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Challenges for Prairie State regarding the
Senators Kerry-Boxer Climate Bill (Kerry-Boxer)
October 9, 2009
Draft legislation released by Senators Kerry and Boxer on September 30, 2009 makes changes to the House passed American Clean Energy and Security Act of 2009 (Waxman-Markey) that increase the cost of compliance and regulatory uncertainty of the bill. With this draft, Senators Kerry and Boxer have moved away from the middle.
1) The Kerry-Boxer Bill does not pre-empt the EPA from regulating carbon emissions under the Clean Air Act or other Acts:
A fundamental tenant to a successful market based approach to reducing carbon emissions is that there be only one regulatory regime for controlling emissions. The Kerry-Boxer draft violates this tenant by specifically stating that all existing authorities in the CAA and other laws still apply. This is a worst case scenario for the Prairie State Energy Campus(Prairie State). Under this approach, Prairie State would be subject to significant regulatory uncertainty from an EPA “command and control” regime and a market based approach.
This dual system is unnecessarily duplicative, replete with regulatory red tape and fraught with possible conflicts and unnecessary expenses for the American taxpayers/energy consumers who will bear the costs for any of these requirements through their utility bills.
2) The emissions reduction targets in the Kerry-Boxer Bill are significantly more stringent and more unrealistic than those in the House passed Waxman-Markey Bill or proposed by the President Obama Administration.
The Kerry-Boxer Bill reduced the allowed emissions targets, while keeping the same timetable that was in the House passed Waxman-Markey Bill. The Kerry-Boxer Bill requires emissions reductions of 20% by 2020 in lieu of the 17% in the House passed version and 14% proposed by the President Obama Administration. Prairie State Energy Campus already faced an unrealistic benchmark in the House passed bill, and this bill is even more unworkable than the House passed bill.
3) The offset provisions of the Kerry-Boxer Bill are more stringent than the House passed bill, potentially raising costs of the program.
The offset provisions are critical to Prairie State, as offsets are a primary compliance mechanism until technology is sufficiently mature to consider retrofitting the plant with carbon capture systems. The further restrictions related to the availability of international offsets make the bill even more expensive than the House passed bill. These costs are borne by the consumers of our non-profit public power owners – the customers of municipal systems and the members of rural electric cooperatives.
4) In addition to the changes that Senators Kerry and Boxer proposed to the House passed Waxman-Markey Bill, the following provisions in the House version remain problematic:
A.) EPA is given insufficient time to develop regulations required for implementation of the program.
The official start date of the cap and trade program is January 1, 2012. EPA must develop most of the regulations, programs, market mechanisms and cost containment initiatives, as well as various studies and recommendations within two years of the date of enactment. This timeline is unrealistic and is inconsistent with prior major environmental laws, which provided EPA with longer lead times to develop regulations and rules for affected entities to implement programs considerably less complex and far-reaching than this bill. For example, the acid rain program (Title IV) in the Clean Air Act Amendments of 1990 provided five (5) years for Phase I compliance and 10 years for Phase II. The result for the climate program will be that many rules called for in the bill, and necessary for initiating the program, will not be developed in time for covered entities to plan for and implement actions to comply with the bill’s mandates.
B.) There is no price certainty in the cost-mitigation program.
The cost containment mechanisms do not include any price-certain point at which the program is deemed to be overly burdensome on citizens and the economy. The early trigger price for the auction reserve phases out too quickly to a floating price that has no upper boundary. The entire economy is subject to a substantial risk that this program may not work as planned – especially due to major assumptions about the availability of affordable new base load generation and associated technologies.
C.) Regional inequities are created because allowance allocations to non-emitters dramatically shift costs and benefits.
Allocation of allowances to non-emitters has no relevance to the cost burden of the program. This allocation creates substantial financial windfalls for utilities like those in the States of California and Washington, at the expense of others in the Midwest and Southeast who will have significant compliance burdens resulting from allowance deficits. This allowance allocation inequity is further exacerbated by new social programs funded from allowance proceeds that are not correlated to program costs. This will result in some states bearing a substantial cost burden under this program while others benefit.
D.) The offset program will not work as intended.
In the absence of an allowance price ceiling, the availability and affordability of domestic and international offsets constitute the main cost-containment provision in the bill. If offsets cannot be accessed at affordable prices, the cost of allowances will escalate dramatically (89 percent according to EPA). Lead times to develop offsets regulations and to implement qualifying offsets programs, along with practical and statutory barriers to the accessibility of international offsets, need to be addressed.
General Environmental Points on Prairie State:
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Prairie State employs state of the art technology and is designed to minimize environmental impacts using 21st century technology.
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Though currently not regulated, Prairie State’s CO2 emissions will be 15% less than the typical U.S. coal plant, given Prairie State’s supercritical design.
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The coal used to power Prairie State is derived from an adjacent underground mine, which eliminates the CO2 emissions associated with coal transported from elsewhere – nearly 200,000 tons of CO2 are saved per year by transporting this coal from the adjacent mine instead of by rail from the Powder River Basin.
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Prairie State and its owners are committed to clean and efficient use of coal, and Prairie State is part of a balanced energy portfolio that can help transition to lower intensity carbon generation.
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Our facility also has the potential to accept carbon capture systems when the technology is commercially available. However, there are no commercially-available, proven, cost-effective technologies. This is a major roadblock for Prairie State.
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Further, we know that even if carbon capture is technologically possible at some point, the costs may be so high as to not be economically feasible.
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Our consumers are the 2.5 million families across nine states that are served by our non-profit public power owners. Despite our positive environmental profile, the climate bill would have a serious, negative impact on the ability of Prairie State to operate, and thus on these consumers.
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Using Prairie State as an example, this bill also would have a negative impact on the local and state economy. To see the significant potential impact of this, if Prairie State is significantly and negatively impacted by this bill, as it will be based on review thus far, the economic activity numbers Prairie State is contributing to the economy will also be significantly and negatively impacted. This includes the positive economic impact of $785 million per year in ongoing economic activity in the State of Illinois.
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This is a significant impact, and for what we see as not a corresponding benefit. With the international community failing to do the same as us – it is a costly program that will have no real impact on the environment.
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We believe that the cost burden of the climate bill is unfair not only to the future consumers of Prairie State, but generally unfair to consumers in the Midwest due to the much higher percentage use of coal powered plants.
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We believe the bill places no significant limit on the cost of this massive program. The House passed bill, which was less stringent than the Kerry-Boxer Bill, had an estimated price tag that could cost over $3 trillion in the first 20 years.
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We believe the reduction targets are unrealistic, and there will be insufficient time to develop the program. The implementation schedule is so ambitious that the regulatory bodies cannot properly provide the public comment opportunity needed to successfully and fairly implement the bill.
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As outlined above, this bill would have serious implications for Prairie State, impacting our owners, our consumers, our workers and the regional and state economy.
