For Some Utility Execs, EPA Carbon Rules Are Only One Worry in a Changing Business
- June 9, 2014
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One would think that the recent landmark EPA proposal to limit CO2 emissions from power plants would be the main topic of discussion at a utility industry conference. But that wasn’t the case at this week’s Utility of the Future conference in Washington, D.C.
Discussion of the EPA proposal certainly came up, but executives seemed to be more worried about technology disruption and the ability of regulators to encourage change in a smart way. The limited discussion about EPA carbon rules reflected how varied their impacts will be and how pressing other regulations are for utilities.
“We have policies embedded in our regulatory structures and our laws. The problem is that we don’t have a cohesive policy. We don’t have an endgame,” said Anne Pramaggiore, CEO of Chicago-based Commonwealth Edison.
The goal of regulations and laws in the 20th century was to “pump the juice and keep the costs low,” said Pramaggiore. Now, utilities have other objectives, including making the energy supply cleaner, improving reliability and creating more customized services with new technologies.
“The regulatory structures are creating policy, but they are keeping us locked into the 20th century. And yet we have this technology play overriding the regulatory structures,” she said.
The EPA rules do introduce more uncertainty into the existing regulatory mix, which worried some in attendance. Terry Boston, the CEO of grid operator PJM, said he is concerned that EPA regulations could have unintended consequences, such as shuttering the country’s existing nuclear plants, a course of action he called “unthinkable.”
Also, creating effective regional compliance regimes can be tricky. “States are going to have a lot of flexibility, and of my key takeaways is [the question of] how we can get a regional outlook,” Boston said. For instance, the Regional Greenhouse Gas Initiative has created a price for carbon in Northeastern states, but there are instances of coal-fired power generators from other states selling into those markets, he said.
Overall, Boston said, the targets of a 30 percent national reduction in CO2 emissions by 2030 were higher than he expected, but they can be met with a combination of more natural gas plant operation, efficiency, and, potentially, more renewables. “It’s a stretch, but at the end of the day, we can make significant reductions,” he said.
Some analysts have noted that the proposed EPA regulations reinforce some of the market changes already underway.
In Texas, for example, low or negative pricing caused by wind power has caused the amount of energy generated by coal and nuclear plants to go down by several percentage points over the past few years, said Brad Jones, vice president of commercial operations at Texas’ grid operator, ERCOT. “We’ve seen wind pick up the slack, and a lot of it is because of these economic impacts,” he said.
For many utilities, EPA carbon regulations would come in addition to renewable portfolio standards and smart grid initiatives. Yet nobody thinks about the “end-to-end implications” of these different directives, said Hugo van Nispen, executive vice president at DNV GL. “These people are pragmatists,” he said. “They recognize there will be some economic pain [from EPA regulations]. If we can get some certainty on what that economic pain looks like, then they will be willing to make the investments.”
The utility industry, of course, would greatly benefit from consensus on national climate goals, said Sven Becker, CEO of Trianel Group, a Germany-based company that provides services to municipal utilities.
“The EPA rules may raise criticism, but it is a respectable way forward for the U.S. to address climate change and the CO2 issue. Once we have a stable framework for how we can reduce CO2, then we move into a national implementation plan of how we can do this,” he said.
Photo Credit: EPA Regs and Executive Worries/shutterstock
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