POWER January 2016 - 16

Clean Power Plan
Means Opportunities
for Power Plants
Kerry Shea
T
Rachel Block
he U.S. Environmental Protection Agency (EPA) published
the final version of the Obama administration's Clean Power
Plan (CPP) on Oct. 23, 2015, and within hours more than
two dozen challenges were filed, asking the D.C. Circuit Court
of Appeals to invalidate the rule. While the clock ticks on the
window for challenges, and during the coming litigation, power
plants may want to take the opportunity to shape their respective
State Implementation Plan (SIP) and any regional plans.
Under the CPP, the administration seeks to reduce greenhouse
gas (GHG) emissions from existing sources by 32% below 2005
levels by 2030. The EPA determined that the best system for
emission reduction (BSER) would result from some combination
of these building blocks: (1) improving efficiency on site, (2)
switching to lower-emitting power sources, and (3) using more
zero-emitting power sources. The EPA set individual state-specific
goals, which it has stated in two different ways: rate-based (a
statewide average of pounds of CO2
statewide emissions of CO2). However, the EPA also gave each
state flexibility in determining how to achieve those goals.
In setting these statewide goals, the EPA took the unusual step
of regulating the regional power delivery " system " as a whole, unlike
its typical approach of setting individualized requirements for
particular " sources. " Here, the EPA is treating the regional grids
as the systems and seeking to reduce GHG emissions on a regional
or statewide basis, depending on each state's mix of generation
assets. By taking a big picture approach, and allowing states flexibility
in creating their plans, the EPA has created an opportunity
for plants to provide input to environmental agencies on insidethe-fence
improvements and outside-the-budget non-starters.
SIPs and FIPs
The next step involves the states. The rule, issued under Clean
Air Act section 111(d), directs states to create SIPs to administer
statewide or regional programs to reduce emissions from existing
power plants. SIPs establish " standards of performance " that reflect
EPA-set goals. In creating a SIP, a state can choose whether
to aim for the rate-based or mass-based goal. Further, the state
can choose any combination of the three building blocks to
achieve that goal.
Alternatively, provided the state is targeting the mass-based
goal, it can choose an entirely different approach of " state measures "
to reduce emissions from a broader range of sources-not
just power plants-such as residential or industrial energy efficiency.
In this way, the Federal Implementation Plan (FIP) is not
a " floor " or minimum requirement; it is an example. If a state
does not create a SIP, the federal government will impose a FIP.
SIPs are due September 2016, but a state may ask for an extension
until September 2018.
With the publication of the final rule, EPA also published a draft
FIP that will be finalized in Summer 2016. Understanding the draft
FIP is important to understanding whether (and if so, how) to structure
a SIP. The draft FIP, however, comes in two flavors-rate-based
16
and mass-based. The rate-based plan requires that each affected
plant meet an individualized emission standard (in CO2
lbs/MWh)
derived from the statewide target average rate. If a plant emits at
a higher rate, it must purchase emissions credits either from other
plants that reduce their emissions more than required or from approved
zero- or low-emitting producers supplying the grid.
The mass-based plan requires that affected plants in the state
produce total emissions within a statewide budget. Each plant
is allocated its own budget, based on historical generation, but
plants can modify that budget by trading with other plants, participating
in a Clean Energy Incentive Program, or investing in
renewable energy. The EPA has also provided model trading rules
to facilitate the exchange of emissions reduction credits and allowances
in both the rate- and mass-based plans.
The EPA has stated that ultimately there will be only one FIP,
/MWh) and mass-based (total
and it has hinted it prefers a mass-based approach for ease of implementation.
As noted, that approach would also allow states to
shift some of the burden of emissions reductions away from power
plants and onto customers through efficiency-based measures.
However, a state with growing demand for power from existing
plants may prefer a rate-based goal, which unlike a mass-based
goal would give a state credit for existing plants squeezing more
megawatt-hours out of a given amount of coal or natural gas.
Power Plant Input
The flexibility of the CPP means states have many choices to
make, creating several opportunities for stakeholder input: (1)
FIP or SIP; (2) if SIP, single or multistate; (3) if SIP, rate-based
or mass-based; and (4) if mass-based, just BSER building blocks
or also state measures? Plants having a strong view about whether
a rate-based or mass-based plan is best should advocate for
the adoption of a SIP, rather than expecting that the EPA will
select a similar FIP. Plants may also have helpful input about the
contents of the SIP, namely, how the state should mix tools to
meet its environmental and other policy objectives.
Plants may consider providing input to their environmental
protection agencies to establish realistic expectations for changes
to their physical plants, but the real opportunity to help shape
the SIP may be found in the accounting department. States must
consider costs when determining a standard of performance
achievable for the system. Thus, if a certain technology exists
but is prohibitively expensive, a plant or industry group can work
with the state to employ alternatives such as emissions-trading
programs, participation in a regional market or plan, or customerside
efficiency measures. Practical economic information, which
the regulated plants themselves are best positioned to provide,
will be crucial in shaping the SIP. ■
-Kerry Shea (kerryshea@dwt.com) is a partner in Davis Wright
Tremaine LLP's energy practice in the firm's San Francisco office,
and Rachel Block (rachelblock@dwt.com) is an associate in
the firm's Seattle office. The authors would like to thank Gerald
George for additional input and edits.
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POWER January 2016

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