| Promoting Wholesale Competition Through Open Access Services by Public Utilities
Recovery of Stranded Costs by Public Utilities and Transmitting Utilities | Docket No. RM95-8-000 Docket No. RM94-7-001 |
This section reviews and adopts the final environmental impact statement (FEIS) prepared by the Commission staff in connection with this Rule. It identifies the alternatives considered by the agency in reaching its decision; analyzes and considers whether and to what extent the chosen alternative -- adoption of this Rule -- is likely to result in environmental harm; evaluates alternatives and suggestions for mitigating environmental harm from the Rule, if any; and states the Commission's decision.
The Commission decided to prepare an environmental impact statement (EIS) evaluating the environmental consequences that could result from adoption of this Rule. We did so largely in response to the claims of several commenters, including the Environmental Protection Agency (EPA), who charge that the Rule will have significant adverse environmental effects.
Although a number of issues were raised, by far the most prominent concern arises from the theory that competitive market conditions created by the Rule will provide an advantage to power suppliers who produce power from coal-fired facilities that are not subject to stringent environmental controls on nitrogen oxides (NOx) emissions. 931/ Under this theory, these facilities, located primarily in the Midwest and South, will, as a result of the Rule, generate more power and emit more NOx, which will contribute to ozone formation. The ozone could add to pollution both in those regions and more significantly in the Northeast, to which area such pollutants could be transported. Those who propound this theory argue that it is the responsibility of the Commission, using its authority under the Federal Power Act, to effect environmental controls that will mitigate what they predict will be significant increases in NOx emissions associated with this Rule.
The staff prepared an FEIS based upon computer modeling simulations of power generation patterns and NOx emissions likely to occur as a result of the Rule. Staff used widely accepted models for studying economic conditions in power markets and simulating emissions of NOx and other pollutants. These models took into account a variety of different assumptions concerning significant factors such as coal and natural gas prices and other competitive conditions. These factors are critical because increased use of coal-fired generation tends to increase NOx emissions, while increased use of gas-fired generation is environmentally more benign.
The examination in the FEIS of the environmental effects that are likely to result from implementing the Rule is based on an analytic framework that was shaped by comments received in the scoping process and on the DEIS. The study was revised to reflect the frozen efficiency reference case assumptions requested by EPA and other commenters. This was done to ensure full disclosure of possible environmental impacts even though the Commission disagrees that use of these assumptions is appropriate. It has been observed in the context of agency preparation of an environmental study that "[t]he NEPA process involves an almost endless series of judgment calls." 932/ That is particularly true where, as here, the agency undertakes to examine the impacts of a proposed regulatory program. In designing an effective assessment of the environmental impacts of the Rule, the Commission had to make a number of judgments as to the type and the scope of studies necessary to analyze the proposals sufficiently. Commenters also raised many issues related to the design of the study. For example, the Center for Clean Air Policy contends that the Commission should model a range of mitigation policies; the Missouri Department of Natural Resources contends that the impact of the Rule on generation may be locally intense and that these effects should have been studied; and other commenters sought to have the Commission examine different database or modeling assumptions.
For these and similar matters we exercised our judgment as to the appropriate manner in which to treat the issue. For example, we determined not to model a range of mitigation policies because we did not find that the impacts of the Rule require the Commission to adopt or implement a plan of mitigation. It would have been extremely difficult, if not impossible, to examine the many varied local impacts that could be expected across the Nation in response to the Rule. We made judgments as to the appropriate database and modeling assumptions to use -- in some cases, those assumptions were shaped or changed by comments we received.
In short, many competing considerations came into play during the design of the complex analysis used to examine the environmental effects of the Rule. We exercised our judgment, for example, based on consideration of whether matters are within the scope of the Rule, the most appropriate way to study the effects of the proposal, and whether the issues raised were relevant to a consideration of the environmental effects of the Rule. The Commission's response to issues raised by commenters is reflected in the response to comments set forth in Appendix J of the FEIS. We conclude that the FEIS reflects the appropriate consideration of these and many similar issues.
Some comments on the draft environmental impact statement (DEIS), as well as earlier comments in response to Commission scoping inquiries, raise two major areas of objection to the Commission's analysis. First, commenters claim that in determining what NOx emission levels would be in the future with the adoption of the Rule, the Commission did not compare the emissions levels associated with the Rule against the appropriate base case. They argue that the Commission should have analyzed and compared the impacts of the Rule to a "no-action" alternative that assumes that the Commission abandons all its open access policies, not just this Rule. Some commenters, including EPA, go even further, suggesting that the Commission compare emission levels projected to result from the Rule against a "frozen efficiency" case in which other major factors -- factors that would increase industry efficiency independent of the Rule -- do not occur. Such factors include adoption of pro-competitive state policies and actions by utilities to undertake mutually beneficial voluntary transactions that do not require the use of open access tariffs mandated under this Rule. Commenters who advocate either a different "no-action" alternative or the frozen efficiency case expect that studies using those assumptions will show that the Rule will cause significantly greater NOx emissions than shown in the DEIS. 933/
Assuming these results, these commenters raise their second major area of concern, which is mitigating the presumed effects of the Rule. These arguments vary somewhat but share a common theme: that the Commission has a responsibility, either as a legal or public policy matter, to mitigate what they expect to be the significant environmental impact associated with the Rule. They suggest various mitigation schemes, including a FERC- administered NOx emission allowance program along the lines of the sulfur dioxide (SO2) program enacted by Congress and administered by the EPA under the Clean Air Act. Other proposals would have the Commission condition the right of a seller to use an open access tariff on certification that the source of the power sold is in compliance with (as yet undetermined) emissions limitations. Another proposal would have the Commission impose a charge on emissions to be paid by utilities to a fund established by the Commission. The added cost to the utilities would work to account for, or "internalize", the external costs of emissions.
Commenters advocating Commission-administered mitigation argue that the mechanisms under current law for regulating NOx emissions are cumbersome and slow, and that the Commission should not (some argue, may not) go forward with the Rule unless it puts in place environmental regulatory mechanisms that prevent further increases in NOx emissions.
Various legal theories are advanced as a basis for Commission environmental regulation under the Federal Power Act. Some argue that the conditioning authority under the Federal Power Act is sufficient to enable us to fashion comprehensive controls on emissions from utility generators because there is a direct causal nexus between power trading (which we regulate) and generation (which we do not). Others argue that such authority lies in the use of our power to impose requirements on utilities "in the public interest", enhanced by the National Environmental Policy Act. Others argue that, in remedying undue discrimination, we must correct competitive advantages arising from Congressional decisions to exempt certain kinds of generation facilities from some Clean Air Act regulation.
After reviewing the comments and the additional studies conducted by staff in response to the comments, the Commission adopts the findings in the FEIS.
First, the findings show that, without the Rule, NOx emissions are expected to decline until at least the year 2000. Thereafter, again without the Rule, NOx emissions are expected to increase steadily through the year 2010 (the end of the FEIS study period). The extent of the decrease and the increase will largely be determined by the relative prices of natural gas and coal, the two main fuels used to generate electric power in most regions. 934/
In reaching this conclusion, the FEIS used two "base" cases. In one (the "High-Price-Differential Base Case"), natural gas was assumed to become substantially more expensive compared with coal than it is today. In the other (the "Constant-Price-Differential Base Case"), natural gas was assumed to maintain essentially the same price relative to coal that has existed for the last ten years. The two cases describe the range of emissions due to fuel price uncertainty without the Rule and demonstrate the overall trends of decreases until 2000 and increases thereafter.
Second, the FEIS finds that the Rule will not in any significant respect affect these overall trends.
The potential impact of the Rule was studied initially under two scenarios. 935/ In one (the "Competition-Favors-Gas Scenario"), the Rule is assumed to result in efficiency gains in the electric industry that would tend to favor natural gas as a fuel. In this scenario the effect of the Rule is slightly beneficial. Total NOx emissions are reduced overall by about two percent nationwide from the base cases. In the other (the "Competition-Favors-Coal Scenario"), the Rule is assumed to result in efficiency gains in the electric industry that would tend to favor coal as a fuel. In this scenario the effect is again slight, showing approximately a one percent increase in NOx emissions nationwide from the base cases. In both scenarios, however, the Rule does not have an overall effect on NOx emission trends.
Stated differently, under any case studied, with or without the Rule, there will be an overall net decrease in NOx emissions through the year 2000. 936/ Thereafter, NOx emissions begin to increase. The Rule does not materially affect either the decline prior to 2000 or the increase thereafter.
Based on these findings the Commission concludes that a comprehensive, Commission-imposed mitigation scheme to address the environmental consequences of the Rule is not appropriate. If competition favors gas, the effects are beneficial and mitigation is unnecessary. If competitive conditions favor coal through the year 2010, and NOx emissions increase slightly as a result of the Rule, these minor effects would be effectively mitigated as a part of a comprehensive NOx cap and trading allowance scheme developed by EPA in cooperation with the Ozone Transport Assessment Group (OTAG) and administered by EPA and state environmental regulators under the clearly established authority of the Clean Air Act.
Further, the Commission believes that staff has selected the appropriate "no-action" alternative. An alternative that requires the Commission to reverse all its other open access policies is simply not a "no-action" alternative. To the contrary, it would require decisive action running counter to the direction from the Congress in the Energy Policy Act and the needs of the marketplace and electricity consumers.
However, to ensure that the effects of the Rule were analyzed fully, the FEIS did study a reference case based on the "frozen efficiency" case proffered by EPA and the Department of Energy (DOE). 937/ Although, as described below, we believe this case to be highly unlikely, the results show that, even under this scenario, the impacts of the Rule are not great and do not vary significantly from those projected by staff under the other assumptions.
In one case requested by EPA, staff studied a combination of assumptions most likely to show significant increases in emissions associated with the Rule; the case included EPA's frozen efficiency scenario, coupled with the "Competition-Favors- Coal" assumptions. Other cases requested by EPA posit dramatic increases in transmission capacity (that we find highly unlikely). Even this combination of assumptions -- geared to demonstrate the greatest impact the Rule might have on increased NOx emissions -- produced little in the way of environmental consequences associated with the Rule. Under these extreme (and unlikely) conditions, there would still be a net decrease in NOx emissions until at least the year 2000, albeit a smaller decrease than in the base cases. Comparing projections of emissions for the same years, emissions would be higher than the base cases only by two percent in 2000 and three percent in 2005. 938/ It is only in the year 2010, assuming these improbable scenarios, that NOx emissions associated with the Rule would be higher than the base case by even five percent. 939/
Based on these studies, including the EPA reference case, the Commission endorses the staff findings that the Rule will affect air quality slightly, if at all, and that the environmental impacts are as likely to be beneficial as negative. This is true even under scenarios contrived to maximize emissions associated with the Rule under circumstances that this Commission believes to be highly unlikely.
Importantly, this is also true in the near to mid-term. Until the year 2010, even the worst case (the frozen efficiency case) produces results very similar to those produced using assumptions the Commission believes to be reasonable. In short, the Rule will not produce an "ozone cloud" coming across the Appalachians to threaten the Northeast on the day the Rule goes into effect. Assuming that any environmental impacts occur, they are years in the future and may well be beneficial. As a result, calls for Commission mitigation, and in particular for interim mitigation to "fill the gap" until programs under the Clean Air Act can be adopted, are unnecessary and disproportionate to the possible effects of the Rule.
We also endorse the staff view that it is neither within our statutory authority nor appropriate as a matter of policy to fashion from the FPA a comprehensive clean air regulatory program to address NOx emissions. As described below, we believe that the mitigation proposals proffered in comments exceed our statutory authority to regulate rates, terms and conditions of sales of electric energy and transmission of electric energy in interstate commerce. We are, in essence and by law, economic regulators. While we have an obligation under NEPA to take the environmental consequences of our actions into account in fashioning our decision -- and we have done so -- NEPA grants us no new regulatory powers. While NEPA extends our general obligation to engage in reasoned decisionmaking to include the consideration of possible environmental consequences of our actions, it compels no particular substantive result.
Though our conditioning authority under sections 205 and 206 of the FPA is broad, our actions under it are confined to the subject matter of our jurisdiction. That subject matter excludes the physical aspects of generation and transmission. Our actions must derive from and advance our statutory mandate to protect consumers by establishing utility rates and business practices that are just, reasonable, and not unduly discriminatory or preferential. These authorities, however broad they are with respect to economic matters, are not unbounded; they may not be used to "fill in the gaps" of regulatory programs that, by law, are not our own.
Moreover, even if it were possible to tease from the FPA some implicit authority to regulate NOx emissions from utility generators, it is not feasible for this Commission to develop and implement such a program. The mitigation schemes presented in comments are filled with unknowns and complexities that are best resolved by those charged with administration of the Nation's environmental laws. In some cases, the mitigation schemes are based on a model of utility transactions that is fundamentally at odds with the purposes of the Rule. For example, several proposals would require the Commission to establish whether emissions from certain units or systems contribute to ozone noncompliance elsewhere, perhaps hundreds of miles away. Other proposals would require the Commission to establish baseline standards for emissions; generating units with emissions above that level would be required to adopt mitigation measures. The technical difficulties associated with these proposals are evident on their face. While resolving these issues is necessary to establish an effective NOx regulatory program, the Commission does not possess the requisite expertise to establish baseline NOx emission levels and address the difficult technical and policy issues that are presented in regulating NOx emissions. EPA is the agency with jurisdiction over and experience with such matters. Although efforts are underway to resolve these issues within the framework of the Clean Air Act, all air regulators agree that much work still needs to be done.
Other proposals would require the Commission to track generation that is used for wholesale versus retail sales. However, for example, use of holding company corporate structures, as well as emerging market structures, would make it extremely difficult, if not impossible to distinguish between retail and wholesale transactions. In addition, such measures are inconsistent with the goals of the Rule (and the Energy Policy Act) to eliminate time-consuming, inefficient transaction- based approvals that impede open access and to promote entry of sellers into bulk power markets on a competitive basis. Moreover, any such program implemented by this Commission could well undercut the existing regulatory scheme crafted by Congress under the Clean Air Act, as amended. In particular, we are being asked essentially to rework the legislative decisions made by Congress regarding certain coal-fired generators. Those decisions are at the heart of the 1990 Clean Air Act compromise. The only means Congress has made available for addressing these problems under current law are in the Clean Air Act. If these means prove insufficient to address the NOx problem overall, the case for change must be presented to the Congress.
Although we have concluded that NOx emissions problems are most effectively addressed by clean air regulations within the framework of the Clean Air Act, we do recognize that the question of NOx emissions is a very important one. Our FEIS documents that, with or without this Rule, NOx emissions from all sources are expected to increase over time. This will present a significant environmental issue for the Northeast, which is already struggling to reach current NOx reduction standards, as well as for other regions of the country that are being called on to participate in an inter-regional solution to the NOx problem. As the EPA rightly recognizes, attempting to frame an appropriate solution with the tools currently available is a tough job. We therefore understand why those concerned would try to enlist this Commission in an effort to solve this problem with regulatory mechanisms other than those set out in the Clean Air Act. We also understand why even the prospect of exacerbating that problem would ignite the kind of controversy reflected in the comments to this Rule, and why, in response, those who have gained Congressional exemptions from certain regulations wish not to have those benefits undermined. At the same time, we understand, and have great sympathy with, the many commenters who have suggested that the economic benefits of this Rule to consumers should not be suppressed or delayed by this difficult, ongoing debate.
Our FEIS clearly demonstrates that this Rule is not the appropriate vehicle for resolving this very important debate. We believe that our study makes a significant contribution nonetheless. We have added significantly to the understanding of the problem and have established a viable, current baseline for assessing future industry trends. This baseline should serve air regulators well in analyzing overall NOx emissions in the future. 940/ We have resolved some important questions about the role of open access and have established clearly the influence of energy prices on NOx emissions in the future.
Our study also supports the view held by many commenters that the appropriate regulatory mechanisms for addressing the NOx problem overall, including emissions from electric utility generating plants, is a NOx emissions cap and allowance trading scheme along the lines of that developed by the Congress under the Clean Air Act for SO2 emissions. As staff suggests, even if there are slight environmental impacts associated with the Rule, they are better and more effectively addressed as a part of a comprehensive NOx regulatory program. While Congress did not enact such a scheme for NOx, it did, as described below, empower the EPA to establish such a program. The EPA is the only federal agency with clear authority and expertise to address this problem. It should do so.
The FEIS also identifies the importance of OTAG to the development of a fair and effective NOx regulatory program. OTAG, which includes representatives from all affected states, is currently at work developing the analytic basis needed for a regional consensus solution to the NOx problem. OTAG is also evaluating possible solutions, including an allowance trading scheme. We believe that OTAG's efforts are to be applauded, and we encourage the EPA and all interested parties to work with OTAG to address this issue of national concern.
The Commission issued a NOPR in this proceeding on March 29, 1995. In doing so, we concluded that promulgating the proposed Rule would not represent a major federal action having a significant adverse impact on the human environment and that the proposed Rule fell within the categorical exemption provided in the Commission's regulations for electric rate filings submitted by public utilities under sections 205 and 206 of the FPA. 941/ Subsequently, the Commission determined that, despite the availability of the categorical exclusion, it would nonetheless prepare an environmental analysis. On July 12, 1995, the Commission directed staff to prepare an EIS to assess the environmental impacts of the proposed Rule. That notice requested comments on environmental issues and scheduled a scoping meeting for September 8, 1995. 942/
A Notice of Availability of the DEIS was published in the Federal Register on November 27, 1995. 943/ The DEIS evaluated several potential alternatives and mitigation measures as summarized below.
A Notice of Availability of the FEIS was published in the Federal Register on April 19, 1996. 944/
Section 102 of NEPA, 42 U.S.C. _ 4332, requires that federal agencies prepare an EIS on proposals for major federal actions significantly affecting the quality of the human environment. The objective is to build into the agency decisionmaking process careful consideration of environmental aspects of proposed actions, including the evaluation of reasonable alternatives. Although we believe a categorical exclusion to be available, 945/ the Commission has performed this EIS to ensure that this Rule is promulgated with the benefit of careful consideration of its environmental aspects.
The consideration an agency must give in an EIS to alternatives to its proposed action is bounded by a number of factors, including notions of feasibility, whether basic changes would be required to the statutes and policies of other agencies, and the extent to which the proposal would result in significant impacts. The United States Supreme Court (Supreme Court or Court) stated what is required in an EIS with regard to alternatives in Vermont Yankee Nuclear Power Corp. v. NRDC, 435 U.S. 519, 551 (1978): "[A]s should be obvious even upon a moment's reflection, the term 'alternatives' is not self- defining. To make an impact statement something more than an exercise in frivolous boilerplate the concept of alternatives must be bounded by some notion of feasibility." 946/ In this regard, the Supreme Court quoted Natural Resources Defense Council v. Morton, 458 F.2d 827, 837-38 (D.C.Cir. 1972), with approval as follows:
There is reason for concluding that NEPA was not meant to require detailed discussion of the environmental effects of 'alternatives' put forward in comments when those effects cannot be readily ascertained and the alternatives are deemed only remote and speculative possibilities, in view of basic changes required in statutes and policies of other agencies -- making them available, if at all, only after protracted debate and litigation not meaningfully compatible with the time-frame of the needs to which the underlying proposal is addressed. The Supreme Court went on to discuss the concept of "feasibility", stating that: Common sense also teaches us that the "detailed statement of alternatives" cannot be found wanting simply because the agency failed to include every alternative device and thought conceivable by the mind of man. Time and resources are simply too limited to hold that an impact statement fails because the agency failed to ferret out every possible alternative, regardless of how uncommon or unknown that alternative may have been at the time the project was approved. 947/
Thus, an EIS must discuss the alternatives that are feasible and briefly discuss the reasons others were eliminated. There is no minimum number of alternatives that must be discussed. 948/ An agency's consideration of alternatives is adequate if it considers an appropriate range of alternatives -- it does not have to consider every available alternative. 949/
The range of alternatives that must be considered in the EIS need not extend beyond those reasonably related to the purposes of the project. 950/ An agency is entitled to identify some parameters and criteria related to the proposal for generating alternatives to which it would devote serious consideration. Without such criteria, an agency could generate countless alternatives. 951/ Alternatives that are unlikely to be implemented need not be considered, nor must an agency consider alternatives that are infeasible, ineffective, or inconsistent with basic policy objectives. 952/ In this sense, central to evaluating practicable alternatives is the determination of a project's purpose. 953/
Furthermore, the range of alternatives that reasonably must be considered decreases as the environmental impact of a project becomes less and less substantial. If a proposal would have minimal environmental effect, the range of alternatives that must be considered is narrow. It would be an anomaly to require that an agency search for more environmentally sound alternatives to a project that it has determined will have no significant environmental effects. 954/ Moreover, feasible alternatives may be rejected if they present unique problems or cause extraordinary costs and community disruption. 955/
As applied to the instant case, NEPA does not require the consideration of alternatives that are remote and speculative possibilities because they would require basic changes to statutes and policies. Therefore, alternatives that would require the Commission to ignore open access policies enacted by Congress in the Energy Policy Act and to assume such policies would not be pursued by the states are not feasible and need not be considered. Likewise, the Commission need not consider alternatives that are ineffective or inconsistent with basic policy objectives, or that would cause extraordinary costs and community disruption. Finally, because the Rule would have minimal environmental effect, the range of alternatives that must be considered is narrow. We conclude that staff has examined the appropriate alternatives in the FEIS and correctly determined that promulgation of the Rule represents the most appropriate action.
Certain commenters have argued that the alternative that calls for the Commission to abandon the policy of promoting transmission access is more appropriate for the no-action alternative than the no-action alternative selected by the staff. 956/ We disagree. As discussed below, that contention is more properly an argument about the appropriate baseline to use in the FEIS. That debate has been resolved by the consideration of a reference case that includes a baseline which bounds the effects that those commenters seek to have analyzed.
To fulfill the requirements of NEPA with regard to mitigation, an agency must identify and evaluate the adverse environmental effects of the proposed action, in this case the Rule. Having identified and evaluated adverse environmental effects, the agency is not constrained from then deciding that other values outweigh the environmental costs of the proposal.
The leading case interpreting this requirement is Robertson v. Methow Valley Citizens Council, 490 U.S. 332 (1989)(Methow Valley). There, the Court explained that:
Although these procedures [preparation and circulation of an EIS] are almost certain to affect the agency's substantive decision, it is now well settled that NEPA itself does not mandate particular results, but simply prescribes the necessary process. If the adverse environmental effects of the proposed action are adequately identified and evaluated, the agency is not constrained by NEPA from deciding that other values outweigh the environmental costs . . . Other statutes may impose substantive environmental obligations on federal agencies, but NEPA merely prohibits uninformed -- rather than unwise -- agency action. 957/
The Court held that "[t]o be sure, one important ingredient of an EIS is the discussion of steps that can be taken to mitigate adverse environmental consequences." 958/ This is so because:
Implicit in NEPA's demand that an agency prepare a detailed statement on "any adverse environmental effects which cannot be avoided should the proposal be implemented, 42 U.S.C. _ 4332(C)(ii), is an understanding that the EIS will discuss the extent to which adverse effects can be avoided. More generally, omission of a reasonably complete discussion of possible mitigation measures would undermine the "action-forcing" function of NEPA. Without such a discussion, neither the agency nor other interested groups and individuals can properly evaluate the severity of the adverse effects . . . . 959/
The Court acknowledged that:
There is a fundamental distinction, however, between a requirement that mitigation be discussed in sufficient detail to ensure that environmental consequences have been fairly evaluated, on the one hand, and a substantive requirement that a complete mitigation plan be actually formulated and adopted, on the other . . . Even more significantly, it would be inconsistent with NEPA's reliance on procedural mechanisms -- as opposed to substantive, result-based standards -- to demand the presence of a fully developed plan that will mitigate environmental harm before an agency can act. 960/
The Court again stressed that "[b]ecause NEPA imposes no substantive requirement that mitigation measures actually be taken, it should not be read to require agencies to obtain an assurance that third parties will implement particular measures." 961/ Thus, the Court held that mitigation, including mitigation that other governmental bodies have jurisdiction to implement, must be discussed in sufficient detail to ensure that environmental consequences of a proposed action have been fairly evaluated. However, a complete mitigation plan need not be actually formulated or adopted.
The suggestion by various commenters that the Commission is required to adopt and implement a plan to mitigate the impacts of the Rule is without legal or factual basis. Even if the effects of the Rule were greater than the FEIS shows them to be, Methow Valley clearly establishes that, regardless of the impacts of the proposed action, the Commission is required only to understand the impacts of its actions. This compels us to consider and discuss mitigation; it does not require us to adopt and implement mitigation. This FEIS thoroughly examines mitigation of possible adverse environmental effects and concludes that sufficient mechanisms exist to address the impacts of the Rule, if any.
Section 309 of the Clean Air Act, 42 U.S.C. _ 7609, authorizes EPA to review and comment on environmental impact statements prepared by federal agencies. If the EPA Administrator determines that a proposed regulation is unsatisfactory from, among other things, the standpoint of environmental quality, she may refer the matter to the Council on Environmental Quality (CEQ). 962/
In this case, EPA has commented extensively on the DEIS. It sought changes to the staff's analysis, primarily to include the use of the frozen efficiency assumptions. The staff has fully complied with EPA's study requests even though it regards such assumptions as implausible, contrary to the Energy Policy Act and Commission policy, and at odds with industry trends and practical considerations affecting the industry. 963/
Although EPA may disagree with the environmental acceptability of an agency's proposal, the agency is charged with making the ultimate determination whether to implement a proposal; in making that decision, the agency is free to reject advice offered through the comment and referral process. 964/ Objections on the part of EPA may give rise to a heightened obligation of the agency to explain clearly and in detail its reasons for proceeding in the face of those objections. This the Commission has done. It has thoroughly examined the impact of the assumptions advanced by EPA; that analysis is detailed in Chapter 6 of the FEIS. 965/
In summary, NEPA prescribes a process and not a result. What is critical is that environmental impacts of a proposed action be adequately identified and evaluated -- an important component of this process is understanding the possible mitigation measures that are involved, including measures which may be beyond the jurisdiction of an agency to implement. This requirement does not translate, however, into a requirement that an EIS adopt a mitigation plan, particularly where, as here, the impacts of the Rule are small and may be either positive or negative.
The FEIS evaluated three alternatives to the Rule including: (1) a no-action alternative which assumes that the Rule is not adopted, but that existing statutory and regulatory policies remain in place; (2) a Commission decision to reverse existing policies and halt implementation of mandatory open access; and (3) a Commission decision to aggressively develop competitive power markets by mandating corporate reorganization or divestiture.
The principal alternative to the proposed action is for the Commission not to adopt the Rule, but to continue its existing open access and stranded cost policies. In recent years, the Commission has required public utilities that merge or seek to acquire jurisdictional transmission facilities under section 203 of the FPA to file open access transmission tariffs. The Commission also has required public utilities to file open access transmission tariffs to mitigate market power and to ensure non- discrimination if they or their affiliates wish to sell power at market-based rates. In addition, the Commission processes case- by-case requests made by potential transmission users under section 211 of the Energy Policy Act for transmission service, and has allowed utilities to include stranded cost provisions in their open access transmission tariffs on a case-by-case basis. 966/
Actions taken pursuant to section 211, and pursuant to sections 203 and 205 in merger and market-based rate cases respectively, represent a case-by-case approach to establishing open access. By contrast, the Rule would, in a single generic proceeding, require each jurisdictional public utility to file open access tariffs at the same time. The consumer benefits from the Rule are expected to be $3.8 to 5.4 billion per year. 967/
Absent action on the Rule, the Commission would continue on a case-by-case basis to require public utilities to file open access tariffs and provide case-specific service as necessary or appropriate. Sections 205 and 206 charge the Commission with ensuring that voluntary transmission tariffs are not unduly discriminatory. If the Rule were not adopted, the Commission would continue to require that voluntary tariffs be upgraded to offer non-discriminatory open access transmission services pursuant to the Commission's current standards. The result of continuing the Commission's policies without the Rule is that the Commission would effectuate a more open transmission grid than is present today, but in a patchwork manner and at a slower pace. Over some extended time period, many, but not necessarily all, utilities would become subject to open access requirements.
The case-by-case approach to achieving open access now in use is slower and more costly, and thereby less desirable, than the generic approach set forth in the Rule. Given the rapid changes facing the industry, and the opportunity for great consumer savings, the no-action alternative is not a reasonable alternative to the Rule.
A second alternative is for the Commission to abandon its current policy and take no action whatsoever to foster transmission access. Under this alternative, the Commission would no longer require open access transmission as a condition of mergers and asset acquisitions under section 203 or requests for market-based pricing under section 205, and would no longer grant applications filed pursuant to section 211. Offers of transmission would become strictly voluntary.
This alternative is inconsistent with Congress' general intent in the Energy Policy Act to foster wholesale competition, and also with its specific intent in expanding section 211 to permit the Commission to require a transmission-owning utility to make its transmission system available to eligible users if to do so is in the public interest. This alternative is also inconsistent with the Commission's obligations under sections 205 and 206 to ensure that public utilities do not unduly discriminate in providing jurisdictional services. It is, therefore, not a reasonable alternative to the Rule.
Under this alternative, the Commission would require public utilities either to divest control of their transmission assets or to reorganize their corporate structures to perform their transmission functions through a separate subsidiary, thereby segregating transmission from the rest of the utilities' operations. However, corporate reorganization or divestiture would have no effect on the operation of power plants, which are assumed to be dispatched on the basis of economic efficiencies. Thus, this alternative would lead to the same environmental impacts as the Rule. That is, the environmental effects would be no different from those studied in the FEIS.
The FEIS examines the environmental impacts that could result from implementing this Rule. This analysis is undertaken against the background of the existing electric industry. The electric industry currently produces environmental impacts, and those impacts are certain to change over time as the industry responds to factors as varied as changes in demand for electricity, the price of fuels, changes in regulatory programs, technological developments, and changes in market structure.
The FEIS does not examine the environmental impact of electric generation that is required to meet generators' existing service requirements. Nor does it examine the environmental effects of the inter-utility power exchanges that have occurred in the industry for as long as utilities have been interconnected. Rather, the FEIS examines impacts of potential increases in generation and changes in patterns of generation that might result from implementation of the Rule.
In creating an analytical construct to examine the impacts of the Rule, the staff developed a set of cases that defined the framework for running the computer models utilized to examine the changes in types of power plants constructed in the future and changes in operating patterns of existing power plants, including changes in fuel mix.
First, staff characterized how electric power markets might evolve absent adoption and implementation of the Rule by establishing baselines (i.e., base cases) to project the future impacts of the industry. 968/ The relative prices of coal and natural gas are critical in establishing what is likely to happen in the future. Accordingly, a range of prices was developed to project the impacts of these factors. In the first baseline, the Constant-Price-Differential Base Case, coal and natural gas prices are assumed to maintain the same relative position they have maintained over the past ten years. In the second baseline, the High-Price-Differential Base Case, natural gas is assumed to become substantially more expensive compared with coal than it has been over the past 10 years. In all other respects, the assumptions underlying the two base cases are the same.
Because the purpose of the base cases is to describe the impacts of the electric industry if the Commission takes no action over and beyond continued implementation of existing policies, the baselines assume that the Commission continues the open access and stranded cost policies it has instituted in recent years.
Some commenters have challenged this aspect of the baselines used in the study. The gist of their argument is that the environmental impacts of these programs have not been evaluated and that the baselines therefore improperly take credit for impacts that have not yet occurred, thus understating the projected impacts of the Rule. In general, these commenters argue that the second alternative considered by the staff represents the "true" no-action alternative.
At bottom, this debate is not about what constitutes the appropriate no-action alternative. Rather, it is a debate about what aspects of the electric industry should be taken into account when determining future environmental impacts of the industry against which to measure the impacts of the Rule. The commenters urge the Commission to consider varying baselines, but in general they oppose inclusion in the base cases of the Commission's ongoing open access and stranded cost programs.
Some commenters not only urge that the Commission not take into account continued implementation of its open access and stranded cost programs, but that it go much farther and establish baselines (against which to examine the impacts of the Rule) that do not reflect the impacts of a great many changes that are already taking place in the electric industry. This proposal would establish a baseline that does not take into account:
The use of these assumptions would fly in the face of long- standing industry trends which move in precisely the opposite direction. Utilities are reducing reserve margins, improving plant availabilities, and reducing barriers to transmission even without Commission action. 969/ Many states are aggressively pursuing plant efficiency policies. 970/ These trends are long-standing and are not attributable to the Rule, or even to a broader Commission program of open access. These trends, projected into the future, form the basis for the conditions reflected in the FEIS base cases. These trends are fundamentally at odds with the assumptions some commenters wish the Commission to use to establish baselines.
We conclude that the approach used by staff to develop the baselines used in the FEIS is appropriate. Abandoning current open access policies is unrealistic, contrary to Congressional intent, and at odds with pro-competition policies that are at the heart of the Commission's current regulatory mission. The selection of the appropriate methodology to establish the baselines used in the FEIS is clearly within the Commission's discretion and expertise. 971/
What the commenters challenging this assumption desire is additional study of the impacts of the Rule. Specifically, they wish to test the Rule against a different set of assumptions for the acknowledged purpose of attributing greater adverse environmental consequences to the Rule. The regulations of the Council on Environmental Quality no longer contain a requirement to conduct a conjectural "worst-case analysis." 972/ NEPA requires an agency to adequately identify and evaluate the adverse environmental effects of a proposed action. 973/ It does not require the agency to ignore the world as it exists.
Nonetheless, to respond to concerns about the baselines used in the DEIS with respect to key atmospheric emissions, the staff conducted sensitivity analyses to examine the outer boundaries of a range of cases requested by some commenters. This range of cases is called the "frozen efficiency" case. In essence, the frozen efficiency cases assume that no further open access of any kind occurs during the study period and that efficiency in the industry (for instance, power plant availability) remains frozen through the same period. The assumption that there is substantially more inter-regional transmission capacity than posited in the original analysis is separately examined in the base and Rule cases. 974/
We must reiterate that the frozen efficiency case is far more restrictive in its assumptions than a true no-action case in which the Commission simply stops all efforts to promote open access. A true no-action case would closely resemble the FEIS base cases because much of the efficiency gain in that base case would occur even with no move toward open access.
As detailed in Chapter 6 of the FEIS, and as discussed below, even the frozen efficiency case demonstrates results that are essentially the same as those demonstrated by the base cases used by the staff. In the frozen efficiency worst case, when coal prices become considerably more attractive compared to gas prices, national NOx emissions would be lower than in the base cases used by staff by only one percent (in 2000) to four percent (in 2010). If coal and natural gas prices remain at today's relative levels, the effects would be smaller -- zero percent in 2000 to two percent lower in 2010. National CO2 emissions would be between zero and two percent lower than in the base cases used by the staff over the same time frame.
The FEIS reports a quantitative estimate of approximately $3.8 billion to $5.4 billion in benefits per year of cost savings expected from competition under the Rule. The FEIS also considers other, non-quantifiable benefits that can be expected from implementing the Rule. These benefits include better use of existing assets and institutions, new market mechanisms, technical innovation, and less rate distortion. Further, the FEIS demonstrates to our satisfaction that the Rule is likely to have little or no adverse environmental impact and that any impacts are as likely to be beneficial as harmful.
The issue most frequently raised by commenters involves air quality impacts, particularly the possible transport of NOx emissions from upwind areas to airsheds in the Northeast and the resulting impacts on ozone non-attainment areas.
With regard to NOx, the FEIS demonstrates that, as a result of clean air regulatory programs, NOx emissions nationwide, with or without the Rule, will decline through the year 2000, but begin to climb thereafter. 975/ This basic trend remains the same in all cases examined in the FEIS. This is because the level of NOx emissions in any given year depends primarily on one key uncertainty that is not related in any way to the Rule -- the relative price of natural gas and coal. 976/ Lower prices for natural gas, relative to coal, lead to lower levels of NOx emissions.
The FEIS also demonstrates that increases in access to transmission and efficiencies in electric power markets associated with the Rule do not alter the expected trend of NOx emissions, regardless of the relative price of natural gas and coal. Increased transmission access and industry efficiency facilitated by the Rule may either decrease total emissions somewhat or increase them somewhat, depending on whether competitive conditions in the electric industry favor natural gas or coal. When competitive conditions favor natural gas, the effect of the Rule is beneficial, reducing emissions somewhat. When competitive conditions favor coal, emissions increase by a small amount. Nevertheless, the overall trend of expected NOx emissions retains its general shape.
In assessing the projected impacts of the electric industry absent adoption of the Rule (i.e., the base cases studied in the FEIS), the most important factor affecting changes in national NOx emissions is the relative competitive position of coal and natural gas. The most important factor affecting the relative competitive positions of coal and natural gas is price.
National NOx emissions from the electric industry were 5,844 thousand tons in 1993, the last year for which complete data is available. If relative gas and coal prices remain the same, for example, we project that national NOx emissions will be 5,579 thousand tons in 2005 without adoption of the Rule. If gas prices rise relative to coal prices, we project that NOx emissions in 2005 will be 6,053 thousand tons without adoption of the Rule. Stated another way, favorable coal prices are projected to result in NOx emissions that are about three percent higher in 2000 to 10 percent higher in 2010 over the base case where gas is the favored fuel.
The effect of adopting the Rule could be to raise or lower national emissions slightly compared to the effects projected in the base cases. Nationally, in 2005, we project that the Competition-Favors-Coal Scenario (with rising relative gas prices) would add one percent to NOx emissions above the base case that favors coal. The Competition-Favors-Gas Scenario (with constant relative fuel prices) would lower emissions by two percent compared with the base case that favors gas.
Regional effects are generally similar. In 2005, in the East North Central region (a source of potential increased NOx emissions that might affect the Northeast), the base cases project small increases in industry emissions (two percent). In that region in 2005, the Rule may add as much as one percent to NOx emissions compared to the relevant base case (the Competition-Favors-Coal Scenario) or reduce emissions compared to the relevant base case by as much as three percent (the Competition-Favors-Gas Scenario).
The EIS uses the UAM-V model to track the effects of projected NOx emissions on downstream ozone levels during a severe weather period. This detailed air quality modeling shows no real difference in the Northeast between the base case favoring coal (the High-Price-Differential Base Case) and the Competition-Favors-Coal Scenario. Detailed local analysis shows slightly lower ozone concentrations in some locations and slightly higher concentrations in others. None of the differences adds to non-attainment levels projected in the relevant base case, and all fall within the noise levels of the model. That is, they are smaller than the uncertainties in the science underlying the model.
As discussed above, the Commission believes that the base cases used by staff in its analysis are the most realistic and, therefore, the most appropriate cases to consider the potential environmental impacts of the Rule. However, as requested by the EPA, DOE, and certain other commenters, sensitivity analyses were conducted to examine the impacts on the results of the analysis if key assumptions are changed as requested by commenters. Presumably, comparing the projected impacts of the Rule to the requested "frozen efficiency" case provides a measure of the greatest impacts that could possibly (albeit unrealistically) be expected from implementing the Rule. 977/
As the FEIS discusses, even comparing projected NOx emissions under the Rule to the highly implausible frozen efficiency case, impacts attributable to the Rule are projected to be modest or non-existent. This holds true even when large (up to 40 percent) increases in transmission capacity are assumed to occur under the Rule. 978/ Moreover, adding coal-favoring assumptions -- which would presumably increase emissions -- about future competitive conditions in the electric industry to the implausible frozen efficiency assumptions, NOx emissions are projected to increase very modestly until the year 2010 (by only two percent in 2000 and three percent in 2005). Even using this highly unlikely alternative to the Rule, the analysis projects a net environmental benefit (although a very small one) if gas prices stay constant compared to coal prices.
Concern also has been expressed with regard to the need to mitigate CO2, mercury, and fine particulate emissions, and with the impact of the Rule on visibility. As with NOx, the FEIS demonstrates that the Rule is as likely to improve such emissions and visibility as it is to exacerbate them. In any event, the impact is expected to be small.
In sum, the Commission adopts the FEIS findings that:
An agency is required to consider mitigation if the proposed action will result in adverse environmental impacts. 980/ The insistence of commenters that the Commission adopt and implement mitigation measures is based on significantly overstated assumptions regarding the contribution of the Rule to existing environmental problems. The analysis presented in the FEIS establishes that these assumptions about the impact of the Rule are wrong. As stated in the FEIS,
The sensitivity analyses [i.e., the frozen efficiency case requested by EPA, DOE and other commenters] do not support the argument that the proposed rule is likely to lead to large immediate impacts that require immediate mitigation. In fact, using the more reasonable EIS base cases, it is clear that the proposed rule is at least as likely, if not more likely, to benefit the environment as it is to have adverse environmental impacts. As a result, we believe it is not a responsible course of action to undertake efforts to mitigate speculative adverse environmental consequences that may well not materialize; such action could well have the opposite effect and delay the clear benefits the proposed rule will produce in order to address small, highly uncertain environmental impacts. [981/]
Even if the Rule were to result in adverse environmental impacts as a result of competitive conditions that favor the future use of coal, such impacts are not likely to occur until about the end of the time period examined in the FEIS. EPA in its comments on the DEIS stressed, based on views it formed prior to knowing the results of the frozen efficiency case, that the Commission should develop interim mitigation until EPA can implement a program of controls. EPA stated in its comments that it has authority to address "some" of the impacts it believed would result from the Rule, but stated that it would take it considerable time to do so -- up to 10 years. The results of the unrealistic worst case analysis demonstrate that adverse effects would not be expected to occur for approximately 10 years in any event. Thus, interim mitigation is not required; EPA will have sufficient time to develop under the Clean Air Act whatever mitigation plan it may deem necessary.
Although the staff concluded that mitigation was unnecessary given the results of its analysis, given the importance of this issue, it nonetheless examined in considerable detail measures, including those proposed by commenters, that could be taken to mitigate adverse environmental consequences of the Rule if they were to occur. The FEIS focuses on NOx emissions in particular given the importance assigned to this issue by commenters.
As discussed in greater detail in the FEIS, the existence for many years of a significant ozone non-attainment problem in parts of the U.S. has led to the development of mechanisms to address this issue. In particular, Congress has established requirements in the Clean Air Act for regulating NOx emissions. These requirements establish specific NOx emission levels for certain types of boilers. As discussed below, the Commission is not authorized to alter those requirements as requested by certain commenters.
In the 1990 Amendments to the Clean Air Act, Congress enacted the Acid Rain Program to reduce annual SO2 and NOx emissions. For SO2, Congress established a cap and trade program that uses a market-based allowance system to reduce SO2 emissions from utilities by approximately 50 percent. The allowance system caps utility emissions at 8.9 million tons a year by 2000. A pool of 8.9 million allowances was then created, each representing the right to emit one ton of SO2 pollution in a specified calendar year. The allowances can be used to permit current emissions, sold, or held in reserve.
As a result of uncertainty in the understanding of ozone formation and transport, Congress acted less aggressively in regulating NOx emissions. It chose to limit NOx emissions from utilities by means of allowable emission limits and to require further study of ozone precursors, leaving room for the EPA to abate NOx requirements where scientifically justified. Accordingly, in section 407 of the Clean Air Act, 42 U.S.C. _ 7651f, Congress established a NOx reduction program which provides that EPA shall by regulation establish annual allowable emissions limitations for NOx for specified types of utility boilers (Group 1 boilers). Section 407 also provides that, by not later than January 1, 1997, the Administrator shall establish allowable emission limitations for NOx on a lb/MMBtu, annual average basis for specified other types of utility boilers (Group 2 boilers).
On April 13, 1995, EPA promulgated a Rule setting emission limitations on Group 1 boilers that combust coal as a primary fuel. EPA reports that the April 13, 1995 regulation "is expected, by the year 2000, to nationally reduce NOx emissions by an estimated 1.54 million tons per year." 982/
On January 19, 1996, EPA published a proposed Rule to implement the second phase of the Acid Rain Program. This Rule proposes to establish NOx emission limitations for Group 2 boilers and to revise NOx emission limitations for Group 1 boilers to impose tougher standards. EPA states that "[t]he proposal would, by the year 2000, achieve an additional reduction of 820,000 tons of NOx annually." 983/
In addition, Congress determined to deal with the issue of the interstate transport of ozone by authorizing the formation of transport commissions. The Clean Air Act authorizes EPA to establish transport regions that are charged with assessing the degree of interstate transport of pollutants, assessing mitigation strategies, and recommending revisions to State Implementation Plans to correct the problem. The Clean Air Act specifically establishes an ozone transport region (OTR) for the Northeast. The jurisdictions that comprise the OTR have developed a coordinated approach to this problem that includes adopting a regional cap on NOx emissions.
Although the OTR process is achieving its purpose, a broader program is clearly appropriate to address the overall problem. As a consequence, the Ozone Transport Assessment Group (OTAG) has been formed which encompasses the OTR and upwind states that contribute to non-attainment. OTAG is performing extensive photochemical grid modeling of the eastern U.S. to determine ozone transport problems and to evaluate the efficiency of various control strategies. OTAG is considering recommending a cap and trade system for NOx emissions from all sources in a 37- state area comprising the Northeast OTR and upwind states. If the cap and trading system becomes effective it therefore should fully mitigate NOx emission increases, if any, attributable to open access transmission within the 37-state area. A cap and trade program is also likely to mitigate CO2 and mercury emissions. 984/ Any incremental increases in NOx, mercury, or CO2 emissions that may result from the Rule can and should be addressed within this existing framework.
All of these factors lead us to agree with the staff's conclusion in the FEIS that a cap and trading system such as that under consideration in the OTAG process is the preferred approach to the overall NOx emissions problem, including emissions associated with the Rule, if any. This approach brings together EPA and the concerned states in a program that utilizes existing regulatory authority under the Clean Air Act.
The OTAG process brings to the table the parties that must participate in making the difficult decisions necessary to fully resolve this problem. OTAG possesses the technical resources and expertise to address the difficult scientific and technical issues that must be resolved to remedy this problem. A cap and trading system will require the development of emission baselines for a great many entities; development of such baselines is certain to require extensive modeling and many difficult compromises. OTAG and others have been working towards this end for a long time. A more limited approach -- one undertaken by this Commission or aimed at the limited (and only potential) impacts of the Rule -- cannot render a satisfactory solution. A program designed to deal with the slight impacts associated with the Rule will not contribute significantly to the overall solution and could, indeed, impede it if the Commission took actions that prove inconsistent with solutions developed by OTAG or if debate over Commission-sponsored mitigation were to continue to distract interested parties from the preferred route of developing a consensus solution within the framework of the Clean Air Act. We respect the expertise and the goals of the OTAG process and do not believe we can or should substitute for them in addressing this long-term national problem.
The FEIS also analyzes NOx mitigation measures proposed by commenters. These include voluntary measures pursuant to which the Commission would support utility efforts to mitigate pollution and proposals under which the Commission would mandate mitigation. Commenters suggest a variety of Commission actions including using its conditioning authority to require utilities to consider environmental impacts; 985/ sanctioning imputed charges in rates to reflect incurred environmental externalities; and designing specific, transaction-oriented mechanisms designed to address the increment of emissions attributable to new wholesale transactions resulting from the Rule. 986/ The FEIS discusses five proposals in some detail: those presented by the Center for Clean Air Policy (CCAP), the EPA, Joint Commenters, the Project for Sustainable FERC Energy Policy (Sustainable FERC), and the DOE. 987/ Of these, the FEIS recommends the proposal put forward by DOE:
Staff concurs [with the DOE analysis] that the best solution to the problem of NOx transport and ozone non-attainment lies in exercise of statutory authority under the Clean Air Act by EPA and the states. Absent Congressional action, no resolution of the difficult political and technical issues will represent a lasting solution of this problem except one that comes from a collaborative process such as OTAG. [988/]
As the FEIS explains in great detail, each of the other recommendations suffers from serious shortcomings. In one form or another, they would require the Commission to implement technically complex emissions control regimes outside of the Commission's expertise. Some would require that we duplicate existing monitoring systems. Others would require that we implement provisions that would, in effect, defeat the very purpose of the Rule. 989/ Indeed, these recommendations would have the Commission embark upon an extensive environmental regulatory regime that appears unwarranted, unworkable and, as discussed below in some detail, beyond our lawful authority. And they would have us act in a way that may well frustrate the ongoing efforts to deal with these problems and would frustrate the benefits to be derived from the Rule.
The CCAP asserts that FERC should establish an emissions monitoring program for NOx and CO2 and implement an emission neutrality requirement (ENR) to mitigate what it believes to be the impacts of the Rule. The monitoring program would require generators to identify emissions associated with off-system sales on a kWh basis in real-time and integrate this information with the data to be made available on electronic bulletin boards (EBBs). Under the ENR aspect of CCAP's proposal, to be eligible for service under open access tariffs, companies that operate plants upwind from the Northeast OTR and the upper Midwest would have to certify that firm and economy off-system power sales using an open access tariff would have no incremental impact on ozone compliance in other areas. All sales for resale that require service under an open access tariff and originate upwind of the OTR would need to include NOx emissions reduction credits equal to the increase in emissions related to those sales. The seller could meet its requirement to be "emission neutral" under the mechanism by achieving the required emission reductions annually at their own facilities, or through purchases of credits anywhere in the airshed.
EPA proposes two mitigation alternatives. In the first, it states that FERC could deny open access service unless there is a showing that the service will not have an adverse environmental impact. Under this approach, EPA, in cooperation with the states in OTAG, would recommend and establish a mitigation mechanism that could be entered into by a customer seeking open access service and used by such customer to make the necessary environmental demonstration supporting the provision of the service. The FERC would rule on whether the mitigation mechanism presented by the customer and the evidence on the likely effectiveness of the mechanism were sufficient to make the environmental demonstration.
In the second proposal, EPA suggests that any fossil fuel- burning generating entity seeking service under open access transmission tariffs would be required to commit by an enforceable contractual undertaking that it will avoid or offset emission increases (measured against as yet undetermined baselines), and periodically certify its compliance with that commitment. Middlemen would have a similar obligation. The generator could meet its emission limits either by making verified emission reductions within its own facilities or by obtaining eligible emissions offsets from other entities. An important element of the mitigation mechanism is the emissions baseline above which mitigation would be required. This mitigation mechanism would operate until superseded by appropriate programs addressing these pollution problems under other authority. EPA's own comments on the DEIS recognize that there may be substantial practical complexities in implementing such mechanism.
The Joint Commenters propose a flexible mitigation strategy pursuant to which FERC would require as part of open access transmission a demonstration that NOx emissions would not be increased. To qualify for open access transmission access, an electric generating unit would be responsible for mitigating any excess NOx emissions that adversely affect ozone non-attainment areas. Utility systems would be able to comply by use of emission control technology, fuel changes, or other measures to reduce applicable emissions, or by buying appropriate emission reduction credits to offset excess emissions. To comply with this policy, a company would need first to calculate whether it had excess emissions for the ozone season. A company that failed to mitigate would be required to remit to a regional emissions fund all revenues in excess of the incremental operating cost of producing electricity sold under the open transmission access policy during the previous ozone season plus an emissions make-up penalty the following year patterned after the penalty for excess emissions in the Acid Rain Program. The proposed mitigation policy would apply generally throughout the OTAG region.
The outlines of Sustainable FERC's proposal are vague, but it appears to request that FERC, either singly or in combination with other agencies, eliminate the different environmental standards that apply to entities participating in open access transmission. This plan would include the reporting of emissions data to EPA, principles to eliminate the adverse impacts of non- comparable environmental standards, and an EPA-administered emissions monitoring process designed to determine whether generating plant emissions of specific pollutants under open access exceed designated baselines.
Finally, DOE proposes action under the Clean Air Act as the most effective mitigation of the inter-regional NOx transport problem. DOE supports the activities of OTAG and believes that a regional NOx cap and trading system is a particularly promising approach. If OTAG does not succeed in addressing the problem, EPA should consider exercising its authority under sections 110 and 126 of the Clean Air Act, 42 U.S.C. __ 7410 and 7426, respectively, to require states to amend their State Implementation Plans to reach the same result.
The proposals advanced by CCAP, EPA, Sustainable FERC, and Joint Commenters suffer from practical and legal problems that render them unworkable. A common thread is for the Commission to "level the environmental playing field." "Impacts of non- comparable environmental standards" are not impacts of this Rule, but rather of the Clean Air Act regulations and statutory requirements under which those standards have been imposed. We have no authority to "level" the different emissions standards for different types of power plants, when those differences in standards are the direct result of the program adopted in the Clean Air Act and regulations promulgated by EPA. In enacting the Clean Air Act, Congress chose not to impose identical emission standards on all electric utility powerplants, but did create mechanisms for regulation of certain pollutants that can be used to "level the playing field" if that is appropriate clean air policy. For the Commission to presume to overturn those standards or seek to impose more stringent standards is something the Commission believes it cannot do.
A fundamental problem that plagues several proposals is the difficulty in identifying causation. While it is generally accepted that there is a link between increased emissions in certain areas of the country and increases in ozone levels in other areas, that link is in many respects poorly understood. In particular, it is difficult to prove that emissions from a particular unit or particular system contribute to ozone noncompliance elsewhere. As a result, it is very difficult to establish an analysis that would support a certification that a particular power sale would have no incremental impact on ozone compliance. Similarly, the proposals tying "emission neutrality" to "open access transactions" seem to fundamentally misunderstand the operation of power markets and the role of open access tariffs in moving power from willing sellers to willing buyers. In particular, these proposals do not reflect the difficulty in identifying the transactions that are likely to result from the open access policies adopted in this Rule. The Rule does not authorize sales for resale of electric energy; rather, it establishes requirements for open access transmission, i.e., it requires utilities with monopoly control of transmission to make transmission service available to customers who want to buy power from someone other than the transmission owner. Open access will facilitate transactions where the transmission owner will not provide service. However, generators do not necessarily have to request service under a Commission ordered open access tariff to make specific sales. There are a number of ways to structure transactions where third party transmission service is either not necessary or is voluntarily available. 990/ Even when open access tariffs are used, the sales are not always (or even often) sales from specific generators to specific buyers. Marketers or brokers can buy generation from any number of sources. They can also buy transmission service in blocks that may not be associated with specific sales. Service agreements can be executed that allow use of non-firm transmission service for transactions that are not even known at the time of the execution of the agreement.
The Rule envisions a world where transmission will be arranged with minimal transaction cost. Terms, conditions, rates, and even approvals often will be established far in advance of particular transactions. All other problems aside, requiring showings of the kind required by the various mitigation proposals would undermine the basic philosophy behind the Rule, would make transactions much more difficult to engage in, would increase transaction costs, and would cause delays resulting in lost efficiencies. In addition, it would directly conflict with the Commission's responsibility under the FPA to remedy undue discrimination in jurisdictional services, which is the fundamental purpose of the Rule.
Another significant issue with several of the proposals is how to establish the baselines against which to measure emissions. Establishing such baselines is extremely difficult; EPA itself, for example, has not come to grips with these complexities. The picture is complicated by difficulties in identifying open access transactions that result from the policies implemented by this Rule. For example, some utilities use holding company corporate structures in which generation assets are held in an affiliate that sells power at wholesale to the holding company's distribution affiliate. For these utilities, all retail native load service would be subject to environmental review under the mitigation proposals if the base were established by reviewing all wholesale sales. This would make the Commission responsible for addressing all NOx emissions from power plants for utilities with such corporate structures, a result that goes far beyond the stated goal of mitigating emissions that result from increased interstate trade facilitated by the Rule.
As the industry changes, new structures are emerging that will make any system that tries to keep track of wholesale sales even more difficult to administer. California is putting into place an industry structure that could see all generation in the state sold into a central pool and then sold again at wholesale to distributors. Other states are contemplating retail market structures that are even more fluid than the California proposal. Differentiating between sales for resale that are for former retail customers and sales for resale that are for "new" wholesale customers, and therefore somehow the result of open access policies, would be extremely difficult. In general, it is not easy to distinguish among growth in generation for native retail load, wholesale requirements customers, existing economy sales, and new sales that are facilitated by the Rule, either for purposes of establishing a baseline or for tracking responsibility for emissions. 991/
Joint Commenters proposal would have the Commission impose a revenue collection measure -- in essence a tax on open access transmission. The Commission is authorized by the FPA to pass through costs, not to collect additional fees from entities utilizing programs established by the Commission. The payment of emission fees is outside the Commission's authority under the FPA.
The FEIS concludes that mitigation by the Commission should not be undertaken in this Rule because:
In sum, the Rule is expected to have small impacts and those impacts are as likely to be beneficial as they are to be harmful. Therefore, mitigation is not required. In addition, processes are in place to address the pre-existing NOx problem -- a problem that dwarfs any impacts the Rule might have. These processes are expected to address the underlying transport problems well before any potential harmful effects of the Rule will develop. 993/
The mitigation measures that certain commenters urge the Commission to adopt are truly unwarranted in light of these facts. They also fail to recognize or adequately consider the Commission's limited jurisdiction, its lack of expertise required to assess and address the underlying problem, the existing mechanisms and efforts to address the underlying problem, and the balance that has been reached and continues to be defined by the many interests that have invested substantial efforts toward finding acceptable solutions to these problems.
The FEIS concludes that the mitigation measures recommended by commenters are beyond our authority to implement and that strong policy considerations militate against their adoption. We agree.
Several commenters contend that the Commission is authorized to use the rulemaking as a vehicle to impose an air emissions regulatory regime on the electric utility industry. 994/
Others argue that, as a matter of law and policy, we cannot and should not impose such measures. 995/ While the conditioning proposals vary in specifics, all have as their central theme that generators would be forced to agree to operate generation facilities in a manner to reduce air pollution below levels currently authorized by EPA and the states. 996/
The Commission's authority to regulate public utilities is set out in Parts II and III of the FPA. Parts II and III do not provide the Commission with the authority to condition either the provision of, or access to, jurisdictional services on the agreement to undertake environmental mitigation measures. 997/ Section 201, which is found in Part II of the FPA, explicitly bars the Commission from exercising the jurisdiction that the proponents of the conditioning proposals would have us undertake: authority over the operation of generating facilities. Section 201(b)(1) provides that:
The Commission shall have jurisdiction over all facilities for [the transmission of electric energy in interstate commerce] or [the] sale of electric energy [at wholesale in interstate commerce], but shall not have jurisdiction, except as specifically provided in [Parts II and III], over facilities used for the generation of electric energy . . . . [emphasis added].
This standard is reflected throughout Parts II and III of the FPA. Sections 205 and 206, which are the cornerstones of Parts II and III, concern the regulation of rates, terms and charges occurring in connection with transmission or sales subject to the Commission's jurisdiction. Parts II and III do not grant the Commission authority to regulate the environmental aspects of jurisdictional activities. 998/ Instead, they provide authority over certain interconnections; 999/ the rates, terms and conditions of wholesale sales of electric energy in interstate commerce and transmission in interstate commerce; the disposition and merger of facilities used for such sales and transmission; issuance of securities; accounting matters; and interlocking directorates. Thus, the Commission's jurisdiction over generation extends only to matters directly related to the economic aspects of transactions resulting from such facilities. 1000/ We do not have jurisdiction over the physical aspects of generation facilities. 1001/
This limitation on the Commission's jurisdiction stems from the historical purposes for which the Commission was established. Congress had two objectives in expanding the authority of the Federal Water Power Commission in 1935. 1002/ The first was to close the gap created by Public Utilities Commission v. Attleboro Steam & Electric Co., 273 U.S. 83 (1927)(Attleboro), in which the Court found that under the Commerce Clause states could not regulate wholesale sales of electricity in interstate commerce. The result was a gap in regulation of such sales because there was no federal entity with authority to regulate them at that time. The second was to eliminate the economic abuses that were then rampant in the industry. 1003/ In expanding the Commission's jurisdiction Congress made clear that such Federal regulation, however, was "to extend only to those matters which are not subject to regulation by the States." 1004/
Several commenters argue nonetheless that the Commission may do indirectly what it is barred from doing directly. Their arguments boil down to the claim that the Commission's responsibility under the FPA to act in the "public interest", either alone or in conjunction with NEPA, provides the Commission with the authority to impose environmental regulation on generators to address the supposed impacts of the Rule. 1005/ We disagree. In making this argument, the commenters attribute to that standard a breadth of discretion that vastly exceeds the traditional ambit of our authority.
It is well established that NEPA merely establishes a procedural vehicle for assessing the impacts of a proposed action on the environment. It neither expands nor contracts the basic grant of jurisdiction made by Congress to the agency conducting the review, and it does not mandate particular results but simply prescribes a process. 1006/ Commenters' arguments that NEPA somehow "fills in the blanks" of the FPA to authorize us to impose environmental regulatory regimes on generating facilities, or those who may purchase power from them, is simply incorrect. If we have such authority, it must be found in our substantive statute, the FPA.
Courts have addressed the breadth of our public interest standard on several occasions. The principal case on this point is National Association for the Advancement of Colored People v. FPC,, 520 F.2d 432 (D.C. Cir. 1975), aff'd, 425 U.S. 662 (1976) (NAACP). In NAACP, a number of organizations requested that the Commission promulgate regulations requiring equal employment opportunity and proscribing racial discrimination in the employment practices of public utilities. 1007/ The Commission declined, finding that the FPA did not authorize it to do so. Petitioners appealed, contending that the Commission was authorized and required to act in the public interest:
to order such interconnections of electric power transmission facilities, setting such terms and conditions for the same, as are "necessary or appropriate in the public interest"; to approve such asset sales and consolidations of interstate electric power companies as are "consistent with the public interest; to approve such securities issuances by those companies as are "compatible with the public interest" and "consistent with the proper performance . . . of service as a public utility"; to determine "just and reasonable" rates for interstate sales and transmission of electric power; and to order that "proper, adequate or sufficient" interstate power service be rendered. [1008/]
On this basis, they argued that because prohibition of discrimination is in the "public interest," the Commission was therefore required to proscribe discrimination by jurisdictional entities.
The Court rejected petitioners' argument. It observed that:
the [Federal Power] Act's preamble echoes the generality of the foregoing quoted phrases, declaring that the sale and transmission of electric power are "affected with the public interest," federal regulation of interstate aspects being "necessary in the public interest." The statute itself nowhere defines the "public interest," but instead leaves the precise ambit of the Commission's concern uncertain. [1009/]
The Court found from the entirety of the Act that, "[o]f the Commission's primary task there is no doubt, however, and that is to guard the consumer from exploitation by non-competitive electric power companies." 1010/ The Court reiterated that "[t]he Supreme Court has stated that the words 'public interest' do not constitute a 'mere general reference to the general welfare, without any standard to guide determinations.'" 1011/ Significantly, the Court also found that "[w]ords like 'public interest' . . . though of wide generality, take their meaning from the substantive provisions and purposes of the Act." 1012/ The Court concluded that:
Congress has not charged the Commission with advancing all public interests, but only the public's interest in having the particular mandates of the Commission carried out, its interest, in other words, in the conservation of natural resources and the enjoyment of cheap and plentiful electricity and natural gas. [1013/]
With this, the Court rejected petitioners' argument that the FPA "public interest" standard requires the Commission to promulgate regulations prohibiting discriminatory practices by entities who are in some way regulated by the Commission. The Court found that the Commission was not empowered to promulgate anti-discrimination regulations because to do so would not be "reasonably related to the furtherance of the Commission's proper objectives," which, under Part II of the FPA, are "the enjoyment of cheap and plentiful electricity." 1014/
On review, the Supreme Court affirmed this limited reading of the Commission's authority to act in the public interest. 1015/ In doing so, the Court noted that:
The use of the words 'public interest' in the Gas and Power Acts is not a directive to the Commission to seek to eradicate discrimination, but, rather, is a charge to promote the orderly production of plentiful supplies of electric energy and natural gas at just and reasonable rates. [1016/]
The question the Supreme Court asked in NAACP is the appropriate question here concerning the commenters' environmental mitigation proposals:
The question presented is not whether the elimination of discrimination from our society is an important national goal. It clearly is. The question is not whether Congress could authorize the Federal [Energy Regulatory] Commission to combat such discrimination. It clearly could. The question is simply whether and to what extent Congress did grant the Commission such authority. [1017/]
We believe the same conclusion is true here for air pollution as the Court found there regarding discrimination. 1018/
The argument by EPA and others that because the FPA authorizes the Commission to act in the "public interest" it somehow authorizes the Commission to impose environmental mitigation measures is virtually indistinguishable from petitioners' argument in NAACP. 1019/ Here, as in NAACP, parties urge the Commission to act to achieve worthwhile goals. However, the question is not whether the measures proposed by the parties would advance important national goals. Rather, "[t]he question is simply whether or to what extent Congress did grant the Commission such authority." 1020/ Also here, as in NAACP, the parties improperly base their belief that the Commission has authority to act under the FPA on an incorrect, overly broad application of the "public interest" standard. The goals sought to be advanced by EPA and others are broadly speaking "in the public interest," but they are not goals that Congress has directed this Commission to pursue. 1021/ Thus, just as the FPA did not authorize the Commission to take actions that petitioners requested in NAACP, the FPA does not authorize the Commission to undertake the types of environmental mitigation measures proposed by the commenters. 1022/
The Project for Sustainable FERC argues that in Richmond Power & Light v. FERC, 574 F.2d 610, 616-17 n.22 (D.C. Cir. 1978)(Richmond Power), the Court "suggested" a broader agency latitude than described in NAACP. 1023/ We disagree.
Richmond Power involved a case where the Commission was challenged, inter alia, because it declined to adopt a particular transmission rate that would have permitted Richmond to shift from oil to some other fuel. The Court affirmed the Commission's decision, finding that:
Although the Commission must serve the public interest in approving rates, we see no abuse of discretion in limiting this proceeding to the shortrun problem of setting just and reasonable rates for the service theretofore provided in response to the 1973 oil embargo. While an administrative agency must remain faithful to public policies directly related to its regulatory authority, surely at any given moment of history it may rationally decline to affirmatively foster other policies in weighing the specific interests that it is required by the statute to consider. This is especially true when the forum chosen by proponents of the other policy is not well suited to the study of its implications. [1024/]
In dicta, in a footnote that began with the Court doubting whether the goal of energy independence is within the Commission's regulatory jurisdiction at all, the Court merely said that "[n]othing in NAACP v. FPC, supra, forecloses agency discretion to consider in given situations pervasive public policies that it is not required to evaluate in every decision it makes." 1025/
The discretion to consider public policy matters is a far cry from the authority, or obligation, to regulate those matters. We have considered the environmental impact of the Rule. Nothing in Richmond Power suggests that the consideration of such matters conveys an affirmative grant of broad new regulatory powers to develop and implement a comprehensive regulatory program in an area expressly assigned by Congress to another agency. 1026/
The cases rejecting commenters' broad reading of our public interest authority are supported by the decision in Office of Consumers' Counsel v. FERC, 655 F.2d 1132 (D.C. Cir. 1980) (Great Plains). There, the Court found that, even under the explicit "public interest" standard in section 7(a) of the Natural Gas Act, the Commission is not granted power to act on matters outside of its statutory mandate. 1027/
In Great Plains, the Court reviewed a Commission decision to grant a certificate of public convenience and necessity to facilitate construction and operation of a coal gasification plant. Although the NGA does not explicitly provide the Commission with authority to certificate coal gasification projects, the Commission reasoned that it had such authority because the demonstration project was "in the public interest" and, because the Commission was authorized under section 7 of the NGA to "consider" all factors in reaching a decision on whether to grant the certificate, it had the requisite authority to act.
The Court rejected the Commission's reasoning in that case, stating that:
Any such authority to consider all factors bearing on the "public interest" must take into account what the "public interest" means in the context of the Natural Gas Act. FERC's authority to consider all factors bearing on the public interest when issuing certificates means authority to look into those factors which reasonably relate to the purposes for which FERC was given certification authority. [1028/]
The Court repeated the finding in NAACP that the Commission's authority to act in the public interest is limited to the furtherance of the purposes for which its organic statutes were adopted. 1029/
In concluding that the Commission was not authorized to act as it did, the Court looked to several factors. The Court found it persuasive that Congress had specifically authorized a different governmental entity, the Synthetic Fuels Corporation, to provide support for coal gasification, and that Congress had carefully crafted a special means for providing federal financial assistance for synfuel development. 1030/ The Court also found it persuasive that the Commission possessed no expertise in making determinations regarding the relative merits of different synfuel processes, methods or technologies, and that the financing arrangements "were certainly not ordered with the interests of ratepayers foremost in mind." 1031/ The Court stated that "by utilizing its statutory tools for a non-statutory purpose, FERC very likely was distracted from its primary statutory duty to protect the interests of ratepayers." 1032/ Finally, the Court found that the Commission's action seemed to have been prompted at least in part by an attitude that, because Congress had not acted speedily, the Commission could act. The Court criticized the Commission for improperly attempting to preempt Congressional action and to "fill in" where the agency believed federal action was needed. 1033/
The facts and reasoning in Great Plains are directly analogous to this proceeding. Congress has specifically authorized other entities -- EPA and the states -- under other statutes to address air pollution. The Commission is being urged to regulate in an area in which, as in Great Plains, it possesses no special expertise (i.e., in making determinations regarding appropriate air pollution control mitigation measures) and in which it is not authorized to act. 1034/ Finally, as in Great Plains, if the Commission were to undertake mitigation, it would be diverted from its primary statutory duty to protect the economic interests of ratepayers, i.e., by having to continually monitor compliance with mitigation conditions. 1035/
As in Great Plains, the Commission is being urged to act at least in part because of the belief that Congress has not provided a sufficiently speedy process by which to regulate air pollution produced by electric utilities. The EPA argues that:
regulations under the Clean Air Act must in general be implemented through State Implementation Plans; the time from reaching a general conclusion that control is needed to adoption of necessary regulations by states generally takes from three to five years; that regulatory lag time means compliance with new rules can be, and usually is, more than a decade from the point at which the problem occurred. Ten years of bad air is ten years delay too many. [1036/]
That Congress has imposed upon the EPA procedures that the EPA and others find burdensome and overly time consuming is an issue for Congress and EPA to address, not the Commission. 1037/
This conclusion has particular force when, as here, we are urged to impose environmental restrictions on certain coal-fired generators in spite of Congressional actions regulating those entities. In essence, some commenters argue that under a very tenuous connection to the public interest standard of the FPA we may undertake to do more than the agency that Congress has authorized to act on such matters. This result is not a correct reading of the law and we reject it.
Several commenters attempt to overcome the various Courts' views of the scope of the public interest standard under the FPA by arguing that there is a "direct nexus" between the Rule and environmental concerns that suffices to invoke an imputed authorization under the FPA to prescribe environmental requirements on generators. 1038/ To this end, they argue that the purpose of the Rule is really to facilitate the least- cost use and construction of generation resources and that the environmental consequences of these actions will impact economic efficiency, rates, competition, and competitive markets. Thus, they conclude that we have the authority to require that those who seek to obtain transmission access on a non-discriminatory basis must first mitigate air emissions under as yet undefined standards.
These commenters misstate the question. The question is not whether there is a nexus between the Rule and environmental concerns. Clearly, electric utilities contribute to pollution; anything that facilitates the sale of power from whatever source is, under this tenuous logic, "related" to environmental concerns. 1039/
However, as discussed below, Congress did not give us plenary powers over public utilities to shape their activities in response to a broad range of public policy concerns. The nexus that must be established is a nexus between the requirements sought to be imposed, in this case emission controls, and the statutory standards which authorize us to act. That is, in order to impose the environmental conditions sought by commenters, a direct connection must be established between those conditions and our duty to determine that the rates, terms and conditions of service under our open access tariffs are not unjust, unreasonable, unduly discriminatory, or preferential.
It is on this point that commenters' arguments founder. While the Commission has broad latitude to interpret these standards to advance the interests of ratepayers, we cannot implement policy objectives that are not assigned to us and that are, in fact, clearly assigned to other entities. The Congress has assigned responsibility for environmental regulation of air quality to EPA and the states; it has explicitly charged them with dealing with such pollution from electric generating facilities. While, as noted earlier, we do not dispute the need to give appropriate weight to environmental considerations in making decisions within our authority, we cannot use that authority to accomplish public policy objectives that, by statute, are required to be implemented and administered by other agencies. 1040/
Some commenters have sought to address this issue by characterizing the proposed conditions as necessary to create a level competitive playing field among generators. For example, Alliance argues that unless the Commission requires environmental mitigation certain competitors in the bulk power market (those with "dirty generation") would be favored over "clean" competitors. It argues that:
Mitigation of the environmental impacts resulting from the NOPR has a direct relationship to ensuring that open access is implemented under terms of economic fairness for all utilities and utility consumers, and not merely those with current low-cost regulatory advantages. [1041/]
We note that all power generation technologies have different costs. For example, hydroelectric facilities which, like coal- fired facilities, may have environmental mitigation conditions imposed on them, may be quite expensive to build compared to gas or oil-fired generation, but their operating costs may be significantly lower. These cost differences may reflect the different costs of complying with mandated environmental requirements; the prudent costs of complying with such mandates may be reflected in rates.
Indeed, sellers come to the power markets with a variety of advantages and disadvantages, many of which are the result of federal laws -- for example, tax preferences, labor standards, and similar matters. In empowering the Commission to remedy undue discrimination and promote competition, Congress has not authorized the Commission to equalize the environmental costs of electricity production in order to ensure "economic fairness." Such homogenization of competitors, or their costs, has never been a goal of the FPA. 1042/
In short, the "economic nexus" urged by commenters advocating that the Commission undertake to regulate air emissions is inconsistent with the "charge to promote the orderly production of plentiful supplies of electric energy" envisioned by the FPA. 1043/
We have exercised conditioning authority in the past only where necessary to ensure that jurisdictional transactions and rates do not result in anti-competitive effects, or are not unjust, unreasonable or unduly discriminatory or preferential. 1044/ Thus, the conditions we have imposed have involved economic regulatory matters within our purview under the FPA. 1045/ Any exercise of conditioning authority must, as the Supreme Court noted in NAACP, be directly related to our economic regulation responsibilities; EPA and the other commenters have not demonstrated such a nexus. 1046/
This distinction is more evident when one considers the way in which we are authorized to treat the costs of environmental compliance. There are legitimate costs of environmental compliance that should be reflected in jurisdictional rates to the extent prudently incurred, just as the prudent costs of complying with, for example, occupational health and safety requirements designed to protect utility employees should be reflected in jurisdictional rates. This we are authorized to do and we routinely review and allow such costs. 1047/ However, the fact that the costs of providing utility workers with a safe workplace are properly reflected in utilities' jurisdictional rates does not mean that we have authority to condition sellers' rates or customers' use of jurisdictional services on meeting safety regulations that are in the public interest. The same rationale applies to environmental matters related to the Rule. 1048/
Commenters also raise several other arguments to support the claim that the Rule requires us to undertake environmental regulation to remedy supposed impacts of the Rule. EPA, for example, argues that requiring environmental mitigation would not run afoul of the prescription of section 201(b)(1) of the FPA enjoining our regulation of generation facilities because the "regulation of transmission tariffs necessarily has manifold indirect effects on generation sources. The proposed mitigation mechanism would influence generation sources in a similar, indirect manner." 1049/
EPA fundamentally misunderstands the purpose of the Rule. We act to remedy unduly discriminatory practices in, as here for example, the provision of transmission access. Since "undue discrimination," is one of the matters "specifically provided in this Part [II]", i.e., in FPA sections 205 and 206, we are acting within the bounds of our statutory mandate and the effect that the Rule may have "over facilities used for the generation of electric energy" is specifically sanctioned. Indeed, many generators are transmission customers who we are obliged to protect under the FPA. That there may be indirect environmental consequences from our Rule does not trigger our jurisdiction under the FPA.
EPA next argues that, even if we could not impose a specific mitigation mechanism for open access transmission, we could deny transmission service unless there is a showing that the service will not have an adverse environmental impact. 1050/
We have already discussed why we believe this approach is unworkable and inconsistent with sections 205 and 206 of the FPA. 1051/ Plainly stated, EPA would have transmission customers assume an additional regulatory burden in order to be treated lawfully. 1052/ Quite apart from this fundamental problem, such a regime is beyond our authority. Our regulation under sections 205 and 206 is over the selling public utility's rates, terms and conditions, not over the buyer's agreement to undertake measures which have no nexus whatsoever with the seller's costs or terms of service.
EPA states that its alternative mitigation mechanism would not be a condition of the open access tariff, but apparently a condition on the ability of customers to take service under the tariff. However, our authority to set terms and conditions of eligibility derives from precisely the same authority that we use to set other tariff terms. It must still be based on a nexus with the subject matter of our jurisdiction. For buyers, open access is a right, not a privilege. We fail to see, given the direction of the FPA to ensure these rights, any basis for us to undertake the actions EPA proposes.
Finally, EPA points to the Commission's decision to exclude certain diesel facilities in defining qualifying facilities (QF) under PURPA section 210. 1053/ However, this provides no precedent for imposing environmental standards to prevent customers from obtaining nondiscriminatory open access. Whatever the merits of that decision, 1054/ the Commission subsequently found that any facility that satisfies the ownership and technical requirements for QF status set forth in PURPA and the Commission's regulations is a QF without any action by the Commission. 1055/ More to the point, EPA ignores the fact that, in issuing environmental findings with its QF Rules, the Commission found that environmental concerns were a local matter to be handled under other statutory authorities. While PURPA permitted certain qualifying facilities to be exempt from state and federal laws,
it excludes exemptions from environmental laws. Thus, a qualifying facility may not be built or operated unless it complies with all applicable local, State, and Federal zoning, air, water, and other environmental quality laws, and unless it obtains all required permits. [1056/]
Thus, while we have noted that QFs are required to satisfy all environmental requirements, we have not viewed our responsibilities under PURPA as permitting us to enforce compliance with environmental laws. 1057/
EPA then proposes to require any fossil fuel-burning generating entity seeking service under an open access tariff to (a) commit by contract to avoid or offset emissions increases (measured against certain baselines), and (b) periodically certify its compliance with that commitment. 1058/ This proposal is neither workable nor within our jurisdiction.
The deficiency with respect to (a) is that we have no authority to require such action. While EPA cites to FPA section 206 for the proposition that we may change jurisdictional contracts, we may do so only if the contract is, for example, unjust or unreasonable with respect to matters within our jurisdiction, i.e., economic regulation. Our standards for acting are strictly prescribed under the FPA. 1059/ As NAACP and Great Plains teach, sections 205 and 206 do not provide the Commission with the means to remedy every possible problem that is in any fashion related to a sale for resale or transmission in interstate commerce by a public utility. Since we do not have the authority to require (a), it follows we cannot require the periodic certification of compliance recommended in (b).
EPA notes that it "could establish a procedure whereby a generator could voluntarily subject its facilities to emission limits that are enforceable by EPA and/or state environmental authorities." 1060/ This is a matter within EPA's province, and we support EPA in undertaking whatever measures it determines to be within its authority and appropriate to the problem.
Alliance argues, at 47-51, that sections 211 and 212 of the FPA, as amended by the Energy Policy Act, authorize the Commission to impose environmental conditions. To the extent that Alliance's arguments rely on the "public interest" language used in section 211, we believe that the discussion above already addresses such arguments, with one exception: Alliance argues that the House Report for the Energy Policy Act states that the purpose of the Act is to "increase U.S. energy security in cost- effective and environmentally beneficial ways. . . ." 1061/ However, even if we assume that the Report language reflects Congressional intent for the Energy Policy Act in general, we note that, in Title VII of the Energy Policy Act concerning electricity, the only mention of the environment was, as noted above, in section 731 which specifically provided that nothing in the Energy Policy Act in any way interferes with the authority of any state or local government relating to, inter alia, environmental protection. While we do not quarrel with the proposition that Congress in the Energy Policy Act obviously had concerns with environmental matters, 1062/ Congress did not provide the Commission with any authority to mandate environmental mitigation.
We have undertaken an extensive NEPA analysis to consider the environmental effects of our Rule. We cannot, however, take NEPA's requirement to consider environmental effects as authority to require the environmental mitigation proposed in the comments. Congress has charged other agencies, most notably the EPA, with the responsibility of protecting the environment and enforcing environmental laws. 1063/ While we stand ready to work in a complementary fashion with these agencies, we believe that any attempt by the Commission to go beyond the economic regulation that Congress has delegated to us would be ultra vires.
To summarize: The Commission's jurisdiction under Parts II and III of the FPA is limited to matters relating to economic regulation. Neither the relevant statutes nor the case law supports the expansive and novel reading of the Commission's authority advocated by the commenters that argue that we have environmental mitigation authority. The Commission is not explicitly given such authority in either the FPA or NEPA. Moreover, the FPA and the case law clearly compel the conclusion that we cannot impose environmental conditions that do not directly relate to the economic matters over which we have jurisdiction. To do so, in fact, would prevent the Commission from effectively carrying out its responsibilities under the FPA.
By letter dated February 22, 1996, and filed with the Commission on March 5, 1996, the Connecticut Department of Environmental Protection (Connecticut) notified the Commission that it has determined that the Commission's proposed action in this rulemaking proceeding is likely to adversely affect Connecticut's coastal resources. Connecticut reasons that the Rule's promotion of competition "is likely to increase energy production by mid-west coal burning plants[,] which will in turn increase the export of nitrogen and sulphur oxides." Connecticut states that airborne nitrogen emissions are linked to adverse environmental impacts in Long Island Sound. It therefore asserts that, pursuant to Section 307(c)(1) of the Coastal Zone Management Act (16 U.S.C. _ 1456(c)(1)) (CZMA), and the federal regulations promulgated thereunder (15 CFR Part 930), the Commission is required to provide it with a determination of the Rules' consistency with Connecticut's federally approved coastal management plan.
Section 307(c)(1)(A) of the CZMA deals with the prevention or amelioration of adverse physical impacts on coastal zone resources attributable to federal activities. The legislative history indicates that in enacting the CZMA Congress was concerned with the adverse effects on coastal lands and waters of such activities as excavation, filling, diversion of water or sediment, clearing, and off-shore energy exploration and dumping. 1064/
As discussed more fully above, section 201 of the FPA declares that the Commission shall not have jurisdiction over facilities used for the generation of electricity except as specifically provided. Thus, the Commission has no direct jurisdiction over fossil-fuel plants. Its jurisdiction extends only to the rates, terms, and conditions of wholesale sales and transmission of electric energy in interstate commerce from those plants. While we are aware that the legislative history of the CZMA indicates a Congressional intent to cover all federal activities, there is absolutely no indication in the CZMA or its legislative history that "federal activities" should include all federal regulatory decisions, including Commission orders involving interstate electric rates and service (or any other jurisdictional matter under Part II of the FPA). 1065/ We are not aware of any judicial or agency interpretation that would cast the net of the states under the CZMA broadly enough to include the generic federal regulatory action undertaken in this Rule. Such action is clearly remote from the kind of activities such as leasing of land, and dredging and filling that either affect, or authorize specific activities that affect, the environment in the coastal zone.
Connecticut's attempt to pull FPA Part II regulation into the CZMA federal consistency provisions by dint of the rulemaking's alleged adverse impact on air quality and consequent adverse impact on water quality in the coastal zone is untenable in view of the existence of the Clean Air Act, a complex, 700- page environmental law that constitutes a comprehensive scheme of regulation of the Nation's air quality, including the direct regulation of emissions by utility power plants. Indeed, the CZMA provides that the requirements of the Clean Air Act, and governmental directives pursuant to that Act, shall be incorporated in, and shall be the air pollution control requirements of, all state coastal zone management programs. 1066/ It therefore defies logic to assert that, despite the pervasive regulatory reach of the Clean Air Act and the clear authority of EPA to regulate NOx emissions under that statute, the CZMA is a separate source of authority for state jurisdiction over air quality impacts to coastal zones.
While it is clear that Connecticut's invocation of the CZMA is incorrect, we note that, under the Commerce Department's implementing regulations, Connecticut has in any event waived its right to request a consistency determination for the Commission's rulemaking. Connecticut's coastal management program's list of federal agency activities likely to require a consistency determination does not (for good reason) describe rulemakings of this kind, and the Rule will not "result in a significant change in air or water quality within the management area" (the program's catch-all category). In addition, Connecticut did not notify the Commission of its conclusion that the Rule requires a consistency determination until well after 45 days from receipt of several notices of the rulemaking proceeding. 1067/ Consequently, pursuant to 15 CFR 930.35(b), Connecticut has in any event waived its right to request a consistency determination for this rulemaking.
After reviewing the record in this proceeding, including the FEIS, we find for the reasons discussed above that proceeding with this Rule is the best alternative. No other alternative will accomplish the Commission's purposes.
The Rule is expected to slightly increase or slightly decrease total future NOx emissions, depending on whether competitive conditions in the electric industry favor the utilization of natural gas or coal as a fuel for the generation of electricity. Other impacts of the Rule have also been determined to be slight. Therefore, it is unnecessary to adopt and implement a plan of mitigation.
A wide range of mitigation measures have nonetheless been fully evaluated as discussed in Chapter 7 of the FEIS. This discussion concludes that the Commission does not have authority under the FPA and NEPA, singly or conjointly, to impose mitigation, and that existing and proposed mitigation strategies and efforts are the best way to deal with potential environmental effects that might result from implementing the Rule. Such effects, if they indeed materialize, are not expected to occur for many years. In the meantime, action by entities such as EPA and OTAG are expected to address the underlying air emission problems facing parts of the Nation. Interim mitigation efforts to be undertaken by the Commission would address only a very small part of the problem, would require the exercise of technical expertise and authority that the Commission does not possess, and could well interfere with efforts by EPA and others to address this situation.
For these reasons, we support the analysis in the staff's FEIS and adopt the conclusions in that document. 1068/
Convergence Research - 5/2/96