North Carolina Bill Shows How Not to Approach Clean Power Plan Compliance

Posted by Maria Robinson on Aug 27, 2015 1:21:32 PM

On August 3, the U.S. EPA rolled out its final Clean Power Plan regulation for greenhouse gas emissions at existing power plants. Reaction in the states varied, with some new states deciding to sue EPA and others quietly noting they are well positioned to meet their targets. But the response under consideration in North Carolina stands out for being not only self-defeating in its resistance to the EPA rule, but also costly to ratepayers.

Now pending in North Carolina’s General Assembly is H 571 (PowerSuite users follow it here). It started out innocently enough, filed in the House as a bill directing the state’s Department of Environment and Natural Resources (DENR) to develop a state compliance plan based on input from a variety of stakeholders and considering a variety of options, all with the purpose of avoiding a federal plan imposed by EPA. In that form, H 571 passed the House in April.

The Senate proved more hostile to compliance. In July, the Senate took up a substitute bill, one that would keep DENR from submitting a compliance plan to EPA until all lawsuits against the Clean Power Plan are settled – a stance consistent with Senate Majority Leader Mitch McConnell’s “just say no” tactic for states.

Then, on August 5, the Senate amended the bill further, dropping the “just say no” provision but calling for DENR to file suit against EPA over the Clean Power Plan – a move taken by 15 other states already, but resisted so far by North Carolina Attorney General Roy Cooper.

The new bill also added another wrinkle. This version of H 571 directed DENR and related agencies, including the state’s Utilities Commission, to “develop and submit a State Plan that requires only criteria to improve heat rates at affected Coal-Fired Steam Emission (sic) Generating Units.” 

In developing the state targets under the final Clean Power Plan, EPA utilized three “building blocks” as components of the Clean Air Act–required “best system of emission reduction.” One of these was improving heat rates – i.e., efficiency – at existing coal-fired power plants. The other two were increasing utilization of existing natural gas power plants to displace coal generation and adding zero-emission renewable energy. In addition to heat rate improvement, these two building blocks could be considered for inclusion in a state compliance plans, along with energy efficiency and other demand-side measures, which EPA did not use in setting state targets under the final plan but the agency made clear are prime methods for low-cost emission reduction.

Some critics – among them McConnell and, notable here, DENR Secretary Donald van der Vaart, North Carolina Gov. Pat McCrory’s point person on the CPP – feel that EPA has no authority under the Clean Air Act to expect, let alone impose on states, measures that go “beyond the fence line” of power plants themselves. Hence, the only legally enforceable emission reduction measure, in their view, is heat rate improvement, and that is all that H 571 would allow under North Carolina’s state compliance plan.

Though consistent with the McCrory Administration’s legal theory, this approach presents two risks for North Carolina electric power customers, with the results potentially costly.

First, heat rate improvement at existing coal-fired power plants would not reduce emissions enough to reach North Carolina’s EPA-set target of 1,136 lbs CO2/MWh by 2030. That means EPA would be forced to impose a federal plan, without benefit of input from local stakeholders, to supplement the state plan and make up the deficit. North Carolina would end up subject to a federal plan after all.

Second, it would lock the state into the most costly approach to emission reduction – retrofitting coal plants to make them more efficient. According to the Energy Information Administration, improving the heat rate (the amount of thermal energy to produce a MWh of electricity) 2% to 5% would cost $240,000 to $320,000 per MW of plant capacity in capital expenditure – or $125 million to $160 million for a typical 500 MW facility – and add $6,000 per MW in annual operation and maintenance costs. Those capital and operating costs would translate directly into higher electric rates.

In contrast, the outside-the-fence-line alternatives North Carolina would refuse to use, renewable energy and energy efficiency, are cost competitive with existing power sources, and energy efficiency is typically the lowest cost resource available. North Carolina, of all states, ought to know this, after eight years of success with its Renewable Energy and Energy Efficiency Portfolio Standard (REPS), which has saved money for customers, spurred economic development, and made the Tar Heel State a national leader in solar energy.

This new, not improved version of H 571 was approved by the Senate and sent to the House for concurrence. It is now in the House Rules Committee, where it has been sitting since August 10. Whether the House will go along with this high cost, low benefit plan for “compliance,” with a federal plan unavoidably imposed on top of it, just to make a legal point, is unclear. What is clear is that going forward with a real state plan, one that makes full use of advanced energy technologies and services, would be the low cost, high growth route to Clean Power Plan compliance for North Carolina.

Earlier this year, AEEI produced Competitiveness of Renewable Energy and Energy Efficiency in U.S. Markets. This report shows that renewable energy and energy efficiency are competitive resources in today’s marketplace that will not only be cost-effective mechanisms for CPP compliance but should also be expected to grow strictly on the basis of competitiveness. 

Download the Report

Topics: State Policy, EPA GHG Regs