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Utilities Policy 39 (2016) 5e12

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Utilities Policy

journal homepage: www.elsevier.com/locate/jup

A perspective on clean power and the future of US energy politics and policy*

Joseph P. Tomain University of Cincinnati College of Law, Clifton & Calhoun Streets Cincinnati, OH 45221, USA

a r t i c l e i n f o

Article history: Received 21 July 2015 Received in revised form 21 January 2016 Accepted 22 January 2016 Available online 3 February 2016

Keywords: Energy Energy policy Environment Clean power plan Regulation Electric industry Clean energy Energy politics

* This paper is an expanded version of Joseph P. Democratization of Energy in the US, 17 NETWORK INDUST

E-mail address: [email protected]. 1 Marc W. Chupka et als., Transforming America's

ment Challenge 2010e2030 (November 2008) (esti between $1.5 and $2.0 trillion by 2030); World Eco Electricity: Attracting Investment to Build Tomorrow 2015) (estimating global investment needs of $7.6 tri

2 See e.g. Joseph P. Tomain, Katrina Consequenc Learned?: To a Point, 52 LOYOLA L. REV. 1201 (2006).

3 Lincoln L. Davies et al., Energy Law and Policy 19 4 Lincoln L. Davies, Beyond Fukushima: Disasters, Nu

2011 BRIGHAM YOUNG L. REV. 1937 (2011).

http://dx.doi.org/10.1016/j.jup.2016.01.007 0957-1787/© 2016 Elsevier Ltd. All rights reserved.

a b s t r a c t

United States energy policy is undergoing a historic transformation. For the first time, the federal gov- ernment has taken the lead in aligning energy and environmental regulation. The Environmental Pro- tection Agency has asserted itself under the auspices of an administrative rule known as the Clean Power Plan (CPP) that specifically targets electric utilities, most notably coal-fired utilities, for the express purpose of reducing carbon emissions. The CPP requires states, either individually or through multi-state arrangements, to submit compliance plans in either 2016 or 2018 if an extension is granted. The EPA has suggested three principal “building blocks” for formulating state compliance plans. In the wake of this new regulatory landscape, this paper describes the CPP, identifies the specific challenges facing the electric industry, and provides potential responses to those challenges. The paper concludes that the Clean Power Plan provides the necessary context for the US transition to a clean energy future.

© 2016 Elsevier Ltd. All rights reserved.

The US electric industry currently faces two substantial and related challenges. First, the electricity delivery system is in need of multi-trillion dollar investment1 if it is to evolve into the promised smart grid and accommodate changing markets. The Northeast Blackout, Hurricane Katrina,2 Superstorm Sandy,3 and Fukushima4

revealed costly weaknesses in the sector, including lack of resil- ience. Second, the generation segment is now being called to task for carbon emissions and may be subject to historically significant federal regulations intended to address climate change.

Weak transmission and distribution systems and generation risks associated with climate change both affect the electricity

Tomain, Clean Power and the RIES QUARTERLY 3 (2015).

Power Industry: The Invest- mating investment needs of nomic Forum: The Future Of 's Electricity Sector (January llion by 2040). es: What Has Government

-22 (2014). clear Energy, and Energy Law,

system in terms of economic losses and disrupted lives. The esti- mated cost of the Northeast Blackout in 2003, as an example, ranges from $4-$10 billion.5 Costs are so significant because the centralized structure of the electric industry ensures concentrated losses upon such occurrences. Unfortunately, “[e]lectricity systems are increasingly expected to be prepared for more frequent and intense storms, to rapidly respond to any disruptions, and to minimize all kinds of environmental impacts of their operations.”6

One response to these risks is to restructure the electric system in ways that make it more resilient.

This paper will first explain those two challenges and place them in the context of the industry's evolution and regulation. Next, the paper will argue that at least a partial solution to those problems is available through decentralization. Decentralization, in turn, contributes to the development of a new politics of energy that promotes both competition and democratization in the form of increased citizen engagement.

5 U.S.-Canada Power System Outage Task Force, Final Report on the August 14, 2003 Blackout in the United States and Canada: Causes and Recommendations 1 (April 2004).

6 Jennie C. Stephens, Elizabeth J. Wilson & Tarla Rai Peterson, Smart Grid (R) evolution 15 (2015).

11 See e.g. Ann Carlson, Industry Will Try to Keep the Clean Power Plan from Taking Effect Pending Court Decision on its Legality, LEGAL PLANET ((July 7, 2015) (blog post). 12 See e.g. Piedmont Environmental Council v. FERC, 558 F.3d 304 (4th Cir, 2009); Transmission Planning and Cost Allocation by Transmmission Owning and Operting Public Utilities, 136 FERC ¶61,051 (July 21, 2011). 13 Environmental Protection Agency, Carbon Pollution Emission Guidelines for

J.P. Tomain / Utilities Policy 39 (2016) 5e126

1. Evolution of the electricity industry and its regulation

Over the last four decades, the electric industry in the US has faced several challenges of varying degrees of intensity. Following World War II, the industry enjoyed substantial and predictable growth because energy was the chief input into the country's most significant economic expansion. Subsequently, four notable issues were encountered.7 First, during the mid-1960s through the mid- 1970s, the industry appeared to have hit a technological plateau. Given regulatory incentives, privately owned electric utilities continued to make capital investments that in turn contributed to excess capacity and high electricity prices. Second, from the mid- 1970s into the 1980s, the nuclear industry faltered with signifi- cant repercussions for both shareholders and ratepayers. Specif- ically, federal and state regulators had to determine how to apportion costs for failed nuclear investments between ratepayers and shareholders.8 Third, during the late 1980s through the 1990s, following a general deregulatory mood in the country, regulators attempted to restructure wholesale and retail electricity markets with the intent of increasing competition in the industry. Those efforts were only partially successful for wholesale sales and much less so for retail sales. Finally, since the turn of the 20th century, regulators continued efforts to restructure the industry by focusing on the transmission segment (to facilitate wholesale markets).

These challenges affected the industrial structure of the elec- tricity sector as well as its regulation. Prior to restructuring, the dominant industry actor was the vertically-integrated, investor owned utility or IOU. IOUs generated more than 80% of US elec- tricity. Privately owned IOUs continue to generate 42% of the electricity with another 42% generated by non-IOU firms and the remainder by various local and federal entities.9 The increasing numbers of non-IOU firms are designated as independent power producers (IPPs), merchant generators, qualifying facilities (QFs), or exempt wholesale generators, among others. A key characteristic of restructured markets is the separation of generation, transmission, and distribution either through functional unbundling or actual corporate divestiture of these business units. The single driving force behind the separation of generation and transmission is the desire by regulators and policymakers to increase price competi- tion by opening access to the transmission system, of which 66% is owned by private IOUs.10 Restructuring was motivated in part by the private ownership of transmission lines in the absence of a common carrier obligation. By contrast, the statutory authority of the Federal Energy Regulatory Commission (FERC) to regulate interstate natural gas pipelines as common carriers has generally been much clearer.

Today, at the federal level, FERC regulates wholesale electricity markets, including regional transmission authorities known as either regional transmission organizations (RTOs) or independent system operators (ISOs). These regional organizations are tasked with the responsibility of operating transmission facilities owned by others, maintaining reliable power supply, and facilitating competitively priced transmission. At the state level, some states continue to regulate IOUs according to traditional models (known as “regulated states”), while other states have introduced

7 See e.g. Karl McDermott, Edison Elec. Inst., Cost of Service Regulation in the Investor-Owned Electric Utility Industry: A History of Adaptation 17 (2012); Peter Kind, Energy Infrastructure Advocates, Disruptive Challenges: Financial Implica- tions and Strategic Responses to a Changing Retail Electric Business 1 (2013).

8 Joseph P. Tomain Nuclear Power Transformation (1987). 9 U.S. Energy Information Administration, Electric Power Industry Overview 2007

available at http://www.eia.gov/electricity/archive/primer/. 10 Massachusetts Institute of Technology, the Future of the Electric Grid: An Interdisciplinary Study 4 (2011).

competition at the retail level based on access to competiting suppliers suppliers (known as “unregulated states”). In short, in- dustry and regulatory change both center on access to transmission. Restructuring has been complicated by resistance by incumbent IOUs11 and reluctance by state regulators, particular in the wake of the failure of Enron.

The industry now faces two new interrelated challenges. The first is the need for substantial grid investment to replace and modernize aging transmission and distribution infrastructure to provide resiliency and accommodate evolving markets and gener- ation technologies. Regulatory authority in this area is split be- tween federal (interstate) and state (intrastate) regulators and heightened judicial scrutiny has added a dimension of governance uncertainty to transmission planning.12 The second, and more significant challenge arises from a rule promulgated by the United States Environmental Protection Agency (EPA) to curb carbon di- oxide emissions from existing power plants. Known as the Clean Power Plan (CPP),13 the proposed rule elicited more than 4 million public comments as well as significant critical analysis since first publicized in June 2014.14 The final rule was issued August 4, 2015 and became official with publication in the Federal Register on October 23, 2015.15 The CPP requires states to reduce carbon emissions; final plans are due in September 6, 2016 and, under specified circumstances can be extended to September 6, 2018. Compliance begins in 2022 and will be conducted in three phases culminating in full compliance in 2030.

The CPP is a watershed proposal in US energy policy because it begins to align energy and environmental regulation. Historically, energy and the environment have been regulated under separate legal regimes and by separate regulatory agencies. While several individual states have taken steps to address climate change, the federal government's had failed to lead in this area until the CPP. Through the CPP, the EPA is exerting regulatory authority over carbon pollution from central power stations based on statewide compliance with specified emission targets. Unsurprisingly, the rule is subject to legal challenge and the final verdict regarding its legally sustainability will not be known for years.16

Regardless of its legality, the CPP stands as a significant shift in US energy policy. It also stands as a challenge to both the electricity industry and regulators. One approach to this challenge, as addressed in this paper, is to re-envision the politics of energy in ways that consider electricity production and consumption as more decentralized and diverse and, therefore, potentially more democratic.

Existing Stationary Sources: Electric Utility Generating Units, 79 FED. REG. 34830 (June 18, 2014) (proposed rule). 14 Environmental Protection Agency, Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Generating Units [EPA-HQ-OAR-2013-0602; FRL- XXXX-XX-OAR] RIN 2060-AR33 (August 4, 2015) (hereinafter FINAL RULE). 15 Environmental Protection Agency, Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Generating Units; Final Rule, 80 FED. REG. 64661(2015) (FINAL RULE). 16 The first challenge to the rule was rejected because the rule was only a proposal and not a “final” rule in In Re: Murray Energy Corp. Docket No. 14-1151 (D.C. Cir. June 9, 2015). Since the official promulgation of the final rule, however, other lawsuits have been filed.

20 See Database of State Incentives for Renewables and Efficiency, Renewable Portfolio Standard Policies (Mar. 2015), http://ncsolarcen-prod.s3.amazonaws.com/ wp-content/uploads/2014/11/Renewable-Portfolio-Standards.pptx. 21 Fed. Reg. 64675-676; 64828-832. 22 See e.g. Martin T. Ross, Brian C. Murray & David Hoppock, The Clean Power Plan: Implication of Three Compliance Decision for U.S. States (May 2015); THE CADAMUS GROUP, INC., EXPLORING AND EVALUATING MODULAR APPROACHES TO MULTI-STATE COMPLIANCE WITH

J.P. Tomain / Utilities Policy 39 (2016) 5e12 7

2. The clean power plan

The CPP addresses climate change by integrating energy and environmental regulation In the US, efforts to adopt a national policy on climate change have remained largely stalled, even as state and regional efforts have progressed. Sub-national activities on this front include widespread, if uneven, adoption of renewable portfolio standards (RPSs) by 38 states and the District of Columbia of which 29 have mandatory standards; regional and multi-state arrangements to curb carbon emissions; and individual state ef- forts, such as regulating greenhouse gas emissions in California and reforming the electricity sector in New York.17 Nevertheless, federal action to more closely link energy and the environment is emerging, despite continuing political gridlock in Congress. Instead of waiting for federal legislation in response to climate change, the Obama administration chose to act administratively.

The Clean Power Plan, through shared federal-state regulatory responsibilities, requires state-based plans that will significantly reduce greenhouse gas emissions, particularly CO2, from existing fossil-fuel electric generating units (EGUs). These plants are responsible for nearly 40% total US CO2 emissions, the largest source of carbon pollution.

The CPP seeks to reduce carbon emissions by 26% (below 2005 levels) by 2020 and by 32% by 2030. The EPA estimates that the annual total combined climate and health benefits from adopting the CPP range from $3.5 billion to $8.1 billion in 2020 and from $34 billion to $48 billion in 2030.18 These benefits include reduced risks from heat stroke, heat-related deaths, and reduced particulate pollution as well as the costs incident to a decrease in the intensity of extreme weather events. EPA also envisions emissions re- ductions for sulfur dioxide, nitrogen oxides, and fine particular matters. Further, the agency estimates that health and climate benefits will outweigh the estimated annual costs of meeting the standards, which are projected to run from $5.1 billion to $8.4 billion in 2030.19

Consistent with the overall design of the Clean Air Act, the legal source of EPA's authority to regulate in this arena, EPA will establish overall goals for each state, and states have leeway to craft compliance plans. Each state must first meet interim carbon reduction goals in three phases from 2022 to 2029 (as averaged). After this interim period, states must then meet EPA's 2030 target for emission reductions, and continue to do so from that point forward. State goals will be tethered to EPA's calculation of the “best system of emissions reduction” (BSER).

The BSER will be calculated based on the mix of the power re- sources in each state and the application of three “building blocks” to achieve reduction targets. The building blocks are: (1) increasing the efficiency of fossil fuel-fired power plants through heat-rate improvements; (2) using lower emitting energy resources, such as natural gas; and (3) utilizing more zero or low-carbon energy sources, such as renewable energy or nuclear power. The proposed rule included a fourth building block to encourage the deployment of demand-response and energy-efficiency programs. Subsequent to public comments, EPA deleted this building block although de- mand response and energy efficiency, as well as coal-plant re- tirements, can be used to satisfy a state's goals under the plan.

Building Block 1 seeks what EPA considers feasible heat-rate improvements by EGUs. By increasing the heat rate (that is, by adopting improvements that increase the efficiency with which an

17 New York Public Service Commission, Order Adopting Regulatory Policy Framework and Implementation Plan (February 26, 2015). 18 Fed. Reg. 64679-682. 19 Fed. Reg. 64679.

EGU converts fuel to electricity), carbon intensity is reduced by decreasing the amount of fuel needed to produce the same amount of electricity. These improvements can be realized through a variety of measures, such as equipment upgrades and optimization prac- tices. Building Block 2 aims to modify fleet composition and dispatch practices by encouraging EGUs to switch from carbon- heavy (namely, coal-based) to less carbon-intensive means of po- wer generation. Much of this change may come from increased reliance on natural gas-fired units, particularly natural gas com- bined cycle units (NGCC), as well as integration of solar and wind resources. Building Block 3 also promotes more use of lower-carbon generation, particularly renewable generating capacity. Renewable resources including conventional hydropower, currently provide for 12% of total US electricity generation. The CPP's suggested expansion of renewable resources is consistent with renewable RPS programs, which require utilities to sell a certain percentage of electricity from renewable resources.20

Although Building Block 4 was dropped, the Final Rule allows states to use demand response and energy efficiency to satisfy carbon reduction goals and they can use these mechanisms for early credits under the CPP's Clean Energy Incentive Program.21 By reducing demand for generation, emissions reductions will occur for the affected EGUs. Forty-seven states have established demand- side energy efficiency policies and the CPP reinforces their imple- mentation. California and Minnesota have reduced demands for electricity by 12.5% and 13.1%, respectively, through such programming.

Pursuant to the CPP, states can proceed individually or in collaboration via multi-state or regional plans; evidence suggests that multi-state plans are efficient and effective ways to respond to regional needs.22 Further, the final rule also allows for the creation of a national emission trading mechanism as part of their compli- ance strategy.

The CPP was issued under the authority of the Clean Air Act23

and the US Supreme Court has ruled that the act authorizes EPA to regulate greenhouse gas emissions.24 Nevertheless, there have been, and will continue to be, legal challenges to the exercise of that authority as it applies to power plants. Recently, for example, the Supreme Court was critical of EPA's broad reading of the Clean Air Act, denying the EPA a degree of deference with regard to regu- lating “a significant portion of the American Economy; ” instead, the Court noted that it expects Congress to clearly assign to an agency the responsibility for decisions that have vast “economic and political significance,” including the intent to “regulate millions of small sources.”25 The CPP touches the issue of economic and political significance but limits the number of directly regulated sources to existing power plants. Regardless, the Supreme Court's recent close examination of environmental regulations raises concern about the legal authority of EPA to issue and enforce the CPP.

While the electric industry is not monolithic in responding to

THE EPA'S CLEAN POWER PLAN IN THE WEST (APRIL 29, 2015). 23 Clean Air Act, x111(d); 42 U.S.C. x 7411(d). 24 Massachusetts v. EPA, 549 U.S. 497 (2007); American Elec. Power Co. v. Con- necticut, 131 S. Ct. 2527 (2011). 25 See, e.g., Utility Air Regulation Group v. EPA, 134 S. Ct. 2427 (2014). See also Michigan v. EPA, 576 U.S. ___ 2015) (the Court remanded to EPA its rule intended to curb mercury and other emissions from power plants).

33 See e.g. The New York Times/Stanford University/Resources for the Future, Poll on Global Warming, (January 7e22, 2015) available at http://www.nytimes.com/

J.P. Tomain / Utilities Policy 39 (2016) 5e128

the CPP, industry members and representative organizations have expressed a set of objections centering on two basic arguments: first, that it will be too costly to implement and second, that it will threaten electric reliability.26 Additionally, to the extent that the CPP encourages development of demand response, renewable re- sources, and energy efficiency, loss of sales revenues is at the heart of some claims about disruption and even a potential “death spiral” for traditionally structured utilities.27

None of these arguments appear to be very sound. The electric utility industry is not entering a death spiral. As less than 2% of electricity is provided by distributed generation,28 concerns about financial exigency appear to be overstated. Concerns about reli- ability, though relevant, likewise appear to be overstated.29 Instead of retarding economic growth, the CPP presents potential oppor- tunities as traditionally structured utilities reorient their business practices. More specifically, in the context of the CPP, economic regulators can encourage: (1) technological innovation; (2) in- vestments in renewable resources and energy efficiency; and, (3) grid improvement and modernization.

As part of President Obama's Climate Action Plan,30 the CPP is a significant attempt by the federal government to take the lead in addressing climate change by recognizing the connections between energy and the environment. The CPP sets ambitious national goals while allowing state flexibility. Regardless of the legal and policy debates surrounding the CPP, the proposal is significant in acknowledging that the regulation of energy and the environment is of a whole.

This effective merger of energy and environmental regulation does not come without challenges, including the need for enhanced coordination between FERC and EPA, between FERC and the state PUCs, between EPA and state agencies, and between the PUCs and state environmental agencies.

3. The politics of energy and the environment

Politics are essential for a fully engaged transition to a clean-

26 See e.g. North American Reliability Corporation, Potential Reliability Impacts of EPA's Proposed Clean Power Plan Phase I (April 2015). 27 See generally Citi, Rising Sun: Implications for US Utilities, 22, 26 (2013); Peter Kind, Energy Infrastructure Advocates, Disruptive Challenges: Financial Implica- tions and Strategic Responses to a Changing Retail Electric Business 1 (2013); David B. Raskin, The Regulatory Challenge of Distributed Generation, 4 Harv. Bus. L. Rev. Online 33-51 (2013). See also Joseph P. Tomain, Traditionally-Structured Electric Utilities in a Distributed Generation World, 38 Nova L. Rev. 473 (2014). 28 Elisabeth Graffy & Steven Kihm, Does Disruptive Competition Mean a Death Spiral for Electric Utilities?, 35 ENERGY L. J. 1 (2014). 29 See Susan Tierney, Eric Svenson & Brian Parsons, Insuring Electric Grid Reli- ability Under the Clean Power Plan: Addressing Key Themes from the FERC Tech- nical Conferences 2 (April 2015); Susan Tierney et als., Electric System Reliability and EPS's Clean Power Plan: Tools and Practices (2015); Jurgen Weiss et al., EPA's Clean Power Plan and Reliability: Assessing NERC's Initial Reliability Review (February 2015) (a report for the Brattle Group); Amelia Reiver Schlusser, Renewable, Reliable, Resilient: PolicyApproaches for Maintaining Reliability in the Western Grid Under the Clean Power Plan (October 2015) (a report for the Green Energy Institute Lewis & Clark Law School). 30 Executive Office of the President, The President's Climate Action Plan (June 2013). 31 See e.g. Nuclear Energy Institute, American Voice Strong Support for Nuclear Energy (2014 available at http://www.nei.org/Knowledge-Center/Public-Opinion; MASSACHUSETTS INSTITUTE FOR TECHNOLOGY, THE FUTURE OF NUCLEAR POWER: AN INTERDISCIPLINARY MIT STUDY ch. 9 (2003); YALE PROJECT ON CLIMATE CHANGE COMMUNICATION, Nuclear Power in the American Mind available at http://environment.yale.edu/climate- communication/article/nuclear-power-in-the-american-mind. 32 See e.g. Dennis Jacobe, Americans Want More Emphasis on Solar, Wind, Natural Gas: Oil, Nuclear, and Coal are More Popular with Republicans in the South (March 27, 2013) available at http://www.gallup.com/poll/161519/americans-emphasis- solar-wind-natural-gas.aspx; Tom Caiazza, CAP Poll Finds Fossil-Fuel Interests Dominate Agenda of New Congress, but Americans Favor Renewable Energy, Environmental Protections (January 15, 2015).

energy economy. Nevertheless, the concept of “politics” can be elusive as well as plastic and open to alternative definitions. In general, “politics” applies to shifting public opinion about energy and environmental issues, including fossil fuels, nuclear power,31

clean energy,32 and climate change.33 “Politics” can also be used to describe the partisan battles in the US between liberals and conservatives, red states and blue states, and Republicans and Democrats over energy such as issues as the construction of the Keystone Pipeline and drilling in the Arctic National Wildlife Refuge (epitomized by “Drill Baby Drill”). Today's climate politics are seen in efforts by various parties to distort information about carbon pollution34; lobby for stalling climate regulations35; repeal state RPSs36; and push back generally against the CPP.37

A number of scholars have also discussed energy “politics” in terms federalism, that is the federal, state, and local conflicts that occur over the production, transportation, consumption and disposal of our energy resources.38 Federalism conflicts are central to the debate about the CPP.39 As desirable as a national energy policy might be for a transition to a clean energy economy, existing institutions, case law, legislation, and regulations have created a web of energy governance. A persistent challenge is the siting of electricity transmission lines because legal authority over siting is split between the federal government and the states.40 In some cases, states and local governments are pursuing renewable re- sources and energy efficiency under their own authorities.41

Each of these forms of “politics” is part of a national conversa- tion on energy and the environment. It is necessary, however, to put politics into a broader, more normative context in order to more fully address the current energy transition. In the US, energy and the environment are regulated separately as if they were two in- dependent systems. This separation is deeply entrenched and ig- nores the environmental consequences of each step of the energy

interactive/2015/01/29/us/politics/document-global-warming-poll.html; YALE PROJ- ECT ON CLIMATE CHANGE COMMUNICATION, 4C & GEORGE MASON UNIVERSITY CENTER FOR CLIMATE CHANGE COMMUNICATION, CLIMATE CHANGE IN THE AMERICAN MIND (October 2014); see also Coral Davenport & Marjorie Connelly, Most in G.O.P. Say They Back Climate Action, N.Y. TIMES 1 (January 31, 2015). 34 Justin Gillis & Clifford Krauss, Inquiry Weighs Whether Exxon Lied On Climate, N.Y. TIMES A1 (November 6, 2015). 35 See e.g. Robert J. Brulle, Institutionalizing the Way: Foundation Funding in the Creation of U.S. Climate Change Counter-Movement Organizations,122 CLIMATE CHANGE 681 (2014). 36 See e.g. Gwynne Taraska & Alison Cassady, Fact Sheet: Efforts to Repeal or Weaken Renewable Energy Schedules in the States (March 10, 2015) available at https://www. americanprogress.org/issues/green/report/2015/03/10/108250/fact-sheet-efforts- to-repeal-or-weaken-renewable-energy-schedules-in-the-states/. 37 See e.g. Institute for 21st Century Energy, U. S. Chamber of Commerce, Assessing the Impact of Potential New Carbon Regulations in the United States 2 (2014); North American Reliability Corporation, Potential Reliability Impacts of EPA's Proposed Clean Power Plan (November 2014). 38 See e.g. Alexandra B. Klass & Jim Rossi, Revitalizing Dormant Commerce Clause Review for Interstate Coordination, 100 MINN. L. REV.129 (2015); David B. Spence, Federalism, Regulatory Lags, and the Political Economy of Energy Production, 161 U. PENN. L. REV. 431 (2013); Hari M. Osofsky & Hannah J. Wiseman, Dynamic Energy Federalism, 72 MARYLAND L. REV. 773 (2013); Hybrid Energy Governance, 2014 ILL. L. REV. 1 (2014). 39 Compare Kirsten H. Engel, EPA's Clean Power Plan: An Emerging Ne Cooperative Federalism?, PUBLIUS ANNUAL REV. OF FEDERALISM (2015) (favoring the federalism approach of the CPP) with Jason S. Johnston, The False Federalsim, of EPA's Clean Power Plan (2015) (disfavoring the approach) available at http://papers.ssrn.com/ sol3/papers.cfm?abstract_id¼2604308. 40 See e.g. Alexandra B. Klass & Elizabeth Wilson, Interstate Transmission Challenges For Renewable Energy: Federalism Mismatch, 65 VAND. L. REV. 1801 (2012); Alexandra B. Klass, Takings and Transmission, NORTH CAROLINA L. REV. 1079 (2013). 41 See e.g. J. Kevin Hardy & L. Margaret Barry, Local Initiatives in MICHAEL B. GERRARD & JODY FREEMAN (eds.) GLOBAL CLIMATE CHANGE AND U.S. LAW (2nd ed. 2014).

J.P. Tomain / Utilities Policy 39 (2016) 5e12 9

fuel cycle. The regulatory separation of energy and the environment runs deep even across and within sectors. The EPA, for example, regulates air, water, and land separately from each other. Similarly, nuclear power, coal, electricity, and natural gas are subject to different regulations and regulatory agencies. Thus, environmental resources and energy resources are regulated in silos.

It is more accurate to consider the “energy/environmental complex” and attendant laws and policies as a whole. The CPP, precisely because it aligns energy and environmental policy, takes a more nuanced and sophisticated approach to the energy/environ- mental complex. In doing so, it rejects the narrow approaches made by those that concentrate on one or the other.

By way of example, consider and compare how energy and environmental analysts see the future. Energy analyst Daniel Yergin (founder of IHS Cambridge Energy Research Associates) sees a future of increased energy production, largely through fossil-fuel development, as an “engine for job creation and economic growth.”42 In contrast, environmental analyst Gus Speth (co- founder of the Natural Resources Defense Council) sees a future that embodies a steady-state economy in which environmental burdens are reduced within a “non-growing GDP.”43 These may be extreme positions; nevertheless, they are part of the broader en- ergy/environmental conversation in the context of the CPP.

Energy and environmental analysts are speaking not only about different core topics; they are speaking in different languages with different vocabularies.44 These separate languages create separate narratives, which, in turn, have the intent and effect of shaping different and separate political agendas and policy programs.

The language of energy is about production, consumption, jobs, and, perhaps most importantly, economic growth. The language of the environment is about human health, conservation, species protection, ecological sensitivity, precaution, and sustainability. Both perspectives pay inadequate attention to the reality of the energy fuel cycle. From the environmental side, the energy narra- tive tends to downplay, if not ignore, the environmental effects that occur from exploration and extraction through production and transportation to consumption and disposal. From the energy side, the environmental narrative tends to downplay, if not ignore, the role of energy in the economy and economic costs, including sunk costs, transition costs, and opportunity costs.

Merging the two narratives into a consistent whole allows consideration of a new energy/environmental politics. From the energy side, William Boyd's discussion of “public utility” offers fertile ground. In Boyd's conception, the purpose of a public utility should not be defined by electricity sales, but by public service more broadly, including a healthy environment and a sound energy economy.45 From the environmental side, Sir Anthony Giddens46

argues that immense challenges of climate change, which directly affect both energy and the environment, must be addressed through a political and economic convergence in which govern- ment plays a central role in establishing workable markets, con- tributes to technological advances, and engages in thoughtful

42 Daniel Yergin, America's New Energy Reality, N.Y. TIMES SUNDAY REVIEW 9 (June 10, 2012). 43 James Gustave Speth, American the Possible: Manifesto for a New Economy 97 (2012). 44 Lincoln L. Davies, Alternative Energy and the Energy-Environment Disconnect, 46 IDAHO L. REV. 473 (2010); Alexandra Klass, Climate Change and the Convergence of Environmental and Energy Law, 24 FORDHAM ENVT. L. REV. 180 (2013); Amy Wilder- muth, The Next Step: The Integration of Energy Law and Environmental Law, 31 UTAH ENVT. L. REV. 369 (2011). 45 See generally William Boyd, Public Utility and the Low-Carbon Future, 61 U.C.L.A. L. REV. 1614 (2014). 46 Anthony Giddens, The Politics of Climate Change (2009).

planning and risk management in a changing world.47 For Giddens, political convergence involves innovative policy and regulatory changes with wide public support.48 Economic convergence in- volves technological innovation and the creation of new market approaches that generate competitive advantages for smart actors.49

In short, an energy/environmental politics provides a more vibrant future and a richer source of normative value. It also paves the way for the democratization of energy through citizen engagement and public action.

4. The politics of aligning energy and environmental policy

The joint consideration of energy and the environment can fill the policy void with a comprehensive approach to clean energy and climate change. Assuming that a clean energy future is both promising desirable, two significant questions arise. First, what political narrative can be used to justify the merger of energy and environmental policy? Second, what political strategies should be engaged in order to achieve this policy future? If we can begin to describe the narrative, then it should lead us to the appropriate political strategies.

A coherent energy/environmental future requires a new politi- cal norm. First, the traditional energy narrative has outlived its useful life. Historically, cheap, but dirty, fossil-fuel energy played a significant role in contributing to the economic growth and polit- ical standing of the US for most of the 20th century. In the 21st century, however, the fundamental economic assumption of traditional energy policy has proven to be seriously flawed pre- cisely because of the unaccounted-for social costs of fossil fuels.

Second, the traditional structural and regulatory model for electricity is no longer responsive to the changes occurring the industry. In particular, the dominance of IOU central power gen- eration has receded as a multiplicity of non-utility power providers has entered the market. Consumers are exercising more choice and, in some instances, are becoming power providers themselves. The emerging presence of “prosumers” (consumers that also produce electricity) requires new rules that should be written according to a new politics of energy. According to some, a prosumer society is starting to develop.50

Individual action may seem futile in the face of the challenges of climate change. Yet, individual local actions have a vital role to play in developing a forward-thinking ethic. People who engage in local energy/environmental activities report doing so because of “the importance of building community; doing the ‘right thing’ irre- spective of outcome; leaving a legacy of trying to avert tragedy for future generations, even if tragedy ensues; and establishing habits and patterns that will equip us and future generations to live in a very different world.”51

By engaging through organizations such as 350.org and volun- tary carbon action reduction groups,52 individual behavior can be reoriented away from the energy consumerism of the past. Proac- tive involvement with the energy/environmental complex at the individual and local levels is a significant change in thinking. Increased participation is viewed as a gain in terms of more

47 Id. at 8. 48 Id. at 8 and chs. 3-9. 49 Id. at 9 and chs. 3-9. 50 See e.g. Mathias Finger et al., FSR Manifesto: An EU Agenda for the Upcoming Five Years of Regulation of Infrastructures 8 (2015). 51 Sarah Krakoff, Planetarian Identity Formation and the Relocalization of Envi- ronmental Law, 64 FLORIDA L. REV. 87, 90 (2012). 52 Id. at 107-33.

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consumer control.53 Individual action includes behavioral change that advances the clean-energy transition. As an example, moti- vated in part by governmental programs and subsidies, many households are purchasing efficient light bulbs and appliances, adding home insulation, installing programmable thermostats, and using software applications (apps) toward the end of smarter and more controlled electricity consumption.54

How do these evolving energy/environmental politics connect with democracy? A central democratic principle is to promote greater participation and voice in institutions, both political and economic. With that quick definition, a new and more democratic clean-energy paradigm encompasses three policy dimensions: production and delivery; consumption and control; and regulation and governance.

63 Boyd, supra note 52.at 1682; ADRENE BRIONES ET AL., VEHICLE-TO-GRIS (V2G) POWER FLOW REGULATIONS AND BUILDING CODES REVIEW BY AVTA (September 2012); Willett Kempton, Yannick Perez & Marc Petit, Public Policy for Electric Vehicle to Grid Power (2014). 64 See e.g. JOSEPH P. TOMAIN, ENDING DIRTY ENERGY POLICY ch. 6 (2011); Joseph P. Tomain, Traditionally-Structured Electric Utilities in A Distributed Generation World, 38 NOVA L. REV. 473 (2014); American Council on Renewable Energy, Evolving Business Models for Renewable Energy: 2014 INDUSTRY REVIEW 5e10 (June 2014). 65 Joseph Weidman & Tom Beach, Distributed Generation Policy: Encouraging Generation on Both Sides of the Meter, 26 ELECTRICITY J. 88, 89 (October 2013). 66 James Newcomb et al., Distributed Energy Resources: Policy Implications of Decentralization 46 notes 36 and 87, 26 ELECTRICITY J. 65 (October 2013); Peter Behr & Emily Holden, Grid: An “Extension Cord” Remedy for Coal Plant Retirements,

5. Production and delivery of clean energy

Significant changes in the production and delivery of electricity are underway. Although IOUs still supply nearly half of the nation's electricity, the business models for electric power provision now assume multiple forms. Merchant generation and transmission companies, independent system operators, and aggregators are remaking the electric industry and its regulation. Similarly, “[a] ncillary services such as voltage support, black-start capability, and system balancing can be provided by regulated entities or inde- pendent parties competitively bidding for the work.”55 There is a potential upside to this market complexity. As more actors enter the market, competition for the production, delivery, and other energy services should increase and consumers should enjoy more options and lower prices.

Additionally, fossil fuel for electricity production is slowly being replaced. Renewable resources have, for more than 50 years, played a marginal role in the sector.56 Today, although their contribution is still small, the role of renewables is growing and projected to grow significantly in the future. The Department of Energy estimates that by 2050 renewable energy can meet 80% of US energy needs with currently available commercial technologies.57 The cost of solar and wind energy are declining as market shares are rising.58 Demand- side management programs are expanding behind the meter use of smart appliances and controls.59 Rooftop solar, geothermal po- wer, and heat pumps are among the technologies for producing energy at home, consistent with the decentralized soft energy path.60

Decentralization has the potential to increase grid reliability, improve cybersecurity, alleviate congestion, reduce the need for long-distance transmission, increase efficiency, and expand the portfolio of energy resources used to produce electricity. As 80e90% of all grid failures are at the distribution level, smaller- scale systems (microgrids) can enhance reliability.61 Small-scale energy facilities may be able to avoid some of the difficult siting (not-in-my-backyard or “NIMBY”) issues associated with larger-

53 Id. at 91. 54 Id. at 118-20. 55 See e.g. Sonia Aggarwal & Hal Harvey, Rethinking Policy to Deliver a Clean Energy Future, 26 ELECTRICITY J. 7, 11e12 (October 2013). 56 US Department of Energy, Monthly Energy Review 4e6 (February 2015). 57 National Renewable Energy Laboratory, Renewable Electricity Futures Study: Executive Summary iii (2012). 58 See e.g. Aggarwal & Harvey, supra note 58 at 7, 8. 59 Id. at 11. 60 Boyd, supra note 52 at 1634. 61 Peter Asmus, Microgrids: Friend or Foe for Utilities?, 153 PUB. UTIL. FORT. 19, 20 (February 2015). 62 Local Energy, id. 897-99.

scale installations because of their more localized governance.62

Expanding the use of clean-energy technologies, including distributed generation, these experiments will affect the entire electricity sector and its regulation.63 In particular, changes in the sector will change how utilities are structured and operated. Favorable clean-energy regulations will help promote the utility of the future, which will sell a variety of energy products and services under new business and pricing models.64 In short, decentraliza- tion and distributed generation “can enable customers and com- munities to invest much more directly in the transition to a renewable energy future.”65

6. Consumption and control of clean energy

Changing electricity markets also present new opportunities for consumption and control of energy. An expanding array of demand-side technologies66 will provide consumers with more control based on their preferences and willingness to pay.67 Local governments or private firms can form power aggregators that group together a large number of small consumers and serve as buying agents to negotiate contract terms and rates.68 Energy markets will further evolve as more “household and businesses [become] more active participants in [the electricity] infrastructure.”69

With two-way information and energy flows, smart grids70 can improve price signals to consumers and enable individual con- sumers to both sell and store their own electricity.71 Thus the smart grid can “empower citizens to more actively engage in the gener- ation and management of the electricity system at multiple levels”72 and can enable them to become more “actively engaged in making important decisions about how they will interact with the electricity system”73 based on accurate price information.

Smart utilities will take advantage of these technological and market changes. Distribution utilities can serve as managers of microgrids and, as such, serve as the “vehicles that maximize the value of investments in smart grid infrastructure [and] leverage

ENERGYWIRE (March 23, 2015); Peter Asmus, Microgrids: Friend or Foe for Utilities?, 153 PUB. UTIL. FORT. 19, 20 (February 2015). 67 American Council on Renewable Energy, Evolving Business Models for Renewable Energy: 2014 Industry Review 5 (June 2014). 68 See e.g. Office of Ohio Consumers' Council, The Basics of Governmental Energy Aggregation (2011). 69 Boyd, supra note 52 at 1628; see also Garrick B. Pursley & Hannah J. Wiseman, Local Energy, 60 EMORY L. J. 877, 897 (2011) (hereinafter Local Energy) (“At the distributed level … Renewables that an energy production model that has existed for thousands of years; energy is consumed close to its source.” (footnote omitted)). 70 See e.g. Joseph P. Tomain, Smart Grid, Clean Energy and US Policy, 13 J. COMPETITION

AND REG. IN NETWORK INDUSTRIES 187 (2012). 71 See e.g. Hannah J. Wiseman, Urban Energy, 40 Fordham Urb. L. J. 1793 (2013). 72 Jennie C. Stephens, Elizabeth J. Wilson & Tarla Rai Peterson, Smart Grid (R) evolution 28 (2015). 73 Id. at 29.

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these utility-owned assets with customer-owned assets.”74 The utility of the future will seek to enhance the network effects associated with more providers and services, expanded competi- tion, and consumer choice. Indeed, it seems likely “that as the electric power system becomes more participatory, the importance of a broad public utility framework to support planning, coordi- nation, and innovation only increases.”75

7. Regulation and governance of clean energy

In the transition to a clean-energy economy, methods of governance will also need to adapt, including the design and regulation of more complex electricity markets. If more producers, varied technologies, and increased consumer choice result in suf- ficient market discipline the need for central government regula- tion may diminish. Thus, the regulatory and legal institutions that support a clean energy economy may devolve, at least in part, from the federal to the local level. Regulation at the local level means greater access by citizen-consumers and therefore more responsive governance.76

Citizen participation in energy and climate actions can take place more easily at the community level, whether it is a movement to ban fracking,77 influence wind power sites, adopt local energy- efficiency standards, or implement clean energy-based building codes.78 Local governments can make decisions about how their buildings are built and whether they should be LEED certified. Local governments can also make decisions about the fuels to be used in and the vehicle efficiency standards for their fleets. Additionally, local regulation of diverse energy resources can enhance protection of the natural environment as well as facilitate energy development planning.79 Sound planning for a community's energy future can help either avoid or defer the need for costly expansion of trans- mission and distribution to the benefit of both utilities and con- sumers. Whereas traditional regulatory models reward utilities for traditional capital investments, a clean-energy policy takes a much broader view.

Emerging technologies offer a different paradigm than either the energy or the environmental perspectives alone. Decentralized, small-scale, and labor-intensive clean-energy industries and ac- tivities could offer a locality a competitive advantage by stimulating jobs,80 innovations81 and investments.82 Further, local government

74 Peter Asmus, Microgrids: Friend or Foe for Utilities?, 153 PUB. UTIL. FORT. 19 (February 2015). 75 Boyd, supra note 52 at 1682. 76 See e.g. Local Energy, supra note 63 at 947-48 (“To the extent that such inno- vation will expand the range of possible applications for existing technologies and drive down costs, this factor may further reduce consumer uncertainty and facili- tate broad adoption.” 77 See e.g. David B. Spence, The Political Economy Of Local Vetoes, 93 TEXAS L. REV. 351 (2014); Hannah J. Wiseman, Governing Fracturing from the Ground Up, 93 TEXAS L. REV. 29 (2015). 78 See e.g. Naomi Klein, This Changes Everything: Capitalism vs. Climate 10 (2014). 79 Uma Outka, Intrastate Preemption in the Shifting Energy Sector, 86 COLORADO L. REV. 927 (2015). 80 See e.g. E2 Environmental Entrepreneurs, Clean Energy Works for US: 2013 Year- in-Review and Q4 Report (February 2014); American Council for and Energy- Efficient Economy, How Does Energy Efficiency Create Jobs?(undated); Rachel Gold, State by State, Appliance Standards Save Money, Create Jobs, and Protect the Envi- ronment (May 25, 2011) Casey Bell, Proving Energy Efficiency Creates Jobs: Seeking a New Standard Model (January 22, 2014); ACORE, CalCEF & Climate Policy Initiative, Strategies to Scale-Up U.S. Renewable Energy Investment (2013); Environmental and Energy Study Institute, Fact Sheet: Jobs in Renewable Energy and Energy Efficiency (2014); MCKINSEY GLOBAL ENERGY AND MATERIALS, UNLOCKING ENERGY EFFICIENCY IN THE U.S. ECONOMY (July 2009). 81 See e.g. Sara Hastings-Simon, Dickon Pinner & Martin Stuchtey, Myths and Re- alities of Clean Technologies (April 2014). 82 REN21, Renewables 2014 Global Status Report 72 (2014).

can serve as “policy laboratories” that engage in regulatory exper- imentation to: promote efficiency gains through competition; develop best practices for the local use and distribution of energy; engage in public education through the accumulation and dissemination of local knowledge; enable localities to scale energy activities to the tasks most suitable to them; and, search for cooperative solutions within and among layers of government.83

Local governments have decided advantages for clean-energy technologies84 because they have knowledge about local condi- tions that can determine which technologies will be most effective and where.85 Moreover, “[v]ariables including the nature of city's primary energy sources, local climate and weather patterns, the nature of the built environment, zoning plans, growth plans, pop- ulation, and local economic conditions are all directly relevant to the choice of one or more distributed renewable technologies and the means of deployment.”86 Indeed, hundreds of cities today are engaged in climate change response, green job creation, energy efficiency, alternative fuel use, and the like.87

Local governments have a shared interest with their citizens in promoting local economic development and encouraging clean- energy innovation. Through shared approaches, energy goals and priorities can be more clearly defined; regulatory risks can be more clearly defined, monetized, and reduced; and, planning and in- vestment can be more reliable and stable.88 Small-scale energy technologies deployed though arrangements with local govern- ments will have shorter investment time horizons and will require less capital per project. This investment scenario differs markedly from traditional large-scale projects, such as nuclear power or clean-coal power plants. Regulatory uncertainties and long cost- recovery periods make the cost of capital for these large-scale projects increasingly problematic.89

For citizens, local energy regulation may be able to addressing some of the challenges of collective action. Local political action should be less costly in terms of regulatory participation; reduce the number of free-riders; galvanize interest and sharpen the focus on the specific issues; help clarify policy initiatives and goals; and enable local businesses deploy energy innovations.90 Local gov- ernment officials can be more responsive to citizen concerns when issues are aired and debated at the local rather than the state or national levels.91

Citizen participation is heightened when citizens choose new political goals, in this case, an integrated and clean energy/envi- ronmental future. Such is the democratic impulse. As distributed generation, decentralization, and small-scale energy technologies expand, consumers will play a more participatory role in signaling their demand for energy as well as their ability to generate their own power and control their own consumption. Likewise, regula- tors at all levels will be called upon to better manage the energy system by balancing changing consumer demands with changing utility business models. In short, a new and more democratic

83 Local Energy, supra note 72 at 881-82; 933-34. 84 See generally Hannah J. Wiseman, Urban Energy, 40 FORDHAM URB. L. J. 1793 (2013). 85 Id. at 883-84 and 936-40. 86 Local Energy, supra note 72 at 936-37. 87 See e.g. Mayors Climate Protection Center, About the Mayors Climate Protection Center available at http://www.usmayors.org/climateprotection/about.asp; C40Cit- ies, Climate Leadership Group available at http://www.c40.org/; UN Sustainable Development Knowledge Platform, Cities for Climate Protection Campaign available at https://sustainabledevelopment.un.org/index.php? page¼view&type¼1006&menu¼1348&nr¼1498 (sites last visited March 10, 2015). 88 Aggarwal & Harvey, supra note 49 at 10. 89 Boyd, supra note 52 at 1683-93. 90 See notes 94 and 102. 91 Local Energy, supra note 72 at 940-48.

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regulatory framework will develop “to support planning, coordi- nation and innovation.”92

8. Conclusion

Although the US electricity industry is facing unprecedented challenges, these challenges are being addressed by new technol- ogies, decentralization, and diversification that are part of a larger transformation of US energy policy and utility business practices. In the long term, governance of the electric industry may devolve from central to local governments and, in some instances, to con- sumers themselves. Active democratic politics make it possible to consider local community values in the transition process.

92 Boyd, supra note 52 at 1682.

In the context of the CPP, the US can move to develop a set of energy and environmental commitments that advance the interests of citizen-consumers in the emerging clean-energy future. The energy transition will move the US away from a fossil-fuel economy to one in which energy and environmental goals are aligned. Incumbent firms and entrenched interests will continue to influ- ence the public discourse. Nevertheless, a new narrative is devel- oping that is attentive to emerging energy technologies and markets, cognizant of environmental consequences of the fuel cy- cle, committed to developing a broader portfolio of energy re- sources, and inclusive of participants on both the supply and demand sides of the meter.