EPA underestimates CPP costs to electric co-ops, NRECA says

WASHINGTON, Jan. 27, 2016 - The U.S. Environmental Protection Agency greatly underestimated the Clean Power Plan’s costs to electric co-ops, the National Rural Electric Cooperative Association (NRECA) says. NRECA conducted an economic analysis as part of its comments on the agency’s proposed federal plan and model trading rules for implementing the CPP.

NRECA's analysis of the EPA’s assessment of the CPP’s impact on “small entity” electric co-ops estimates that compliance costs in the year 2030 are 19 to 33 times greater than those estimated by EPA – between $2.5 billion and $3.6 billion, as opposed to EPA’s projection of $109 million to $133 million.

The cost range in each case reflects projections under a mass-based versus a rate-based approach to implementation, respectively.

NRECA further estimated a total cost to small entity co-ops of $11.7 billion to $20.3 billion over the full 2022-2030 compliance period.

“EPA has underestimated the Clean Power Plan’s costs to small entity electric cooperatives by an order of magnitude,” says Jeffrey Connor, NRECA interim CEO. “This translates into huge price increases for co-ops and challenges their ability to provide safe, affordable and reliable electricity to their member owners.”

Federal law requires that agencies prepare a regulatory impact analysis for any proposed rule expected to have significant economic repercussions on “small entities,” as defined by the U.S. Small Business Administration. EPA identified 17 electric co-ops under this category, but the agency included only those co-ops that are majority owners of coal plants projected to be in operation in 2030 and excluded from its analysis the many co-ops that own partial, non-majority shares of coal units, says NRECA. The NRECA analysis reflects costs to 230 affected generating units both fully and partially owned by all 31 small entity electric co-ops.

NRECA also says EPA projected that co-ops will retire roughly 3,000 megawatts of coal generation under “business as usual” conditions, without the Clean Power Plan in place and that “the agency implicitly assumes there will be no compliance costs associated with these units.” The reality is much different, says NRECA – in the absence of the Clean Power Plan, co-ops intend to keep the vast majority of this capacity online. NRECA estimates that compliance costs for all co-ops, not just those considered small entities, could reach as high as $28 billion over the 2022-2030 period.

In addition to making more realistic assumptions about the Clean Power Plan’s costs, NRECA recommended that EPA address, among other things, four key issues to improve the federal plan and model trading rules:

• Adopt reliability review mechanisms and a “dynamic reliability safety valve” to ensure that the Clean Power Plan will not interfere with the ability of co-ops and other electricity providers from taking steps necessary to address potential disruptions to the power grid.
•  Take all necessary steps to maximize robust and transparent emissions trading markets for emission reduction credits and allowances.
•  Allow for notice and public comment, and conduct a reliability review, before imposing a federal plan on any state.
•  Revise the alternative compliance pathway to minimize the risk of creating stranded assets and to satisfy the agency’s obligation to consider cost and avoid consumer rate shock.

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