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Focus on Regulation

FERC helps to prevent blackouts due to power plants’ compliance with new air toxics regulations

During its May open meeting, the Federal Energy Regulatory Commission (FERC) announced the process it will follow for advising the Environmental Protection Agency (EPA) on requests from power generators for an additional year to comply with the EPA’s recently promulgated mercury and air toxics standard (MATS).   The announcement marks a major step toward reconciling the missions of the nation’s energy and environmental regulators, as coal and oil fired power generation units begin finding ways to comply with MATS.

What is MATS?

In brief, MATS is a significant and far-reaching new air toxics regulation that will broadly impact approximately 1,400 oil and coal fired units located at 600 power plants. For a detailed explanation of MATS, see Hogan Lovells’ Environmental Alert titled, “EPA promulgates important new mercury and air toxics rule.”  Generally, relevant units must comply with MATS within three years of the rule’s effective date.  However, the EPA has authority to grant an additional (i.e. fourth) year for units to achieve compliance. 

What is FERC’s Role?

For units that demonstrate that they require more time to achieve compliance — and which pose a risk to grid reliability if they were to suspend or cease operation — the EPA has declared that such units can request an Administrative Order (AO) from the EPA granting a fifth year to come into MATS compliance.   According to the EPA’s MATS enforcement response policy, the agency would issue an AO under section 113 of the Clean Air Act for sources that must operate in non-compliance (such as units that would otherwise be deactivated or for which installation of controls has been delayed) to address a specific, documented electric reliability concern. In making the final determination of whether such a reliability concern exists, the EPA said that it will rely on the advice of FERC, which has statutory authority to issue and enforce mandatory reliability standards to ensure the integrity of the nation’s bulk power system.

In late January 2012, FERC staff issued a white paper outlining a proposed process to guide FERC as it advises the EPA on individual requests for extensions to comply with the MATS rule.  For a detailed description of the white paper, please see Hogan Lovells’ Energy Alert titled, “FERC gives power plant owners an opportunity to weigh-in on critical procedure governing compliance with MATS rule.” In the white paper, FERC cautioned that its role was limited to advising the EPA, and that the final determination of whether to issue an AO rests solely with the EPA.

In its recently announced policy on advising the EPA, FERC set out the steps that unit owners should follow vis-à-vis the energy regulator to ensure that the agency has all of the information it needs to evaluate the reliability impacts associated with taking the unit offline.  Procedurally, FERC will require units to submit to it all of the information submitted in the AO request made to EPA.  FERC will treat this as an informational filing.  FERC also provided guidance on the type of grid reliability analysis it would expect to see supporting the AO request.  While FERC will not mandate that units follow a particular analysis or provide specific information, it made certain suggestions for information that it “would find informative when reviewing” AO requests.  

Finally, FERC briefly described the standard of review it will employ for considering AO requests and advising the EPA.  Consistent with the EPA’s analysis of the AO request, FERC will examine whether, under the circumstances presented, there might be a violation of a FERC-approved reliability standard. FERC noted, however, that a finding of a potential violation of a reliability standard is not tantamount to a final agency action that could result in penalties or other enforcement action. Rather, in this context, a finding that circumstances might result in a violation constitutes a “preliminary view” about a “possible hypothetical circumstance in the future.”

FERC also outlined some procedural elements of the AO process at the energy regulator.  For more information, please see Hogan Lovells’ Energy Alert titled, “How will FERC advise the EPA on the reliability impacts of MATS compliance?