Clean Power Plan – Litigation Expected as Planning Continues at the State Level | Norton Rose Fulbright

The EPA expects a firestorm of litigation following the publication of the Clean Power Plan in the Federal Register today.  Prior lawsuits, the latest involving 15 states, had been dismissed as being premature.  The EPA also published its final carbon dioxide emissions rule for new, modified, and reconstructed power units, as well as its proposed federal implementation plan that EPA will impose on states that don't submit an approved implementation plan to comply with the Clean Power Plan.  The comment period to the federal plan ends on January 21, 2016.

Despite the anticipated litigation, some states have begun to hold public meetings about how to craft state plans to comply with the Clean Power Plan.  This includes states like Arkansas and West Virginia that are opposed to the Clean Power Plan.  These states are proceeding and seeking stakeholder comments to potential state plans on parallel tracks with the anticipated litigation in the event that litigation doesn't derail the Clean Power Plan.
  
Overall, the Clean Power Plan requires a 32 percent reduction in carbon dioxide emissions from affected existing electrical generation units by 2030 as compared to carbon dioxide emissions from such units in 2005.  Compliance obligations begin in 2022 and are phased in through the final compliance period of 2030.  States are given flexibility of how to achieve their obligations and are required to submit plans to EPA by September 6, 2016 describing how they will comply with the Clean Power Plan.  States also have the option to just submit an initial plan to EPA by that date and request a two-year extension for submission of a final plan.  The EPA will implement a federal plan for those states that don't submit a plan, or fail to get EPA approval of their plans.

The early message from state meetings is that no decisions have been made, and states want to hear from all stakeholders.  At least one state is seeking comments specifically from the coal-fired power industry.  During a public meeting, Pennsylvania regulators asked coal-fired power generators for their thoughts on how to maintain coal's role in Pennsylvania.  One option, according to Pennsylvania's regulators, is to simply run coal-fired plants less, however, the regulators want to examine other options and carefully consider any cost, or reliability implications.

As a threshold matter, states are talking about whether to implement a mass- or rate-based plans and how, or if, they should work with other states.  Although there may be some states that choose a rate-based plan, there appears to be a great deal more interest in adopting mass-based plans and being part of multi-state areas for purposes of interstate carbon allowance trading.  

Mass-based systems are more familiar to regulators and the market and have the benefit of being capable of expansion to cover new natural gas-fired units.  States are examining whether or not to include new natural gas-fired units in mass-based plans to address EPA's concern that state plans might create an unintended consequence of favoring new natural gas-fired power generation over existing power generation.  One way of leveling the playing field is to have new and existing units covered under one regime and a rate-based plan doesn't offer this capability.  Whether or not a state decides to ultimately adopt a mass-based plan may also be driven by concern over the ability to participate in carbon allowance trading with other states, since carbon trading will not be allowed between states that have mass-based plans and states that have rate-based plans.

When it comes to the potential carbon allowance trading component of the Clean Power Plan, there is a general consensus that a larger carbon allowance trading platform composed of multiple states is preferred.  For example, during the October 9, 2015 stakeholder meeting in Arkansas, the Southwest Power Pool noted that their modeling suggested a 40% cost savings by using interstate trading as opposed to a state-by-state approach.  During that same meeting, the Midcontinent Independent System Operator expressed a preference for a regional approach not only to reduce cost, but to help ensure grid reliability.