FERC and EPA: Better Together?

by Bruce Huber — Wednesday, Dec. 24, 2014

I’m exploring a few issues in energy regulation that are likely to attract the attention of the 114th United States Congress. My previous post discussed the Nuclear Regulatory Commission’s regulation of high-level nuclear waste management; in this post, I want to take a look at the relationship between FERC and EPA and how some recent regulatory activity is causing some in Congress to question the division of labor between these two agencies.

Energy and the environment have always been tightly linked. Our laws haven’t always reflected that linkage; our bureaucratic structure even less so. Statutes governing areas like hydropower development and petroleum pipelines predated the principal federal environmental statutes, such as the Clean Air Act and the Clean Water Act, and seldom do these sets of laws (including their most recent amendments) so much as cross-reference each other. Moreover, these laws create and empower separate agencies to regulate the same industries, albeit in very different ways.

As the issue of climate change has mushroomed over the past several decades, the inescapable fact that energy policy is environmental policy has prompted many in and around government to voice reservations about the current regulatory division of labor. Any members of Congress who haven’t yet considered this issue are likely to have it forced upon them in the upcoming term, especially in light of two of this past year’s major regulatory developments.

First, this June the EPA announced to much fanfare its Clean Power Plan: a proposed regulation targeting greenhouse gas emissions from existing fossil fuel power plants. The Plan is easily among the most ambitious the EPA has ever attempted. It presses the boundaries of the Clean Air Act by allowing states to meet its demands by regulating emissions sources “beyond the fenceline” of the power plants that are ostensibly targeted.

More recently, and with somewhat less ballyhoo, the EPA proposed to tighten one of the fundamental air quality standards established by the Clean Air Act: the national ambient standard for ozone. The national ozone standard has always been controversial—the 1997 update set a record for comments received by the EPA, and President Clinton halted implementation until it had survived Supreme Court review—but the current proposal may well be the costliest single regulation ever and will likely require further emissions controls at power plants and myriad other sources.

Together, these regulations will—if implemented—pack a serious punch. The Obama administration forecasts billions of dollars’ worth of net economic benefit. Yet many have protested that these environmental regulations were developed without sufficient input from FERC, the nation’s preeminent energy regulator. No less an authority than the North American Electric Reliability Corporation, the federally designated grid reliability overseer, issued a report last month warning that the Clean Power Plan could render the nation’s electric grid unreliable by 2020. The fundamental problem is that environmental rules may cause power producers to shut down dirty plants before adequate replacement capacity is built.

Grid reliability is a serious issue, and it’s only one of the ways that environmental and energy regulation are linked. But current federal law contains few formal requirements linking FERC to EPA. In fact, the Clean Air Act often requires the EPA to regulate solely on the basis of environmental quality, without regard for energy demand or other economic concerns. This is, in my view, good policy, but it’s also true that Congress has done little to encourage EPA and FERC—let alone state utility regulators—to work together to regulate more efficiently and effectively. On the contrary, decades of congressional stalemate have probably contributed to adventurism in both agencies in ways that have actually made coordination more difficult. In my next post, I’ll say more about this and discuss how FERC and EPA have regulated their way apart.

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