Life Along the Potomac

Deck: 

What federal regulators should do to ensure security, reliability, and cleaner air in our nation’s capital.

Fortnightly Magazine - September 2006

The District of Columbia Public Service Commission (DCPSC) successfully has used two little known provisions in the Federal Power Act (FPA) to prevent an aging generating plant crucial to the national capital region’s reliability from being abruptly shut down by Virginia’s environmental regulators. In the end, the immediate threat to the region’s reliability was obviated while the environmental concerns associated with the plant were not ignored. But just as important, the DCPSC action resulted in a model for how federal energy regulators and environmental regulators can address similar problems in the future.

The DCPSC effort began on Aug. 24, 2005, when Mirant Corp. announced that, by midnight on the same day, it would temporarily halt power production at its Potomac River Generating Station plant located in Alexandria, Va. The company said it took extraordinary action because it was unable to meet the deadline established by the Virginia Department of Environmental Quality (VDEQ) to eliminate modeled National Ambient Air Quality Standards (NAAQS) exceedances in the immediate area surrounding the plant.

Several hours after Mirant’s announcement, the DCPSC filed an emergency petition with the U.S. Department of Energy (DOE) and the Federal Energy Regulatory Commission (FERC) asking the two agencies to intervene immediately and avert the impending shutdown. Neither agency was able to act in the remaining few hours, and all power production at the plant was halted at midnight.

During the next several months, federal energy regulators conducted their investigation, and the Energy secretary and FERC ultimately took unprecedented action, using their authority to prevent an unacceptable risk to the security of the nation’s capital.

Numerous Complaints

Built in 1949, the coal-fired Potomac River generation plant is designated by PJM Interconnection LLC (PJM), a regional transmission provider and energy market operator, as a facility critical to electric system reliability in Washington, D.C., and the surrounding area. The plant has five generating units with a total installed capacity of 482 MW. It is a major source of electricity for the central business area of the District of Columbia, many federal institutions, significant portions of Northwest D.C., and the District of Columbia Water and Sewer Authority’s Blue Plains Advanced Water Treatment Plant, the largest wastewater treatment facility in the world.

Despite its critical reliability role, the plant has been the subject of numerous environmental complaints alleging that its emissions protection technology does not comply with the state and federal environmental standards. In addition, the plant’s location in picturesque Alexandria, Va., together with the fact that all of the power it generates is exported across the Potomac River to the District of Columbia, has done little to endear it to the local authorities and residents.

Acting on these complains, the VDEQ issued a consent order in 2004 that required Mirant to perform certain actions to determine whether the plant’s emissions were in compliance with NAAQS. On Aug. 19, 2005, Mirant delivered to the VDEQ results of a computerized modeling study of the plant performed pursuant to the consent order. That study appeared to indicate that the downwash effects of emissions from the plant contribute to violations of air quality standards for ambient sulfur dioxide (SO2), nitrogen oxides (NOx), and certain particulates. On the same day, the VDEQ issued a letter requesting Mirant “immediately undertake such action as necessary to ensure protection of human health and the environment, in the area surrounding the [plant], including the potential reduction of levels of operation, or potential shut down of the [plant].” The letter told Mirant to provide a summary of actions being taken no later than 2 p.m. on Aug. 24, 2005. At midnight on Aug. 21, 2005, Mirant reduced the output of all generating units at the plant to their minimum load levels and then announced that it would be shutting down all units at midnight on Aug. 24, 2005, because it could not satisfy the VDEQ’s demands at any level of output.

Desperately trying to avert the shutdown, the DCPSC filed on emergency petition with the DOE and FERC the evening of Aug. 24, 2005, when Mirant’s decision to completely shut down the plant became public. The DCPSC invoked two rarely used provisions as the basis for federal intervention in the plant’s shutdown: Section 202(c) and Section 207 of the FPA. Section 202(c), 16 U.S.C. § 824a(c) vests the authority in the secretary of energy to issue an order requiring “generation, delivery, [and] interchange of transmission of electric energy” when “an emergency exists by reason of a sudden increase in the demand of electric energy, or a shortage of electric energy of facilities for the generation or transmission of electric energy or of fuel or water for generating facilities, or other causes” in order to “best meet the emergency and serve the public interest.” Although not often used, this em ergency authority was famously invoked by Energy Secretary Bill Richardson during the California crisis and then again by Secretary Spencer Abraham during the 2003 Northeast blackout.

In contrast, Section 207 of the FPA, 16 U.S.C. § 824f, never had been used previously, and no precedent, judicial or administrative, existed for its application at the time the DCPSC filed its petition. The provision enables FERC—whenever it finds, upon complaint of a state utilities commission, such as the DCPSC, and after notice and opportunity for hearing, that “any interstate service of any public utility is inadequate or insufficient”—to “determine the proper, adequate, or sufficient service to be furnished” and “fix the same by its order, rule or regulation.” Section 207 specifically prohibits FERC from ordering any enlargement of generating facilities or compelling the public utility to sell or exchange energy when doing so would impair its ability to render adequate service to its customers.

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Despite these statutory limitations, the Mirant plant’s shutdown was an ideal Section 207 situation: The complainant was a state commission, the service was clearly interstate in nature, the plant’s shutdown would render it “inadequate or insufficient,” and no enlargement of existing generating facilities was necessary to address the DCPSC’s complaint. Further heightening the drama was the obvious security risk to the nation of such a shutdown.

While the DOE and FERC were engaged in breakneck-speed fact-gathering following the DCPSC’s emergency petition, Mirant resumed power production at the plant at a grossly reduced level, operating one generating unit up to 16 hours per day and generating only 8 hours at the unit’s maximum capacity. The other four generating units remained shut down, despite the approaching winter season and significant regional reliability concerns. With the seriousness of the situation becoming increasingly evident, Energy Secretary Samuel Bodman granted the DCPSC’s petition on Dec. 20, 2005, finding that an emergency under Section 202(c) of the FPA was in effect and ordering Mirant to resume power production at the plant at levels sufficient to ensure regional reliability.1

The DOE order was noteworthy for several reasons. First, it concluded that the shutdown of the plant was sufficient to create an “emergency” within the meaning of the statute, thereby justifying the secretary’s action. The emergency was found to exist based on a combination of all relevant factors, including “the reasonable possibility an outage would occur and cause a blackout, the number and importance of facilities and operations in our nation’s capital that would be potentially affected by such a blackout, the extended number of hours of any blackout that might in fact occur, and the fact that the current situation violates applicable reliability standards.”

Second, although the shutdown clearly had resulted in a violation of NERC’s reliability standards, no actual supply disruption or blackout occurred prior to or at the time of the secretary’s order. This contrasts with the Section 202(c) orders issued during the California crisis, underscoring the DOE’s willingness, in the absence of other regulatory action, to use its emergency authority not only as a curative measure but also as a preventive mechanism.

Third, while the DOE order attempted to minimize any adverse effects on the environment by ordering Mirant to run the plant only during planned or unplanned outages of the transmission facilities used to import power into the D.C. region, it made it clear that the DOE did not view its emergency authority under Section 202(c) as constrained by the Virginia environmental regulator’s application of the Clean Air Act or state environmental laws and regulations.

Fourth, the secretary emphasized that its order was a temporary remedy that could not serve as a permanent solution to the region’s reliability problem.

The DOE action was followed rapidly by that of FERC. Without having any precedent to look to, FERC took the bold step of issuing its first ever substantive Section 207 order on Jan. 9, 2006.2 Because the DOE order already had addressed the immediate reliability threat posed by the plant’s shutdown, FERC focused on longer-term solutions. As an initial matter, FERC found that the interstate service would in fact be rendered “inadequate or insufficient” if the plant were to cease its operations. Similar to the DOE, FERC reached this conclusion based on possible violations of NERC’s reliability standards, a high probability of a contingency, and the critical national security importance of the federal load located near central D.C.

In conducting its investigation, FERC primarily relied on the parties’ submissions and responses to its data requests, while rejecting demands for a formal evidentiary hearing. The adopted solution was to require PJM and Potomac Electric Power Co. (PEPCO), the local utility, to develop jointly a plan to maintain adequate reliability, with and without the Potomac River plant, during planned and forced outages for the duration of the DOE order, and for the time between the end of the DOE order and when a long-term solution is in place. FERC also required the joint plan to include a supporting study report and a timeline and description of implementation milestones.

One of the key elements of the joint plan, which FERC accepted in June 2006, was the construction of transmission upgrades on the PEPCO system that would allow it to import more power into the region and make regional reliability less dependant on the Potomac River plant. Mindful of its role in the successful implementation of the plan, the DCPSC issued a series of orders in early 2006 expeditiously approving the proposed upgrades. In addition, the DCPSC instituted a demand-response study to ensure that load response in the District of Columbia remains sufficiently flexible.

EPA Involvement

Through these coordinated efforts, the DOE, FERC, and the DCPSC successfully averted the looming reliability crisis in Washington, D.C., and provided a road map for a workable long-term solution to the region’s power-supply needs. Nonetheless, the environmental issues arising out of the Potomac River plant’s continued operation could not be addressed directly by these energy regulators. Instead, the EPA had to sort out the environmental harm claims made by the opponents of the plant’s continued operation and chart an environmentally sound solution to the security and reliability conundrum posed by the plant’s shutdown and subsequent resumption of its operations. Although the DOE order contained references to the behind-the-scenes coordination with the EPA, it was not until June 2006 that the EPA comprehensively addressed the environmental issues posed by the plant in the context of its shutdown.

In its June 2, 2006, administrative compliance order by consent,3 the EPA confronted the issues posed by the plant’s continued operation. The order was issued pursuant to Section 113(a)(1) of the Clean Air Act that grants the EPA the authority to require persons to comply with an applicable state implementation plan or permit issued by a state. As acknowledged by the EPA, its order was the result of the settlement discussions between the agency and Mirant, as well as broader inter-agency discussions involving the DOE and the VDEQ.

The remedies fashioned by the EPA clearly recognize the need to take into account the DOE’s reliability and security concerns involving the central D.C. area. Thus, during line outage situations, Mirant was directed to operate the Potomac River plant “to produce the amount of power needed to meet the load demand in the Central D.C. area, as specified by PJM and in accordance with the DOE order.” While the EPA order imposes certain obligations on Mirant to limit, to the extent feasible, its emissions from the plant, it stated that Mirant’s obligation was not diminished to produce the amount of power needed to meet the load demand in the central D.C. area in compliance with the DOE order. In addition, the EPA order provided for specific operating constraints on the plant in non-line outage situations to minimize emissions. On the same day the EPA took action, the DOE issued an order incorporating the requirements set forth in the EPA ruling for non-line outage situations, thereby integrating both the reliability and environmental imperatives for the plant’s continued operation.

The extraordinary federal regulatory activity precipitated by the DCPSC’s petition illustrates a successful approach that may be used to address the difficult regulatory and security issues lying at the intersection of energy, environmental, and national security law. With the nation’s generating fleet and transmission grid rapidly aging, conflicts between the need for these facilities to continue to operate and the often outdated technological processes they use are likely to intensify and occur more frequently. The cooperative inter-agency process that was developed in the Mirant case provides a working solution to resolve such conflicts by allowing all interested parties to address the issues at stake, without losing the focus on the grave security and reliability implications of a critical facility’s shutdown.

 

Endnotes:

1. See Order No. 202-05-3, Docket No. EO-05-01 (Dec. 20, 2005).

2. See Re District of Columbia Public Service Commission, 114 FERC ¶ 61,017 (2006).

3. See Re Mirant Potomac River LLC, et al., Administrative Compliance Order by Consent, Docket No. CAA-03-2006-0163DA (2006).