Cut the Red Tape Not the Electricity


From the August 2001 Edition of CEI Update


One of the more controversial elements in President Bush’s National Energy Policy is his decision to review the large number of pending federal lawsuits and enforcement actions against electric utilities. Newsweek and other major publications have run scathing articles, accusing the administration of attempting to get its corporate polluter friends off the hook under the guise of solving the nation’s energy problems. In truth, Bush’s review is smart policy, as these actions are on shaky legal grounds and are far more anti-energy than pro-environment.


As with Bill Clinton’s blizzard of midnight regulations, the 1999 enforcement initiative against over 40 coal-fired power plants in the Midwest and South was a late-administration change in policy. Until midway into its second term, the Clinton Environmental Protection Agency and Department of Justice accepted the longstanding distinction between routine maintenance and major modifications at industrial facilities. The former were exempt from the extensive procedural and substantive requirements under the Clean Air Act, while the latter must face the regulatory gauntlet known as New Source Review.


However, by redefining as major modifications dozens of past power plant undertakings—most of which were known to the EPA when they were performed and treated as routine maintenance at the time—the agency manufactured this non-compliance crisis. The Department of Justice, on behalf of the EPA, announced the first wave of lawsuits on November 3, 1999, claiming a national threat to air quality and public health. “When children can’t breathe because of pollution from a utility plant hundreds of miles away, something must be done,” said then-Attorney General Janet Reno. Some of the alleged violations date back to the 1970s.


In his energy plan, Bush has requested a second look at the merits of this enforcement initiative, particularly its impact on electricity supplies in the areas served by the targeted power plants. The best outcome would be an immediate end to most or all of these actions and reinstatement of the policy in place prior to 1999.


Several reporters and politicians have portrayed this issue as a fight between good-guy federal bureaucrats and greedy corporate polluters leveraging their soft money GOP contributions into lax environmental enforcement. But one of the strongest critics of EPA’s new policy is not a publicly traded utility, but the federal government’s own Tennessee Valley Authority. TVA is perplexed by what it sees as an ex post facto rewrite of the Clean Air Act, and it is currently fighting EPA in federal court over this matter. “All of  TVA’s activities meet the Clean Air Act’s requirements as EPA has historically interpreted it,” notes Joe Bynum, Executive Vice President of the TVA Fossil Power Group. “Now, EPA is changing the rules,” he adds.


A close look at how EPA now defines major modifications demonstrates why this is such bad policy. The agency has not even attempted to target facility changes likely to result in actual emissions increases, or to avoid harassing those likely to cause reductions. Quite the contrary, EPA went out of its way to make such determinations nearly irrelevant. It has instead focused more on the purpose of these projects. EPA has, for example, singled out for extra scrutiny any activity the agency believes will result in “decreases in forced outages and curtailments attributable to break down of the component being replaced.” In other words, actions taken to prevent downtime, previously considered routine maintenance, may now be categorized as major modifications. As such, utilities face months of red tape, and in some cases operations may be halted altogether. “If TVA must go through EPA’s lengthy permitting processes and install more expensive controls each time it does routine maintenance, it cannot keep its fossil plants running,” warns Bynum. In addition to reliability concerns, TVA predicts rate increases of up to 14 percent, if EPA is successful.


EPA has also gone after improvements in efficiency. In the past, like-kind replacements of old parts with new ones had fit squarely within the routine maintenance exclusion. For example, the periodic replacement of corroded turbine blades was done with a minimum of government interference. However, improvements in turbine blade design mean that new blades can generate several percent more electricity without any increase in fuel consumption or emissions. Government lawyers have pounced on this technological advance and now argue that turbine blade replacement be treated as a major modification. The National Coal Council, an advisory board chartered by the Department of Energy, concluded in a recent report that EPA’s new approach “presents a significant barrier to projects at existing sources that would otherwise be undertaken to improve availability and efficiency.”


EPA’s attack on electric utilities may have seemed like an affordable regulatory extravagance when initiated in 1999.  At the time, the energy sector seemed infinitely resilient, able to take hit after hit from the Clinton Administration and still provide consumers with reliable and affordable supplies. But now, with the threat of rolling blackouts in California and other states, the costs of this anti-energy approach are clear.


A few companies have chosen to settle with EPA, in order to avert years of regulatory uncertainty, including delays of ongoing efforts to maintain reliability and improve efficiency. Others, including TVA, have continued to fight in federal court.  But, for them, a final decision might take several years. In the meantime, the specter of additional lawsuits is exerting a chilling effect on maintenance and repairs at other facilities.


Rather than wait for the courts and the appeals process, the Administration should put a quick end to this legally questionable and environmentally unnecessary contribution to the nation’s energy problems.


Ben Lieberman ([email protected]) is a senior policy analyst at CEI.