Playing the Reliability Card to Beat the Clean Power Plan – It’s a Bluff

Moore Headshot 3Mar 12, 2015 by John Moore

Don’t be fooled. Opponents of the president’s plan to fight climate change are stoking fears that cutting carbon pollution will lead to blackouts and power shortages across the U.S.  According to one coal industry campaign, the Administration’s policies will leave us “cold in the dark”.  However, history is not on their side.  Our nation has a 40+ year track record of cutting air pollution emissions while maintaining electric system reliability.

A recent case in point – Atlanta-based Southern Company is playing the reliability card again as it seeks to delay implementation of the Clean Power Plan, even as it moves quickly away from its former coal and carbon-heavy power plant asset base.

If the card doesn’t work the first time . . .

We’ve seen Southern do this before – as recently as 2011, when senior company officials warned of rolling blackouts as a result of EPA’s standards to reduce mercury and other toxic air pollution from coal burning power plants.  In testimony before Congress and the Federal Energy Regulatory Commission, Southern Co. officials testified that it needed at least six years (rather than the 3-4 years required by Congress under the Clean Air Act) to comply with the rule or the “lights will go out” (p. 195 of the FERC transcript). In fact, the company’s Chief Operating Officer predicted that “numerous rolling blackouts” and “service curtailment” would begin to impact their customers as early as 2015 (same page).

(In technical terms, Southern claimed that its reserve margin, the buffer needed to meet peak power demand, would plummet to minus 12 percent by 2015, meaning that it wouldn’t have sufficient generating resources to satisfy project demand for electricity.  Most regions target a reserve margin of 15 percent to ensure electric reliability.)

Just two years later, however, at another FERC meeting, Southern basically said, ‘Never mind.’ The company announced that it was on track to comply with the mercury rule (p. 2).  By November 2014, it was telling investors that it was 98 percent of the way toward compliance with the standards (p. 21 of presentation).

Now, four years since issuing its dire warnings, the lights haven’t gone out. In fact, Southern continues to enjoy a robust surplus of generation capacity.  Instead of a reliability problem, industry officials are reporting a very healthy and perhaps even excessive 33 percent reserve margin (p. 79 of report) in the Southeast.  And the company is touting its early action approach to the financial community as an example of leadership.

Play it again

Although Southern Co.’s warnings proved hollow, for some reason it’s now pulling out the reliability card again. At FERC, for example, Southern is telling the commissioners that the Clean Power Plan would “jeopardize reliability of the bulk electric system,” and is urging FERC to tell EPA to slow down.

As before, Southern Co.’s claim doesn’t hold water. EPA’s proposal gives utilities well over a decade to comply (2030 is the final deadline), together with an unprecedented array of compliance options, including market-based carbon trading, wind, solar, and other zero- or lower-carbon solutions, and multi-state compliance arrangements. See my post detailing the Clean Power Plan’s many compliance choices. Although for Southern, 2030 isn’t long enough – it wants even more time.

Watch what Southern does, not what it says

Don’t just take our word that the card is a bluff; look at Southern itself. Regardless of the company’s rhetoric, its business decisions speak loudly in the other direction. Southern has been aggressively making the transition from coal to gas; so much so that both its generation asset base and its dispatched power is now majority gas (see page 22 of the Southern investor presentation mentioned above). It’s also expanding the Vogtle nuclear power plant – with significant financial risk mitigation by virtue of being a vertically integrated company with captive customers. Overall Southern is significantly lowering its future carbon intensity.

In short, Southern is behaving as though carbon standards will happen, that gas as a commodity is going to continue to be an attractive fuel for power generation.

These appear to be reasonable assumptions from its perspective, and they also happen to support maintaining grid reliability in its service territory. So next time you hear Southern – or for that matter, any utility – warn that the Clean Power Plan threatens the electric grid, remember: you’ve heard it before. It wasn’t true then, and it’s not true now. The reliability card’s a bluff.

Written by John Moore