Thune Calls on Obama EPA to Withdraw Backdoor National Energy Tax
-Power plant rule will slam South Dakota rate payers-

WASHINGTON, D.C.—U.S. Sen. John Thune (R-S.D.) today sent a letter to Environmental Protection Agency (EPA) Administrator Gina McCarthy calling on the EPA to withdraw its proposed regulations on exiting power plants, citing the significant financial burdens it will impose on South Dakota consumers, as well as technical infeasibilities that will drive up energy costs and threaten grid reliability.

“The Obama administration’s proposed power plant regulation is yet another example of presidential executive action that Americans clearly rejected in November as it will hurt jobs and increase costs,” said Thune. “The president’s proposed regulation is a national, backdoor energy tax that will slam South Dakota rate payers—especially low-income families and seniors living on fixed incomes. Affordable and reliable energy provides essential comforts for families across the country this winter and powers American industries to build a stronger economy. Yet the EPA’s proposal will make electricity rates skyrocket and stifle economic growth. I continue to urge Administrator McCarthy to reconsider.”

On June 2, 2014, the EPA proposed the Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units, or Clean Power Plan, requiring a 30 percent reduction in carbon dioxide emissions from existing power plants by 2030. Under the proposed rule, South Dakota power plants must reduce carbon dioxide emission rates 35 percent by 2030 based on emission levels from 2012. This reduction mandate is more stringent than the national average for the EPA’s proposed reductions. According to testimony provided to the South Dakota Public Utilities Commission in July of 2014, South Dakota consumers could see their electricity bills increase by as much as 90 percent on account of this regulation.

Full text of the senator’s letter is available below:

January 6, 2015

The Honorable Gina McCarthy
Administrator
Environmental Protection Agency
U.S. EPA Headquarters – William J. Clinton Building
1200 Pennsylvania Avenue, Northwest
Washington, DC 20460

Dear Administrator McCarthy:

I am writing to strongly encourage additional review of the technical feasibility of South Dakota’s emissions reduction target under the U.S. Environmental Protection Agency’s (EPA) proposed Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units, also known as the Clean Power Plan (CPP).  As you know, affordable and reliable energy helps grow the economy and helps low- and middle-income families make ends meet.  Unfortunately, the CPP will only increase electrical rates and hurt those who can afford it the least.

The CPP fails to recognize South Dakota’s unique energy profile, making compliance not only technically infeasible, but incredibly costly to consumers and damaging to South Dakota’s economic base.  For example, South Dakota is not fully credited for its robust renewable energy production, which totaled approximately 74 percent of all in-state electricity production in 2012.  Additionally, South Dakota has a single coal-fired steam electric generating unit (EGU) and only one natural gas combined-cycle plant (NGCC), which serve different Regional Transmission Organizations (RTOs).  As I will detail below, each of these EGUs and the customers they serve fall victim to misguided assumptions under the CPP’s formula for calculating state emission targets.  The remaining building blocks of the CPP raise additional issues that will impose significant burdens to South Dakota rate payers.

Block I:  Coal Plant Efficiency

Improving heat-rate efficiency by six percent at South Dakota’s only large coal-fired EGU, the Big Stone Plant, is not feasible.  The facility, which provides affordable power to thousands in South Dakota and neighboring states, is in the midst of an approximately $400 million environmental upgrade project to meet the EPA’s Regional Haze regulations.  This investment actually decreases the heat-rate efficiency of the plant by approximately two percent when fully online, working against the six percent heat rate improvement for the plant required by Block I.  Because this major development cannot be factored into the CPP’s rubric for South Dakota, the Big Stone Plant will be required to effectively improve its heat-rate efficiency by eight percent.  Such a goal is technically unachievable because the Big Stone Plant is already implementing best practices and upgrades to achieve efficiency gains.  Additionally, the Big Stone Plant exports steam to an area ethanol producer, which it may stop doing on account of the target for heat rate improvement required by the CPP.

Block II suggests that coal-fired generation can be pared down with natural gas power re-dispatched in its place.  However, such a strategy runs contrary to the efficiency goals of Block I because the Big Stone Plant was designed to operate at a high capacity factor, and lower loads reduce efficiency.  In other words, the constant start-ups and shutdowns of the coal-fired EGU imposed by Block II will result in less efficient operations of the plant, increased stress to mechanical systems, and higher maintenance costs—all of which are in direct contradiction to the efficiency mandates of Block I.

Additionally, operating the Big Stone Plant on a limited or seasonal basis will result in a stranded asset because the $400 million upgrade required by the EPA, which is more than the original cost of the plant, will not have fully depreciated by the time the CPP requires the plant to shutter for most of the year.  The EPA rightfully states that the CPP should not result in stranded assets, which equate to higher utility costs for consumers, less grid reliability, fewer jobs, and in the case of the Big Stone Plant, limited ability to recoup the investment in a manner that isn’t punitive to South Dakota ratepayers.

Block II:  Natural Gas and Multiple RTOs

Block II dictates that NGCC EGUs operate up to a 70 percent capacity factor to meet energy demands as coal-fired generation is retired or limited.  This is a blanket provision that fails to account for unique circumstances in each state.  For example, in determining the amount of energy South Dakota’s singular NGCC EGU produced in 2012, the CPP should recognize that Basin Electric Power Cooperative’s Deer Creek Station was largely under construction in 2012 and only operated approximately 90 hours for testing and other start-up procedures.  The CPP uses Deer Creek Station’s actual 2012 capacity factor of a mere one percent in calculating South Dakota’s required carbon emission rate reduction.  I believe a fair assessment would recognize the Deer Creek station as “under construction” and reassign an assumed capacity factor of 55 percent in 2012.  Such a recalculation would be consistent with reality and the EPA’s vow to make the CPP flexible.

One of the most glaring issues of the CPP is that it fails to recognize the composition of America’s electric grid.  Electricity is not produced and consumed solely within state lines, but sold, dispatched, and consumed across state lines through RTOs.  Big Stone Plant is dispatched primarily by the Midcontinent Independent System Operator, Inc., serving customers in Minnesota, North Dakota, South Dakota and Montana.  Deer Creek Station is presently dispatched by the Western-Integrated System, but recent agreements will dispatch it to the Southwest Power Pool in the future.  Because the electric generation at one EGU cannot simply be reduced at one location and re-dispatched from another across RTOs, Block II again proves technically infeasible for South Dakota.  While the CPP provides that states can work in multi-state agreements, the EPA has not demonstrated it has the legal authority to require EGUs to coordinate generation, let alone proven the feasibility of multi-state partnerships involving multiple RTOs.

Block III:  Renewable Power Sources

It is also concerning that hydroelectric generation is not included in baseline calculations for Block III of the CPP.  Failure to include hydroelectric generation denies a comprehensive consideration of South Dakota’s diverse energy portfolio and unfairly skews South Dakota’s emission reduction target.  In the CPP’s baseline year of 2012, South Dakota produced

74 percent of its energy from renewable sources, and only three states produced fewer carbon emissions.  As of August 2014, my state generates 546 GWh from hydroelectric and 121 GWh from wind sources.^[1]  All renewable energy deserves inclusion in the EPA’s calculations for establishing our emission reduction target.

Additionally, much of South Dakota’s hydro and wind power is exported to other states.  It was discouraging to learn that South Dakota will not get credit for its existing renewable resources and future renewable resources on account that this power is sold to consumers out of state.  Renewable power produced in South Dakota should count toward meeting the emission reduction goal for South Dakota.

Block IV:  Consumer Energy Efficiency

The CPP will also interfere with and potentially discourage demand-side electricity consumption programs.  For example, as many as 250 electric cooperatives in 34 states, including South Dakota, have implemented voluntary demand response initiatives for electric resistance water heaters that reduce energy demand during peak hours.  On account of efforts like this, electric cooperatives account for 20 percent of national peak reduction, even though they manage only 10 percent of retail electricity sales.  Under the CPP, many of South Dakota’s utilities would not receive credit for demand-side management programs that have been in place for years, and it is unclear which states will receive credit for demand-side management programs that result in emissions from out-of-state power plants.  If South Dakota ratepayers take the initiative to participate in these programs, South Dakota’s emission target under the CPP should reflect their participation.

Moreover, the EPA has signaled that the CPP will credit Renewable Energy Certificates to states that receive electricity, rather than those that generate it.  Such unfavorable treatment of utility-scale renewable energy projects will remove incentives for investment.  Consumers should receive credit for their investments that reduce emissions.

Conclusion

The EPA’s CPP will pass significant costs onto hard-working South Dakota families.  In my home state alone, families earning less than $50,000 per year already spend one-fifth of their after tax income on energy costs, which is double the national average.  The CPP is a regressive national energy tax that will disproportionately fall on the elderly, the poor, and those on fixed incomes.  According to testimony at a roundtable hosted by the South Dakota Public Utility Commission in July, some South Dakotans will see their electricity rates almost double as a result of the CPP disproportionately impacting the Midwest.  Additionally, the CPP will impose increased costs to U.S. manufacturers, impeding economy growth and investment, all in return for virtually no impact on atmospheric carbon dioxide concentration or global temperatures.

For these reasons, I urge the EPA to withdraw the CPP due to the serious economic burden it will impose on South Dakota consumers.  At a minimum, the EPA should reconsider South Dakota’s emission reduction target to more accurately reflect our existing energy portfolio and the investments of utilities and ratepayers have already made in efficiency upgrades, renewable energy production, and demand-side energy management programs.  I appreciate your consideration of this important matter and look forward to your timely response.

Kindest Regards,

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[1] http://www.eia.gov/state/?sid=SD#tabs-4