Southwest Power Pool: State-by-State Approach To Meet EPA Mandate Would Cost $3.3 Billion

Grid operator Southwest Power Pool (SPP) released its third and final analysis of the potential impact of the Environmental Protection Agency’s draft Clean Power Plan, saying it would cost an estimated $3.3 billion annually in new generation capital investment and energy production costs to comply with the federal “dirty air” mandate.

The analysis revealed that a state-by-state compliance approach potentially would result in nearly 40% higher costs than a regional approach outlined in a report released in March. In an earlier analysis in April, Little Rock-based SPP said it would cost up to $2.9 billion a year to develop a regional plan across SPP’s regional footprint to comply with President Obama’s proposal to cut carbon emissions by 30% at existing power plants from 2005 levels by 2030.

“Our analysis affirmed that a state-by-state compliance approach would be more expensive to administer than a regional approach,” said Lanny Nickell, vice president of engineering for SPP. “A state-by-state solution also would be more disruptive than a regional approach to the significant reliability and economic value that SPP provides to its members as a regional transmission organization.”

The state-by-state approach evaluated by SPP did not include the cost of new transmission needed to maintain reliability, gas infrastructure expansion, market enhancements or the transmission congestion and losses that could result from compliance. The analysis was based on the proposed state carbon-emission reduction goals proposed by the EPA in its draft rulemaking and does not take a position on the appropriateness of those goals or the EPA’s supporting assumptions, SPP officials said.

The study also revealed up to 15.1 gigawatts of generation beyond current planning assumptions could be at risk of retirement under a state-by-state compliance. The study applied a nominal $45 per ton carbon-cost adder to incent dispatch of lower carbon-emitting generation resources.

The study also incorporated 5.5 gigawatts of wind resources and 4 gigawatts of gas-fueled resources above currently planned capacity, which includes approximately 4 gigawatts of new wind and 22 gigawatts of new gas resources.

The study concluded that coordinating individual state plans in a regional market where energy flows without respect to state boundaries and benefits are shared regionally will be extremely challenging and risky for states.

SUPPORTERS, CRITICS HEAT UP DEBATE ON EPA CLEAN POWER PLAN
Federal environmental officials have indicated that they expect to issue final draft rules on the EPA’s draft 111(d) rule by mid-August. As the date gets closer, opponents and supporters of the federal mandate are increasingly offering their own assessments, white papers and cost breakdowns of the final rules that would cut carbon emissions at existing power plants across the U.S., including the lion’s share of Arkansas’ coal-fired fleet.

Last week, the Arkansas Advanced Energy Association issued a backgrounder that said over 60% of the electricity generated in the state comes from power plants that were constructed more than 30 years ago.

“Arkansas suffered 39 power outages in 2014, up from 33 the year before, with nearly 2,000 people affected per outage on average. Outages are not only disruptive but also expensive, with an annual estimated cost to the U.S. economy of $150 billion,” the AAEA backgrounder said. “With a flexible design that allows states to select the technologies and services for compliance to suit the needs of the state, the Clean Power Plan presents Arkansas with an opportunity to modernize its electric grid for the benefit of consumers and the economy.”

On the other side of the issue, the National Rural Electric Cooperative Association (NRECA) released a new economic study on Monday that said the Clean Power Plan could lead to higher electricity prices and job losses. The study, called “Affordable Electricity: Rural America’s Economic Lifeline,” measures the impact of a 10% and 25% electricity price increase on jobs and gross domestic product (GDP) from 2020 to 2040.

It also said a 10% increase in electricity prices results in 1.2 million jobs lost by 2021. Nearly 500,000 of those lost jobs are in rural areas of the country, and even 20 years later, the economy fails to fully recover. The impact of a 25% increase would be more damaging with 2.2 million jobs lost in 2021, with more than 890,000 of those occurring in rural areas.

“Affordable electricity is rural America’s economic lifeline. This study shines a light on the true, real-life cost of higher electricity prices – a cost that policymakers in Washington would do well to remember,” NRECA CEO Jo Ann Emerson said. “And federal regulations that result in higher electricity prices, such as the EPA’s proposed Clean Power Plan, could wipe out any modest gains rural America has made since the Great Recession.”