Print 🖨

Below is the HillCo client report from the September 29 and 30 House Environmental Regulation Committee hearing.

The committee met to consider the following interim charge:
 
Review the Environmental Protection Agency's newly proposed Clean Power Plan to determine the potential impact the proposed federal rule would have on Texas. Specifically, the Committee should examine how the proposed emissions reductions would impact the reliability of the state's electricity generation, the potential impact on the price of retail electricity and its affordability, and the potential impact on the economic development of the state. Additionally, the Committee should review the state's renewable energy and energy efficiency standards to determine if they are capable of contributing to meeting any proposed emissions reductions and determine what changes, if any, to these policies could help facilitate meeting the proposed emissions reductions.
 
 
Day 1
 
Brian Lloyd, Executive Director, Public Utility Commission (PUC)

  • The rules are of great concern and are very complex
  • The do not reflect the reality of electricity markets
  • Texas has a small ability to import electricity from other states but for the most part must create the energy it uses
  • One of the issues is that the rule contemplates that states are in a regional system but does not contemplate states being in multiple systems
  • The EPA rule comes up with emissions limits for Co2 within states based on these four building blocks:
    • Improved efficiency of coal plants
    • Increased use of natural gas plants and decreased use of coal plants
    • Renewable energy productions – 20% renewable energy standard
    • Increased energy efficiencies
  • PUC approves the construction of and potential rates coming from new power plants
  • Environmental compliance requirements are ultimately passed on to consumers
  • It is not clear how the EPA plans to handle situations where the generation is coming from one state and the payment is coming from another state
  • Chairman Patricia Harless asked how long a typical permit takes
    • Usually one year; does not include environmental permitting
  • Harless asked about environmental permitting
    • It is part federal and partly done at TCEQ
  • Harless asked how long it takes to build a plant
    • Generally, natural gas plants can be built quicker – 18-24 months to come on-line
  • Even though the utilities are in multi-state systems it does not mean electricity flows freely in the systems; there are transmission limitations
  • Many of these principles apply to the ERCOT market as well
    • PUC does not approve them
    • The market determines what gets build in ERCOT
  • ERCOT runs centralized real time markets to ensure the market signals are as current as possible
    • The system is meant to get the most efficient/cheapest plants running first
  • Renewable generation has a lower capacity factor than coal and nuclear because they are not generating for as much of the year
  • Trying to replace annual energy production for a 1,000 Mw coal plant would require multiple 1,000 Mw wind plants
  • West Texas wind generation is at its maximum output at night; coastal wind generation is at its maximum capacity during the day time; not always at peak times
  • Solar farms reach their peak during the middle of the day and start to diminish as the afternoon passes which is generally when peak times for consumption are reached
  • Renewable energy credits are no longer providing much of a subsidy
  • In the EPA rule the 20% renewable energy standard is much more problematic for Texas because of its size
  • Because wind and solar do not have a fuel cost they either begin their bid at $0 or negative dollars; impacts profitability of other generators
  • Adding renewables displaces gas generation because it is a higher cost to generate than coal
  • Renewable resources tend to be remote from where people live so a lot of transmission would be necessary to bring the resources to market
  • Texas’ energy program is geared toward peak demand; the EPA standards look more at total year’s usage
  • For the average retail price of electricity for the five largest states prices are up 22% since 2005; Texas prices are down over the same period
  • Rep. Jason Isaac asked if there has been any instance of a coal plant shuttering and a gas plant being placed at the same location
    • Few plants in Texas can really be shifted over; for most locations an entirely new plant must be built
  • Isaac noted the decrease in diversity in the EPA rules; diversity helps consumers with prices
  • Rep. Tryon Lewis asked what issues will be facing the legislature if the EPA plan goes into effect; if the rule is adopted next June, additional legislation would be required to develop a state plan and adopt it
    • PUC does not have the authority to do a lot of the things that would have to be done to follow the building blocks; the legislature would have to pass legislation or pass authority to PUC

 
Trip Doggett, President/CEO, Electric Reliability Council of Texas (ERCOT)

  • ERCOT is basically an island as far as interconnections go
  • ERCOT is responsible for about 90% of the load in Texas
    • About 550 generating plants
  • System reliability is the primary responsibility of ERCOT along with open access to transmission
  • ERCOT plays a key role in Texas’ very successful retail market
  • ERCOT will be looking at whether there is adequate generation to serve the load that will be necessary through the EPA rules; also looking at whether adequate transmission infrastructure is available
  • Demand response modification regarding market rules will be developed by ERCOT as well if necessary
  • ERCOT has done a lot of good things to make environmental improvements already
  • Will be continuing to monitor ERCOT’s ability to integrate renewables
  • In ERCOT’s planning queue there are a lot of Mws of wind being planned; will have to be reduced to cover load on a hot summer afternoon
    • With Texas’ economy growing it is important to keep an eye on generation coming off line with the new EPA rules and how that will affect reliability

 
Toby Baker, Commissioner, Texas Commission on Environmental Quality (TCEQ)

  • The EPA rule assigns each state a carbon output rate; by 2030 Texas would have to have 791 lbs of CO2 per Mw/hr
  • Legislature will have to deal with:
    • Cost of the changes to consumers
      • Will assuredly go up for the near-term
    • Who regulates
      • Many aspects of the rule are outside of the responsibilities of TCEQ
    • How will we keep the lights on
      • EPA did not provide any type of safety valve or guidance for emergency times; should producers be put in a position of having to violate the rules in order to keep the load need satisfied
    • How will we enforce the rule
      • The rule has the look of system wide accountability; would the state be penalized or the generators
    • Property tax exemptions for pollution control equipment
      • Can imagine some plants looking for that property tax exemption after modifications to comply with the rule
  • If all coal plants in Texas were replaced with state of the art combined cycle gas plants Texas would still not reach the standard in the EPA rule; more renewable would still be necessary or some type of cap and trade system with another state
  • The rules are highly questionable and extremely challenging; the EPA missed on trying to understand where states are right now as far as what generation is currently available

 
Vince Myler, Air Quality Division, TCEQ

  • If EPA adopts the rule on their current guideline, Texas would only have about a year to develop a state plan
    • Extensions can be arranged but a state must submit an initial plan and make certain commitments in order to receive an extension
  • Each state’s standards are developed dependent on their current energy mix; because Texas is very diversified the standard is higher
  • Rep. Ron Reynolds asked if the stringent standard is the biggest concern about the rules
    • Much of the rule is outside of TCEQs expertise but that is one of the main concerns of TCEQ
  • The individual building blocks are not enforceable within the rule; the assumptions of the blocks have been built into the calculation of the state goal so there isn’t as much flexibility as is being advertised
  • Rep. Jason Villalba asked what happens if the state does not submit a plan
    • EPA can implement a federal plan on a state; there are questions about what it would look like
  • Villalba asked what agency would be responsible for enforcing that rule on Texas
    • Just the EPA
    • Terry Salem, TCEQ attorney responded that the plan would allow the EPA to have enforcement authority
  • Villalba asked what would keep Texas from just saying no to implementing the plan
    • Currently exploring the EPAs authority to do this kind of expansive reach into electric market regulations; will not have a final answer until the rule is litigated
  • Villalba asked more about consequences and options
    • Harless noted more of that discussion will come tomorrow
  • Rep. Marisa Marquez asked what TCEQ does with regard to the rule
    • Efficiency of current coal plants is about it
  • There are some choices the state would have to make regarding whether to do a single state plan or a multiple state plan; a rate based standard or a mass based standard can be adopted; site specific limits or an overall portfolio approach can be adopted
  • Any program the state wants to take credit for must be federally enforceable
  • Isaac asked if TCEQ has received any potential impacts of the rule from EPA
    • They have provided an assessment of predicted benefits and costs but nothing very specific
  • Isaac noted he believes EPA has not published an impact statement for small business and by not publishing such a report they are claiming there will be no impact; NFIB believes there will be cost to their members which would require EPA to publish the impact assumptions
  • Villalba asked if EPA has published anything about expected environmental benefits
    • Baker replied that EPA published anticipated climate benefits and co-benefits of other pollutants than CO2 but it wasn’t broken down by state
  • Villalba asked what the benefit to the nation is anticipated to be
    • Do not have the specific numbers
  • Reynolds asked if it would be in Texas’ best interest to submit a state plan
    • TCEQ is still evaluating all of the moving parts and hopes to come back and vet all of those issues with the legislature
  • Baker noted that the rule is still a long way from being final; it is still proposed and could change dramatically after EPA receives all of the comments from state agencies

 
Sam Newell, Brattle Group

  • CO2 emissions are already being reduced because of the increase in production of shale gas
  • EPA is looking for an additional 25% decline in addition to the current trending decrease
  • The rule only impacts the power sector which is only responsible for about 1/3 of CO2 emissions nationwide; would only be about a 7-8% decrease in nationwide CO2 emissions
  • Apart from the building block analysis, EPA analyzed what they expect the industry to look like by the year 2030
    • Texas would be reducing their total CO2 emissions by 40% in addition to business as usual
  • EPA has perceived more readily available opportunities to reduce emissions in Texas so the rules tend to be disproportional among the states
  • There is a question of whether the rule will compromise reliability; ERCOT has a very well-designed and well-functioning market that provides price signals so reliability would probably not be affected that much
  • EPA estimated that 12,000 Mw of coal would retire in Texas; do not think that much would retire, much less all at once; but if half of that retired it would add stress to the system which would bring more investment
  • The renewable energy target for Texas is very ambitious and based on what appears to be a misinterpretation of a Kansas standard applied to Texas
  • Expects that the market would take care of the challenges brought on by the rules in response to increased stresses
  • Harless asked at what cost the market will take care of the challenges
    • There will be a cost but it is hard to determine what the cost would be; EPA believes the rules will cost Texas between $1.2-2 billion per year
  • Harless asked if Texas can meet the demand going forward with the building block system
    • If the objective is to meet a certain reserve margin the pressures may make it a little difficult; the rules add to the stresses but are not impossible to achieve
  • The standards are not exceedingly aggressive toward Texas on energy efficiency
  • There are opportunities to lower the cost of compliance by adopting a mass based strategy
    • It benefits states to find where the least-cost reductions are and partner with those states; wind may be cheaper to develop in some states and a benefit for Texas to partner with that state on some type of trade program

 
Mike Massey, General Counsel, Balanced Energy Texas

  • Discussed a letter in which the Texas Congressional delegation made concerns very clear to EPA about how the rule could negatively affect states; EPA did not pay any attention and went ahead and proposed the rule
  • The rule is not flexible because EPA has built in many assumptions about the ability of Texas to reduce emissions and in order to get to that point, Texas must do certain things with very little flexibility
  • There is a disproportionate burden on Texas; Texas’ current emissions are lower than 18 other states final budgeted rate within the EPA rule
  • Given the assumptions in the rules on renewables, Texas would have to build a whole other country’s amount of renewable generation; Texas is required to increase renewable generation by 150%
  • Preliminary analyses shows that residential electric rates in Texas are expected to increase by 48% and residential gas prices to increase by 75% because of this rule
  • The rule is the result of a settlement agreement between EPA and environmentalists in which EPA agreed to come after power plants and oil and gas refineries
  • Harless asked if EPA will move forward with the rule as written
    • It is hard to imagine that the rule will move forward without the building blocks but it is hard to imagine they will not change the rates because of the disparity

 
Mack McFarland, CEO, Luminant

  • Largest competitive generator in the state
  • Operate in ERCOT
  • Operate with coal, nuclear and gas and are a large purchaser of wind energy
  • The EPA plan has completely redefined the clean air act and is an attempt to extend EPA’s authority into fuel mix, generation capacity and distribution
  • Texans will certainly bear a higher cost for their electricity going forward
    • EPA predicted a 9% increase in rates; there will probably be more than a 20% increase from 2020-2030
    • The average bill will be increased by about $30 per month
  • Total estimated cost of the rule as EPA estimates is around $7-8 billion; it is more safe to assume the cost to Texas alone will be more than $10 billion
  • Worldwide emissions would decrease by only about 2% if the plan is successful, at a high cost to the nation and especially Texas

 
Venita McCellon-Allen, President, Southwestern Electric Power Company

  • The rule, as proposed, is completely unworkable
  • The greatest concern is the timeline
  • Environmentalists will say that coal fired plants in Texas are old and dirty; neither of those statements are true; the two oldest SWEPCO coal plants in Texas have been depreciated at a rate that expects them to run for another 22 years and are being retrofitted to meet even more stringent requirements
  • 1,700 Mw of generation in East Texas pocket represents 30% of capacity gone by 2020
  • 100% of base load capacity gone
  • Don’t turn on a dime – difficult to contemplate meeting requirement by 2020
  • Southwest Power Pool has begun analyzing assumptions and have some key findings
    • If implement EPA assumptions – voltage support generation is lost so model won’t solve and potential for reliability problems
    • By 2020 utilities in Southwest Power Pool would no longer meet margin requirement
    • Would be costly and time consuming to implement new generation reliability effects
  • Conflicting (pancaking) regulations that will additionally effect customers

 
David Hudson, Southwestern Public Service Company

  • 40% of capacity comes from coal so this rule is a big concern
  • The rules will require significantly more transmission investment that EPA is probably not taking into account
  • Shutting down coal plants and replacing them with new plants will take years so reliability will be a concern
  • The cost to consumers will be significant and needs to be considered by EPA as well
  • Texas is not getting credit for anything that was done before 2012 in regard to renewable standards
  • Texas is going to have to meet 87% of the 2030 target by 2020 which is impossible to make
  • Harless asked if it is expected that generators will leave the state
    • Demand will always be there but the only place for generation to go is offshore
  • Harless asked if it is possible to convert a coal plant to a gas plant
    • It is possible but the economics of it may not make it viable
    • Converting to a gas plant would also require all of the coal plant employees to be laid off
  • Harless asked about the timeframe to bring a gas plant online
    • About 3 years in permitting and about 4 years in construction

 
Terry Clower, Professor

  • University was asked to analyze coal mining in Texas some years ago
  • Total economic impact of coal mining to the state is about 6.2 billion
    • $640 million in tax revenue
  • Converting coal plants to gas would be a negative $2 billion impact to the state
    • $147 million in tax revenue
  • Most of the coal mining activity in Texas happens in small rural communities and represents a vast share of all that is going on in those communities
  • When companies are making site location decisions, electric rates and reliability of supply are major factors
  • If the EPA plan is approved and the use of coal were reduced, Texas would have a less reliable electric market
  • Lewis asked about the tax estimates
    • The estimate includes property taxes, sales tax, licensing and permitting fees, etc.

Day 2
 
Bryan Shaw, Chairman, TCEQ

  • Concerned that there is a tendency to ask the wrong questions about the rule; should not be asking if it is achievable; should be asking about what the rule will do in regard to reliability and the state’s ability to incentivize new generation; also should be asking what precedent will be set for EPA overreach
  • In this rule the EPA has interpreted 111(d) differently than they have in the past; they have incorporated additional reductions into the current flexibility
  • Many of the provisions of the rule are one-size fits all which does not work in the power industry
  • It is questionable how regional trading would work to achieve the new rule provisions
  • In their rush to get the rule through, EPA has undermined some of the things they are trying to incentivize
  • It is hard to know where to invest right now in generation
  • Villalba asked why the federal government was so sloppy producing these regulations
    • This has been an extremely fast process; something this complex, done this fast is going to have problems
  • Villalba asked what drove the speed
    • The administration has been intent on getting reductions
  • Marquez made the point that it happens all the time that the federal government adopts regulations that are hard on the states and state governments adopt regulations that make it hard on counties and municipalities; we need to move toward a solution and understand that they are going to do what they are going to do
    • Shaw noted TCEQ’s goal is to point out problems and inconsistencies in the rule so that they aren’t moved forward
  • Reynolds asked why TCEQ doesn’t work on submitting a Texas plan that will balance the intent of the EPA plan with Texas’ abilities
    • That is happening; Texas has already made significant reductions in greenhouse gasses and other pollutants through incentives and the free market structure; Texas has been a leader in this area; EPA is not recognizing the steps Texas has taken because they set the baseline at 2012 which was after Texas implemented many solutions

 
Donna Nelson, Chairman, PUC

  • The EPA rule is an overwhelming threat to Texas, the electricity market, customer wellbeing, etc.
  • The current energy efficiency standards were established by the Texas legislature; PUC has jurisdiction over ERCOT because it is fully within the state and the EPA plan would take jurisdiction away from PUC and move it to EPA
  • Compliance will be toughest for states like Texas that have already moved in the right direction
  • Texas is the leading state in renewables; 14% of ERCOT footprint is wind generation and EPA is not recognizing that; EPA has penalized the state by requiring an increase in renewable generation by another 150%
  • According to the EPA analysis more than 40 coal and gas units will have to retire in Texas
  • Texas is in three transmission organizations so the rule is even more complex for Texas
  • The Southwest Power Pool ran some models for what the plan will do to transmission and determined there will be significant loss of load or rolling outages; when they measured generation they determined that there will be significant loss of generation which is mostly regulated and generators would have to be made whole by the commission if they are running at a loss due to shuttering existing units and building new units
  • There is a projected increase of 25-90% on wholesale energy prices
  • SWEPCO has significant coal generation and is in the process of retrofitting some plants to comply with the mercury air toxin rule; will cost hundreds of millions of dollars; with the EPA rule looming they don’t know of they should move forward or stop and wait
  • Texas has 11% of the country’s electric generation but is expected to reduce 18% of the country’s emissions through the plan
  • This rule requires an entirely new level of coordination because the building blocks of the plan affect multiple jurisdictions
  • Villalba noted there will be a 52% reduction in the coal industry in Texas, there will be a loss of reliability at significant levels; it seems the only solution is to fight as much as possible to keep this regulation from coming on line
    • It completely upends the ERCOT market the state has established very successfully
  • Harless asked about the ability to build new generation to meet the plan’s requirements
    • In ERCOT private companies make the generation; one of the problems now is the uncertainty that is created by the rule; generators do not know what they should build and there is still a several year lead time to get the resources on the ground; transmission needs must be considered also

 
Warren Lasher, Director of System Planning, ERCOT

  • There are multiple revisions to federal regulations and rules that are in the process of being implemented
  • Do not know what a likely compliance strategy will be; any strategy will have to include a reduction in coal and an increase in renewables; the EPA plan will exacerbate the regulations that are currently being implemented
  • Unit retirements can lead to local grid reliability issues which would likely have to be offset by transmission upgrades
  • Texas is leading the state in renewable generation and understands the challenges of renewable generation there is a need for significant planning, ancillary services, and backup resources to ensure reliability
  • Conducting a study right now that will be out in late November or early December that will give a good idea of how the EPA rule will affect the ERCOT market
  • Harless asked how 40 units being shuttered will affect the market
    • The market is very lean and very efficient because it is an energy only market; any changes will have a significant impact; will have a better idea when the study is completed
  • Harless asked about increased rates
    • Not sure; the study will give a good idea of the potential increase in rates

 
Bob Kahn, General Manager, Texas Municipal Power Agency

  • There have been more than 10 lawsuits filed already against EPA for this rule
  • TMPA would basically have to close down if the rule is adopted because of the reliance on coal burning
  • TMPA has a single source coal burning unit which serves four cities to keep costs low for customers
  • Have already made many significant changes to the unit to reduce emissions of multiple toxins
  • Just about all efficiencies have already been squeezed out of the unit; to increase efficiencies using just equipment will not work for TMPA and the goals will be impossible to meet; would cost more than $80 million per year to meet the requirements which would not allow TMPA to be competitive in ERCOT
  • Believe that most of the coal units in Texas would have to shut down because of the rule
  • Plan to file comments and seek clarifications with EPA
  • TMPA pays taxes to three ISDs and pays taxes to Grimes County; TMPA employs over 100 people and shutting down would undoubtedly affect the communities around the unit
  • Isaac asked about taxes paid
    • Last year paid Grimes County over $300,000 and about $400,000 to the three ISDs; those are significant amounts to those small communities

 
Chris Eugster, CPS Energy

  • Have been rebalancing fuel mix to achieve emission reductions already
  • Have committed to an early retirement of two coal units 15 years ahead of schedule, purchased a gas fired plant, will have 1,500 Mw of renewable capacity coming online, have an energy efficiency program that will reduce consumption by 770 Mw by 2020
  • A big problem with the rule is the credit achieved for nuclear generation; would like to see more credit for that resource
  • Harless noted because CPS is more diverse the rule affects them less than TMPA
    • Correct

 
Debbie Robinson, President, East Texas Electric Cooperative

  • ETEC has $1.5 billion initial assets; preliminary studies show there will be $2.9 billion in compliance cost over the next few years through he EPA plan
  • Already have been pursuing diversity in order to be more cost efficient and reliable
  • In 2017 about 48% of generation will be coming from coal
  • Currently increasing the renewable portfolio; building biomass and hydro plants
  • Based upon EPA projections many plants will have to be shut down
  • Concerned because plants are owned in three states and ETEC is unsure how multi-state regulations will work
  • Customers may see $30/month increases to electric bills
  • Harless asked about the biomass plant not being adequate
    • There is a possibility that it could be deemed not carbon neutral
  • Harless noted she believes there was testimony yesterday that biomass will not be deemed carbon neutral

 
Mike Kezar, South Texas Electric Cooperative

  • EPA model forecasts predict that 13,000 Mw of coal fired units will have to be retired by 2020
  • STEC has made significant investments to comply with impending regulations already for coal plants
  • Concerned about cost and reliability issues with new EPA regulations
  • Rep. Kyle Kacal asked about EPA not responding to written concerns
    • Submitted a letter to the EPA signed by a bipartisan coalition of congressman that was for the most part ignored by EPA
  • Discussed contributions to tax rolls in the area around the San Miguel coal unit
  • Isaac asked about diversity
    • 70% of fuel mix is related to gas; have a contract for wind as well as a solid fule source unit
  • Harless asked about impact to ratepayers
    • It will be significant

 
 
Mark Schwirtz, Golden Spread Electric Cooperative

  • Centered in the wind rich CREZ zone
  • Have built generation to support the wind operation that adjusts well to wind supply
  • One problem with the rules is that they won’t allow simple cycle gas turbines more than 33% of the time
  • Concerned about the impact of the timeline of the rule; it will be hard to build and adjust as quickly as would be necessary
  • Harless asked about LCRA estimates of electric price increases of 33-60% because of the 111(d) rule and the increase in agricultural cost
    • 30% of the total load of the system is agricultural, usually for irrigation
  • Harless noted the cost increase passed on to members will increase cost of goods sold to all Texans

 
Clifton Karnei, Brazos Electric Cooperative

  • Compose about 5% of the ERCOT market
  • Very concerned about what would happen to the San Miguel unit because BEC is a 50% purchaser from that resource
  • Believe the rule will be highly litigated and is a bad thing for Texas
  • Concerned about cost and reliability
  • Encouraged the committee to consider whether the state should do a state plan; would be better than anything the state could get from the federal government
  • Will not be able to achieve heat ratio reductions without investment and many generators will not be willing to invest with the new rule looming
  • Villalba asked how a plan can be crafted that will ultimately result in the destruction of an industry
    • If the rule survives the legal challenges and a plan is not crafted it will be even worse
  • Villalba noted there are options; crafting legislation or complete defiance
    • Agreed and those options should be evaluated

 
Joel Moxley, Chairman, Gas Processors Association

  • Over the last decade members have invested hundreds of millions of dollars to more efficiently handle gas resources with the booming gas industry in Texas
  • GPA member companies employ over 20,000 Texans
  • Regulatory certainty is paramount to the gas industry because of the EPA plan
  • Texas Pipeline Association has performed a study and determined that the midstream gas industry will spend another $300 billion in the next ten years in Texas; the state’s economy will be propelled by the midstream industry more than ever before
  • Harless asked if GPA is supportive of the plan
    • It is a step toward regulatory certainty; need to know what the emission standards will be

 
Selena Romero, Texas Pipeline Association

  • Members own and operate a significant majority of pipelines in Texas
  • With the shale boom, members have been working vigorously to help get product to market more efficiently
  • Regulatory environment is very important for the industry and having certainty is crucial
  • The EPA plan with inevitably create an additional need for natural gas so TPA and GPA will have a crucial role in its implementation

 
 
Luke Metzger, Environment Texas

  • There has been a rush to adopt this rule because dangerous carbon emissions contribute to global warming
  • As the world’s largest economy and the country responsible for the most pollution, the US has the responsibility and the opportunity to lead the world in reductions of carbon pollution
  • The EPA believes the public health benefits will be worth around $30 billion by 2030; for every dollar invested in the clean power plan the EPA believes every family will see $7 in health benefits
  • Warned the committee against the defiance strategy for this rule; could result in slower permitting through EPA
  • 70% of Texans support limiting greenhouse gas emissions from power plants according to a study done by Stanford University

 
Cyrus Reed, Lonestar Chapter Sierra Club

  • Want to make sure that everything Texas does to decrease carbon reductions is considered for credit through the EPA plan
  • Myths about the EPA plan
    • Texas is treated unfairly
      • Texas has more carbon emissions than any other state; more than the second and third place states combined
    • Texas is forced to follow EPA building blocks
      •  They are just a guideline to show reductions are possible
    • Building block levels are unachievable
      • This is untrue
    • There is no way the carbon rate can be achieved by 2020
      • The rule does not require that; only that a compliance plan must be developed
    • Taking action when China and India are not is economic suicide
      • We should take leadership; China and India have only been working toward reduced carbon emissions for only a decade
    • The rule will cost ratepayers hundreds of dollars
      • If Texas develops its own plan this does not have to be true
    • Texas does not get credit for what it has already done
      • All of these factors go into the calculations if the rate based approach is taken
  • CO2 emissions have been staying pretty steady in the recent past and not going up, mainly because of wind energy increases; have not made great reductions though
  • If the rate based approach is taken, Texas needs to get credit for the great energy building codes in the state and other energy efficiencies that have been implemented
  • Information from ERCOT shows that they will have around 20,000 Mw of wind generation by 2017; not that difficult to imagine reaching the EPA requirements; the market is already moving toward renewables and gas
  • There are certain utilities and coops that will be put in a difficult position so Texas needs to develop a plan that gets us to the requirements without significantly affecting those resources
  • Lewis asked about previous witness testimony which stated that the proposed plan, if implemented, could not be reached by converting all coal plants to combined cycle gas plants
    • If the number stays at 791 it doesn’t mean that every power plant has to get to 791; it means you cannot get there without significant renewables  in the state; you cannot get there with combined cycle alone
  • Lewis asked about renewables; witnesses have stated that all resources would not be able to be used if built according to the requirements of the rules
    • There is a limit to how much capacity can come from renewables without storage technology but the rule only suggest 20% wind for Texas; should be able to happen because you can geographically disperse the wind units and pair them with solar units; there is lots of room to grow
  • Harless asked about the myth that Texas isn’t getting credit for what has been done with renewables in the past; believes using the 2012 standard penalizes the state
    • Believes in the rate based approach, all currently existing generation will go toward the requirements
  • Harless asked about biomass not counting
    • That is a tough one; it can run all the time but does emit CO2; is a legitimate concern with the rule

 
Kate Zerrenner, Environmental Defense Fund Texas

  • The state has much more to gain by taking early steps to develop a state plan
  • A default federal plan will not be as flexible nor will it be tailored to Texas’ needs
  • Carbon standards enable Texas to charter its own course
  • The plan is expected to create significant economic gain to states because of the creation of additional generation
  • May want to provide universities with resources to perform studies on the best ways to achieve the goals of the plan
  • Texas is in a significant drought; much of Texas’ energy comes from sources that use a significant amount of water
  • Replacing coal plants with gas plants can reduce water consumption by 53 billion gallons/year

 
Tom Smith, Public Citizen Texas

  • The EPA plan will create hundreds of thousands of jobs and create cost savings for energy, healthcare and insurance
  • By mid-century the world will be anywhere from 3.5-6 degrees hotter due to climate change
  • There are hidden costs of climate change; higher electric bills, health care costs, water costs, property insurance costs, wildfires, agriculture costs
  • The real difference in carbon emissions can come from power plants
  • Since 1999 when the electric industry was deregulated, 64% of the energy being used now was created and costs were reduced
  • Texas will hit 20% renewables by 2017 easily; the more renewables put on the system means more marketable credits that can be sold to other states
  • Texas is being asked to create renewable generation because the resources are here
  • Energy storage needs to be a big component of the Texas plan and there are projects ready
  • Renewable energy now employs more Texans than the coal industry
  • Energy efficiency programs will save more money and create more economy than they will cost
  • Since 1991 Texas law has given TCEQ authority to develop plans to reduce climate change gasses; some clarifications are necessary to allow TCEQ to develop a state plan
  • Kacal asked who will help pay for the new transmission lines
    • The costs of doing nothing will be far greater than the cost of the transmission lines; wind reduces the cost of other types of energy
  • Isaac asked if any credit is given for energy produced in the state from biomethane
    • Reed noted biomethane is used to create electricity and that will likely receive credit; biomethane used as a fuel would likely not receive credits
  • Lewis asked about projections for shuttering coal plants; what are they replaced with
    • Renewables and storage, energy efficiency, natural gas, geothermal, etc.
    • There are multiple ways to replace coal generation and they are all parts of the building blocks
  • Villalba noted that it is not definitive science that reducing carbon emissions will have the health benefits being suggested; the regulation is going to have a detrimental impact on Texans and the power industry, it is not certain that it will provide benefits
    • About 97% of credentialed scientists agree about carbon emissions and climate change; Texas has already made significant strides that have had a great impact on pollution in our largest cities
  • Villalba made the point that the benefit may be negligible worldwide but the impact will assuredly be significant to this state

 
Solar Panel
 
Lori Kovos, Solar Energy Industry Association

  • Healthy solar industry and investment being looked at in the state
  • System prices, residential, fallen by 6% in Texas
  • Companies like El Paso Electric are also adding solar to portfolios
  • If state develops plan to comply with EPA rule, solar should be included in the plan

 
Charlie Hemmeline, Texas Solar Power Association

  • Overview was distributed to committee 
  • Price declines makes solar electricity an attractive option across the state
  • Don’t see solar as something that should be foisted on customers by EPA but would rather have customers demand solar
  • Suggestion to take advantage of regulatory framework EPA provides and competitive market to unleash solar innovation
  • Tax credits – investors in solar projects see 30% decrease in federal taxes (no subsidies in solar)
    • How will they remain cost competitive after this credit Sunset? Upcoming witnesses will answer

 
Adrian Buck, Freedom Solar

  • Installer
  • Growth of solar market driven by price of electricity and total install cost
    • Install cost is ramped down  – price cut in half
  • Expects competitiveness to increase
  • Rep. Isaac asked about legislation restricting HOA interference in solar installs
    • Yes, it has helped

 
Colin Meehan, First Solar

  • Solar power plants provide ancillary services
  • Some concerns with EPA benchmarks
    • Kansas RPS is not ideal because it is wind heavy state
    • Model makes outdated assumptions on the cost of solar
    • EPA not getting what is going on in Texas
    • Pre 2020 is not being taken into average and they think it should be counted
  • Thinks meeting EPA requirement can be done in current competitive framework

 
 
Wind Panel
 
Jack Farley, Apex Compressed Air Energy 

  • Gave committee a brief overview of handouts provided
  • ERCOT study from December 2013 shows wind additions will impact load changes
  • Frequency response – as wind is expanded it pushes out thermal production
  • Makes argument for need for energy storage

 
Jeff Clark, Wind Coalition

  • Will see radical transformation and change with new EPA rule
    • Actually with/without rule because of technological changes
  • Very controversial rule which could be tremendous economic opportunity or destroy world as we know it
    • Very political times
  • Suggest that even in absence of 111d it is time to plan
    • In absence of climate change – there will still be need for a plan to address water and electricity needs
  • Wind works with natural gas supplies very well
  • Wind is intermittent and it is a challenge
  • Wind is a resource that can be harnessed but just harnessed differently
  • ERCOT is international leader in incorporating renewables into the grid
  • Thinks EPA rule needs to be fixed but there are also tremendous economic opportunities that can be gained from the rule

 
Energy Efficiency Panel
 
Doug Lewin, SPEER (South-central Partnership for Energy Efficiency as a Resource)

  • Opinion that courts have affirmed EPA’s right to regulate certain pollutants
  • Whatever state’s comments or plans are – focus on the building block of energy efficiency
  • There are significant efficiency programs in State of Texas
  • By not increase energy efficiency goals then making prices artificially higher for citizens in Texas
  • With efficiency will have to close fewer coal plants and able to keep fuel mix diversity
  • Need to make comments that we need to get credit for what happened after 2012
  • There is a cost when energy efficiency is increased rates go up
    • but use goes down
  • Whether a Clean Power Plan is adopted or not, Texas still needs to work on energy efficiency
    • Could use TERP to assist

 
Michele Negley, CLEAResult

  • Consumers don’t always understand how to identify energy efficiency savings
  • Economic impacts for 111d – net jobs by 2030 would be 55k jobs
  • Texas used to lead nation in energy efficiency but opportunity to do a lot more
  • Suggest committee look at energy efficiency in Texas and leverage to fullest extent
    • Cost cap on energy efficiency – need to adjust the caps
  • Suggest commission studies – “potential” studies
    • Identify potential for energy efficiency

Kenneth Colburn, Regulatory Assistance Project

  • Former state air regulator
  • 111d proposal is different from previous rules – regulators are being asked what they want to do
    • Not a question regulators are used to being asked
  • Industry undergoing dramatic changes
    • Texas in position to align steps
  • Required reduction is about half 
  • Under EPA’s plan wind/solar would have to slow down
  • If focus on renewables and efficiencies then don’t have to do re-dispatch and can leave coal and gas plants alone
  • Water use is small or not at all for renewables and efficiencies 

 
Kip Averitt, Texas Clean Energy Coalition

  • Don’t have to do anything radical into order to meet 111d goals
  • Working on Brattle Report #4 and it will be ready before session
    • Will have reasonable and modest suggestions 
  • Have 20 years to reach goal and with demand response initiatives and energy efficiency can cut peak demand by almost 50 percent
    • Allow more flexibility with demand response
  • TERP program highlighted as successful program
    • Could appropriated additional money of current revenue coming in without even tapping the fund balance to further program
  • Panel address question – is adopting more efficient building codes making it a higher cost of living?
    • Averitt – Legislation passed which allows for new way to increase energy efficiencies strategies and can reduce consumption and save utility bills – only on commercial not households but hopefully it will be revisited
    • Colburn – residents may not have upfront capital to address energy efficiency and utility programs exist to allow for residents to utilize to help address concern – Texas program is well enough designed that everyone saves from the rebates even those who don’t use the rebate programs because it still reduces energy demand

 
Economic/Business Panel
 
Phillip Oldham, Texas Association of Manufacturers 

  • EPA rule is so far reaching
  • Federal officials comments on the Clean Power Plan
    • It is inconsistent – emissions profiles without regard to economics
    • Complete reshape of energy policy
  • Considers the plan “economic destruction” – business will be far less competitive
  • Joint hearing of PUC, TCEQ and RRC recently discussed the Plan
  • In regards to previous witnesses discussion on if building blocks need to be done
    • Only way to get to achieved target is to use them all aggressively
  • At high end, Plan could double power prices
  • State should carefully think about how to respond to EPA
  • Rule creates winners and losers even within the state
  • Has heard Mexico has looked at this EPA Plan as an opportunity
  • Will get numbers to the committee on industry/economic growth

 
Kathleen Hartnett White, Texas Public Policy Foundation

  • EPA Clean Power Plan is very prescriptive
  • Rule is complex and contorted
  • EPA asserting authority vastly beyond what it has done in the last 40 years
  • Only way to make state-by-state standards are with binding protocols
  • Cites other aggressive energy policies internationally (ie Germany) and serious consequences (ie residents not using electricity but wood pellets)
  • Very hard for existing industrial sources to reconfigure
  • Calls on US Congress to set up limits for EPA
    • Does not yet have an answer on how State Legislature should or could respond
  • Paper just written, from TPPF, on rule was distributed
  • Chair asked about cost to poor as result of EPA rule
    • Agrees with thought that it would negatively impact poor – goes back to Germany example saying EPA rule is definitely not a step forward
  • TCEQ could not comply with 2,3 and 4 (ie some fall under PUC authority)
    • Without authority of State Legislature – does not think building blocks 2,3 and 4 can be done
  • Reaction to comments that 111d will be good
    • Government forced increased in demand – maybe for those in energy efficiency and renewables 

 
Stephen Minick, Texas Association of Business

  • EPA does not have legal authority to implement rule
    • 111d “proposes to regulate emission from sources by not regulating emissions from sources” – fundamental fallacy in EPA rule
  • Rule and preambles – material is bulky and complex
  • Primary issue  – is there a technical reason for the rule in the first place?
  • Discussion on cost is secondary
  • There are no public health benefits and as a result the impacts are all negative
  • EPA rule cannot be implemented without major changes to state law
  • First coal plants shutting down will be those burning lignite
    • Those will be first effected from rule
  • SB 385 last session will do more to help reduce energy consumption
  • End of this year EPA will propose new ozone standards for state
    • Big Bend in nonattainment area
  • Rep. Reynolds asked if it would be smarter to work on Texas solution to this rule in case courts do uphold it
    • Passing any legislation at state level is ceding authority to EPA 
    • EPA can then regulate anything they want under guise of CAA
    • Reynolds asked what if we came up with plan substantially different
      • If we could get credit for things we are already doing and do not open door to efficiency mandates and what electricity to use – that may be a possibility

 
TCEQ Panel brought back up

  • TCEQ is still assessing the legality of the EPA proposal
    • Do believe there are still legal questions
    • Trying to assess all legal nuisances to rule and will present to committee so they understand options
  • Bio-methane question again from committee if state will get credit
    • Not very clear – can’t just use anything state wants
    • It is not prohibited but may be considered carbon neutral
    • Guidance may be issued on it after rule is finalized
  • Rep. Reynolds asked if there was collaborations between TCEQ and EPA on these complex issues
    • On this particular rule the EPA did reach out, specific feedback was requested and conference calls occurred but EPA didn’t seem to implement suggestions
    • Overall – sometimes yes and sometimes no
  • TCEQ staff addressed testimony in regards to “taking credit for previous strategies”
    • Existing program can be part of plan but when those reductions can be credited is not clear
    • This question will be asked of EPA – does state get credit for previous strategies reductions