units (EGUs), increasing operating costs, unduly adding new costs for related infrastructure, and ultimately raising electricity bills for millions of consumers. Increases in some states could be as much as 30 percent according to recent studies.

Moreover, EPA has not adequately considered the costs added by wholesale energy and capacity markets administered by regional transmission organizations (RTOs), or the impediments to investment in new resources posed by these markets. Electricity costs to consumers continue to rise in every region of the country, but they are rising faster in regions where the wholesale markets are administered by RTOs.

APPA believes that the Section 111(d) Rule goes far beyond what is legally permissible under the Clean Air Act (CAA). Therefore, APPA has joined many others in seeking judicial review and a stay of the rule pending that review. For the same reasons, APPA also believes that the Proposed Trading Plan Rule exceeds the Agency’s authority under the CAA. The proposals inappropriately intrude on federal, state, and local authority in numerous ways. These legal infirmities are outlined below. Thus, APPA’s first recommendation is that EPA withdraws these proposals and issues new proposals consistent with EPA’s authority. APPA recognizes, however, that EPA is defending the Section 111(d) Rule publicly, and in court, and so is unlikely to heed that recommendation.

Because the outcome of litigation is uncertain, the bulk of APPA’s comments focus on a number of recommended changes to address the feasibility and key design elements of the Proposed Trading Plan Rule. Indeed, if the Section 111(d) Rule is sustained in the courts in whole or in part, the workability of the trading programs may be the only economic protection left for many consumers. Following are highlights of APPA’s recommendations.

With respect to the proposed Federal Plan, APPA recommends EPA:

  • Adopt both rate-based and massed-based plans;
  • Work with affected states to determine what constitutes remaining useful life of a facility on an EGU-specific basis, without determining in advance that the plan itself inherently protects an affected EGU’s value;
  • Establish a price safety valve;
  • Include the reliability safety valve and modify it to: 1) allow it to operate for a longer time; and 2) clarify certain terms and the specific roles of reliability entities;
  • Recognize renewable energy constructed after finalization of the Section 111(d) Rule;
  • Allow energy efficiency projects and programs to qualify for generating credits under a rate-based plan;
  • Modify the Clean Energy Incentive Program (CEIP) to allow all renewable, other non-emitting resources, and energy efficiency programs to qualify, and to make it a true incentive by not deducting the credits or allowances from a state budget;
  • Allow states to submit a partial plan that determines the methodology for allocating allowances without being required to adopt the CEIP;
  • Provide greater safeguards for smaller entities consistent with EPA’s obligations under the Small Business Regulatory Fairness and Enforcement Act, including more time for compliance;
  • Address the flaws in the Alternative Compliance Pathway and make it available in rate-based plans as well as mass-based plans; and
  • Alleviate the conflict of interest that the New Source Review program creates for compliance with the Section 111(d) Rule.

With respect to the proposed Model Trading Rules, APPA recommends EPA:

  • Ensure broad access to wide and deep emissions trading markets for affected entities;
  • Establish mechanisms to guard against market manipulation;
  • Make out-of-state renewable energy widely available for compliance. APPA agrees with EPA that renewable energy from a state with a mass-based plan can be used for compliance in a state with a rate-based plan;
  • Establish a conversion factor to allow states that adopt a rate-based plan to trade compliance instruments with states that adopt a mass-base plan and vice versa;
  • Include all forms of biomass as eligible and pre-approved renewable energy;
  • Adopt a process for adding new qualifying renewable energy;
  • Allow states to determine the methodology for allocating allowances to retired EGUs. If a state subject to a federal plan does not submit a partial plan to take control of allowances, EPA should consult with the state on the methodology for allocating allowances to retired EGUs;
  • Allow unlimited banking and borrowing of emission rate credits or allowances;
  • Ensure enforcement, monitoring and verification requirements for energy efficiency programs are not burdensome and that existing state and local requirements are incorporated;
  • Eliminate the requirements for set-asides to address leakage in mass-based plans. EPA has failed to demonstrate that leakage will occur; and Defer to and acknowledge that states have discretion to modify the model rules.

APPA appreciates the continued willingness that EPA has shown to meet with APPA and its members since the time that the Section 111(d) Rule was issued. APPA stands ready to meet with the Agency to further discuss the recommendations set out in these comments, as well as other aspects of the Proposed Trading Plan Rule.