CEO’s Report: The Certainty of Regulation

September 1, 2016

If there’s one certainty in the electric utility industry, it’s the uncertainty of regulation. Regulation is a reality we must live with, but because it is constantly changing and evolving, there are always unknowns in our future. At Heartland, we believe in protecting the environment. After all, we want to ensure clean air for generations to come. That’s why our newest and largest resource, Whelan Energy Center Unit 2, was built with all the latest pollution control technology. However, we also believe that cost must be considered as an important factor in any regulation as to not place an unnecessary burden on consumers.

The Clean Power Plan (CPP) would have an enormous impact if implemented as written, significantly increasing consumers’ electric bills and creating an unnecessary burden for many. Fortunately, the Supreme Court stayed implementation of the plan pending judicial review. Oral arguments were pushed back to late September and will take place before all the judges on the D.C. Circuit rather than the traditional three-judge panel. The granting of a review by all of the judges on the D.C. Circuit is rare and underscores the importance of the case.

This past June, the EPA proposed changes and clarifications to the CPP’s optional Clean Energy Incentive Program (CEIP), and is giving the public a chance to weigh in on those proposed changes. The EPA said the CEIP was designed to help states and tribes meet their goals under the CPP by encouraging early investments in zero-emitting renewable energy generation and by removing barriers to investment in energy efficiency in low-income communities. The idea is to reward early investments in renewables and demand-side energy efficiency measures.

The changes would provide for a limited expansion of the types of projects that would be eligible for the CEIP. The EPA said its proposal would help guide states and tribes that choose to participate in the program when the CPP becomes effective. While APPA has committed to providing comments on the CEIP, a number of states have stated they will not expend any resources on any CPP-related activities, including commenting on the CEIP, because of the stay.

A group of state attorneys general and other state-level officials on August 1 asked the EPA to extend the comment period for the proposed rule. They argued that the comment period should be extended for at least sixty days following the termination of the CPP stay because if it “does not survive judicial review, the CEIP should then simply be withdrawn.”

The EPA also recently defended itself against a group of states who asserted that a recent federal appeals court ruling supported their arguments against the CPP. The states said a recent decision by the U.S. Court of Appeals for the 5th Circuit on a different EPA-related matter supported two of their key arguments. They argue a July 15 decision supports their arguments that the EPA rule on carbon dioxide requires congressional approval and that the EPA has failed to show that the CPP will not undermine the reliability of the nation’s power grid.

The EPA responded that the 5th Circuit’s ruling has minimal relevance to the CPP because, among other things, it “concerns a different regulatory program.”

Numerous flaws continue to be found with the CPP. FTI Consulting recently issued a white paper stating the EPA “was overly optimistic to simply assume that the nuclear industry would continue to be available to produce clean electricity.” This comes after a stream of announcements of nuclear power plant closures and retirements since the CPP was released. They also stated that the nuclear industry is facing challenges due to economic, regulatory and political pressures, which could “lead to significant reductions in the size of the nuclear fleet in the near future.” Recently announced retirements amount to 8.3 GW or 8 percent of total current nuclear capacity.

On the other hand, new wind power capacity swelled in 2015 and is likely to continue rapid growth over the next five years, according to an annual wind energy report from the Department of Energy. Wind power contributes about five percent of the nation’s electricity supply and represented the largest source of U.S. electric capacity additions in 2015, according to the report.

Wind power continues to grow because of the extension of the federal production tax credit as well as improvements in the cost and performance of wind power technologies. Prices offered by newly built wind projects are incredibly low. However, not everyone is happy with the growth of wind power as many feel turbines dotting the landscape are an eyesore. A South Dakota company recently withdrew its application for a state permit to build a 201 MW wind farm after hearing some pushback from residents.

Heartland resource Laramie River Station is currently affected by a different regulation and will undergo an extended outage in 2017 in order to implement regional haze improvements as required by the EPA. The EPA’s Regional Haze Rule superseded the state of Wyoming’s original state implementation plan and eventually the EPA came to a settlement agreement with plant owners to install one selective catalytic reduction (SCR) and two selective non-catalytic reductions (SNCR). The settlement resulted in large cost savings for LRS compared to the EPA’s original plan.

Because regulations bring on extra and often unnecessary costs, Heartland remains committed to advocating on behalf of our customers. We continue to monitor all activity at the federal and state levels affecting our industry and partner with trusted experts to ensure our message is being heard. While we are committed to producing an environmentally-friendly product, we are also committed to reliability and affordability.