Power & Pipes

FERC, CFTC, and State Energy Law Developments

The US Environmental Protection Agency (EPA) issued three rules on June 19 that may give utilities new reasons to consider investing in certain plant modifications and reassessing the projected lifespans of their facilities. The rules also affect each state’s resource planning process and may contribute to changes in a state’s projected energy resource mixes. In response to the rules, utilities should be prepared for possible changes to state policies defining what constitutes “clean” energy and supporting reliability. The rules are intended to go into effect 30 days from their issuance. However, the implementation timeline for the rules is not certain because several states and organizations have stated they intend to challenge the rules in the federal courts.

The first rule repealed the Clean Power Plan (CPP) issued in 2015. With the CPP’s repeal, the EPA eliminated the national target of reducing by 2030 carbon dioxide emissions by 32% from 2005 levels. In short, the EPA determined that its authority under the Clean Air Act (CAA) is limited to regulating individual facilities, and the EPA cannot select a mechanism as the best system of emission reduction (BSER) premised on application to an energy source category as a whole. The immediate effects of the CPP’s repeal are likely to be minimal because the policy has been stayed by the US Supreme Court since February 9, 2016.

Second, the EPA promulgated the Affordable Clean Energy (ACE) rule, which effectively replaces the CPP. ACE does not set national emission reduction targets but instead consists of emission guidelines that allow states to develop their own individual plans. ACE directs each state to create and submit to the EPA plans that establish standards of performance for greenhouse gas emissions from existing coal-fired electric utility generating units (EGUs) within their jurisdiction. States must submit their plans within three years of the effective date of ACE. ACE also incorporates the EPA’s determination that heat rate improvement (also referred to as efficiency improvement) is the BSER for reducing greenhouse gases from existing coal-fired EGUs. ACE leaves to the states the responsibility to determine the level of stringency associated with the BSER in their respective plans.

In its third rule, the EPA finalized implementation regulations that apply to ACE and any future emission guidelines promulgated under CAA Section 111(d). A stated purpose of the rule is to update the implementing regulations and align them with CAA Section 111(d) in its current form as amended by Congress in 1990. The EPA also noted that a driving force for the rule was to clarify that states have broad discretion in establishing and applying emissions standards consistent with the BSER.

In addition to the three rules, the EPA noted that it did not take any final action concerning certain New Source Review (NSR) program reforms the EPA proposed in conjunction with ACE in 2018. The EPA stated its intention to take final action on the proposed NSR reforms in a separate final action but did not provide a deadline.

Morgan Lewis will continue to follow the EPA’s implementation of ACE and related rules here and on our Up & Atom blog.