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5 key power-sector storylines to watch at US federal agencies in 2020

SNL Image

A view of the E. Barrett Prettyman Federal Courthouse, which houses the U.S. Court of Appeals for the District of Columbia Circuit.
Source: AP Photo

With a slate of key rulemakings either finalized or nearing completion, 2020 could see a slew of crucial court rulings and federal agency actions that shape the fate of the Trump administration's energy deregulatory agenda.

From the defense of relaxed regulations on existing coal-fired power plants to the potential easing of a decades-old law aimed at boosting renewables, the year will likely produce a flurry of news with major energy and climate implications. Here are five top court battles and looming regulatory actions to keep an eye on as the regulatory action unfolds.

ACE rule legal battle

At the top of the U.S. Environmental Protection Agency's power-sector agenda is its effort to defend its replacement for the Obama-era Clean Power Plan against a coalition of blue-leaning states, public health organizations and environmental groups. The regulation, dubbed the Affordable Clean Energy, or ACE, rule, would cut planet-warming carbon dioxide emissions from the U.S. power sector by about 1% by 2030 compared to a business-as-usual approach.

Moreover, the EPA is planning to argue that its interpretation of Section 111(d) of the Clean Air Act the section the ACE rule was issued under does not allow the agency to subject existing generators to "outside the fence line" compliance measures such as fuel switching from coal to natural gas.

Of particular note, the Trump EPA has taken the position that its reading of the statute is the only reasonable interpretation. That could stymie future Democratic administrations' attempts to implement a "Clean Power Plan 2.0" under Section 111(d) if the case makes its way to the U.S. Supreme Court and the court sides with the Trump administration before the November 2020 presidential election and a Democrat should win that election.

Amid a complex court fight over the rule, the EPA has proposed an aggressive briefing schedule that would have the U.S. Court of Appeals for the District of Columbia Circuit hear oral arguments in the spring. If the D.C. Circuit decides to push oral arguments to the fall, the chances of a Supreme Court verdict on the ACE rule before the end of the presidential contest will grow much dimmer.

New Source Review changes

Potentially complicating the ACE rule litigation is a yet-to-be-finalized rule that would relax the Clean Air Act's New Source Review, or NSR, program. Originally proposed as part of the ACE rule, the revisions would allow the owners of coal-fired plants to make their plants more efficient by boosting their heat rates without having to add expensive pollution control equipment.

Under the current NSR program, generating facilities are required to install modern pollution controls when a modification is expected to lead to a significant increase in annual emissions, such as when a power plant is made more efficient and therefore likely to be more fully used throughout the year. However, the relaxed program would pave the way for facilities to make potentially life-extending upgrades if their emissions following an upgrade are not expected to increase on an hourly basis.

The EPA's latest midyear regulatory agenda indicated that the agency plans to issue a final NSR rule in March, at which point it would also be required to revise its regulatory impact analysis for the ACE rule. The agency's own analysis of its ACE proposal showed an increase in air pollution-related deaths associated with greater adoption of heat-rate improvements because those modifications could allow coal-fired units to run more frequently and for longer periods.

Mercury and Air Toxics Standards

Electric utilities will also be bracing for a final rule from the EPA that revokes the legal basis for the Obama-era Mercury and Air Toxics Standards, or MATS. The rule, which is in the final stage of the interagency review process, is expected to determine that regulating coal- and oil-fired power plants for harmful mercury emissions is not appropriate and necessary because the direct benefits of doing so "dwarf" the compliance costs.

That reasoning is based on a 2011 regulatory impact analysis performed by the Obama EPA that found that the vast majority of public health benefits associated with the rule came from co-benefits tied to reductions in fine particulate matter.

However, critics of the Trump administration's mercury rulemaking have recently pointed to studies that show the direct benefits of mercury reductions vastly outweigh the compliance costs. While the EPA has proposed to keep MATS in place, the final rule could open the door for a legal challenge that threatens the recovery of billions of dollars the U.S. utility industry has invested to comply with the Obama-era regulation.

The EPA's final regulation, which is only expected to deal with the legal basis for MATS, could also have far-reaching implications for future energy and climate rulemakings.

"Frankly, the vast majority of the benefits of the Clean Power Plan came from reductions in particulate matter," Caitlin McCoy, a legal fellow at Harvard University's Environmental and Energy Law program, said in a recent interview. "That's because particulate matter is so harmful to human health, and it's really easy to crunch out those numbers and say, 'This many people are going to die or have respiratory issues if we continue burning coal at this pace.'"

Public Utility Regulatory Policies Act reform

In September, a divided Federal Energy Regulatory Commission proposed sweeping changes to how it implements the Public Utility Regulatory Policies Act, or PURPA. Passed in 1978, the law requires incumbent utilities in certain parts of the country to purchase power at fixed rates from small renewable power producers and co-generating facilities.

FERC Republican Chairman Neil Chatterjee has framed the changes as a much-needed revamp of the commission's PURPA rules that reflects the falling costs of clean energy. However, Democratic Commissioner Richard Glick was joined by the U.S. solar industry and environmental groups in arguing the changes would "gut" the statute and overstep FERC's authority.

Whether the commission acts to finalize proposed changes to PURPA in 2020 remains to be seen, but the eventual potential elevation of FERC General Counsel James Danly to sit on the commission without Senate confirmation of a Democrat to fill another agency open seat would give Republicans a solid 3-1 voting majority if the agency decides to proceed with the initiative. And while FERC members traditionally have generally not voted along party lines on major initiatives, that has not been the case in several important instances during the Trump administration.

PJM capacity market fallout

At FERC's last open 2019 monthly meeting held Dec. 19, the commission issued an order directing the PJM Interconnection to set new rules for its capacity market that counter the price-suppressive effect of state subsidies for clean energy resources. The order requires PJM to expand its minimum offer price rule and apply an administratively determined floor price to resources receiving any material state subsidy.

The effects of the order will likely reverberate throughout the year and beyond as states such as Illinois and New Jersey, which both pay nuclear plants extra for their carbon-free attributes, grapple with how to respond.

With 90 days to come back to FERC with a compliance filing, one central question is whether PJM will have enough time to make the required changes in order to hold two multibillion-dollar capacity market auctions in 2020 covering the 2022/2023 and 2023/2024 commitment periods. Another unanswered question is whether the order will ultimately work to keep older and dirtier generators online longer by making them more competitive with cleaner resources.