Exelon: EPA Clean Power Rule Can Be Implemented Using Existing Market Mechanisms

The electric industry can achieve the U.S. Environmental Protection Agency’s goal to reduce carbon emissions from existing power plants on schedule and at a minimal cost to consumers without harming grid reliability or compromising the efficiency of existing energy markets, Exelon said Thursday.

“We estimate that states could eliminate at least 75 percent of the rule’s impact on retail electric rates, limiting retail rate increases to 2 percent to 5 percent on a regional basis”

Testifying before the Federal Energy Regulatory Commission at a technical conference to discuss EPA’s proposed Clean Power Plan, also known as Section 111(d) of the Clean Air Act, Kathleen Barrón, Exelon’s senior vice president of federal regulatory affairs and wholesale market policy, said that well-designed carbon reduction rules can be a driving force to modernize our aging electric system, maximize the use of clean energy and support economic growth.

Barrón said EPA’s Clean Power Plan does not require making a choice between greenhouse gas regulation and affordable, reliable energy. Rather, she said our nation can rely on existing market structures to incentivize investment in clean energy sources.

Exelon supports the call of a number of organizations – including the Edison Electric Institute, system operators, power generators, environmental groups, academics and industry trade groups -- for EPA to give states a way to comply with the Clean Power Plan by imposing a cost on carbon emissions. Barrón called on FERC to help facilitate this compliance option.

The proposal, referred to in Exelon’s testimony as the “Reliability Dispatch Safe Harbor,” builds on existing, proven market mechanisms, in which grid operators dispatch power plants in order of their cost to operate. Under the Reliability Dispatch plan, EPA would determine a single, nationwide adder for carbon emissions that would result in emission reductions commensurate with the Clean Power Plan’s overall goals.

Carbon-emitting power generators in states that opt into the plan would include the carbon fee as a variable cost of operating and the state would be deemed in compliance with EPA’s interim target.

The additional carbon value would reflect the true cost of operating high-emitting plants, resulting in more clean energy sources being dispatched to the grid based on their lower true cost. High-emitting plants would still be called on when needed in order to meet demand, ensuring that reliability is not compromised, Barrón said.

Reliability Dispatch would treat all low-carbon power equally, increasing the competitiveness of existing sources, including nuclear and hydropower. These resources are essential to FERC’s mandate to ensure consumers have access to reliable power 24/7 and in all weather conditions, while meeting EPA’s carbon-reduction obligation.

At the same time, it would provide a strong financial incentive to invest in new clean energy resources, such as wind and solar.

To reduce the price impacts of compliance, states could require grid operators to return the collected carbon adders to utilities and other electricity suppliers, who would refund them to consumers, effectively capping the cost of the program.

“We estimate that states could eliminate at least 75 percent of the rule’s impact on retail electric rates, limiting retail rate increases to 2 percent to 5 percent on a regional basis,” Barrón said. “This cost is within the range of routine customer rate increases, which averaged 3.2 percent among U.S. utilities last year.”

A copy of Exelon’s testimony is available online.

Exelon operates three nuclear power plants, twelve fossil power plants, two landfill gas plants and one pumped storage hydroelectric power plant in Pennsylvania.  For more information, visit Exelon’s Environmental Stewardship webpage.

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