Rent seeking deluxe.  Obama Admin Takes Rent Seeking To A New Level.

I have been adding to this all week, and have tried to make it as concise as possible, but as more information became available editing was required.  Let me know if its hard to follow.

I wrote at the beginning of the month about the coal fired plant in Marquette being threatened by a new and extremely aggressive set of EPA  rules.  The shutdown of that plant of course would leave in question the future of paper mills, and the electrical needs of yoopers.  At least the future of the cost being at all affordable.  The jobs that would be lost as higher costs come to bear also joined by a literal health care crisis as fewer would be insured, and less money in the pockets of those Michiganders would encourage poorer health choices.

Health, of course is the victim of the ‘boogeyman’ coal fired power industry.  You’ve seen the ubiquitous American Lung Association “coughing baby” ads supporting the Obama EPA’s push to shut down the coal industry, right?  What might surprise you is that those ads are funded in part by Chesapeake Energy, the country’s second-largest natural gas producer.

Coming amidst an impending decision by the EPA on the Utility MACT (maximum achievable control technology)  rule that is expected to lead to job loses, plant shutdowns, and rolling blackouts across the country, this strange partnership raises a question.  What does Chesapeake stand to gain, by pouring money into a seemingly disparate organization with extremely different objectives and priorities?  Politico writes:

The ads come as the coal industry is at war with the Obama administration over new rules to curb pollution from coal-fired power plants. The EPA is expected to issue new rules on Friday to curb air toxics from power plants, which are estimated to cost industry about $10.9 billion each year.

Stricter rules for power plants are expected to offer a competitive advantage to the cleaner-burning natural gas industry.

Oh, so its an end-justifies-the-means kind of thing.  Rent seeking.  But when questioned, Chesapeake officials have stated that the flood of cash to ALA is merely business as usual for the company, which donates to “a wide variety and number of health and medical-related organizations.  Well that’s very responsible of them, bravo for being so charitable.

Or is it?  (Below)
The article continues:

But Chesapeake and ALA’s relationship goes deeper than just simply writing a charitable contribution.

The American Lung Association thanked Chesapeake in its 2010 annual report for its “generous” funding of a nationwide advertising campaign titled “Fighting for Air.” The ads feature blue skies and children and tout the group’s advocacy work on clean air issues.

Chesapeake also announced a $500,000 contribution to the association in 2008 to match donations for the group’s Clean Air Initiative, a public education campaign about air quality.

So Chesapeake is a private company looking out for its economic interests.  But isn’t the American Lung Association purporting to be some sort of public health authority in these ads?  Aren’t Americans supposed to be able to trust non-profit health organizations to act with integrity when advancing a policy agenda?

“It comes as no surprise that Chesapeake is trying to buy credibility for its lobbying objectives,” said National Mining Association spokesman Luke Popovich. “But that the ALA would sell its credibility to a gas company should disturb those who still view the ALA as an impartial voice.”

Apparently the American Lung Association has no problem letting itself be used as a pawn in a corporate chess game, as long as it keeps the checks coming in the door.

And now the scare campaign has transformed into real action by the EPA, and a reality of a BILLION Dollars in added cost to Michiganders is upon us. The Obama EPA, along with an eagerly capitulating American Lung Association, and a rent-seeking competitor perfectly willing to advocate higher costs through its ‘philanthropy’ have decided we are still a little too rich for our own good.  The MACT rule goes into effect in a few hours.

The EPA’s Utility MACT rule has reportedly was signed on Friday., and will begin its assault on coal-fired plants, including the Marquette Michigan facility immediately.  The Institute for Energy Research has released a new analysis of the anticipated plant closures estimating that a total of 30 GW (up from a previous estimate of 28 GW) of power will be taken offline as a result of the rule’s passage.

In a curious irony, the very day that the new rule was issued, a power outage delayed the start of a 49ers football game.  This comes just days after a group of mostly Democratic New England Senators raised the alarm about grid unreliability leaving Northeasterners without power during winter storms.  But of course, it seems like an excellent idea to take even more power offline.

Below is a summary of what has happened so far and what is expected to happen over the coming weeks and months if the Utility MACT rule remains as-is.

Utility MACT Update – (as published by the Electric Reliability Coordinating Council)

• Rule Signed – Several sources have said the EPA signed the rule on Friday evening, but it has been very closely held, leading some to believe that many of the details are still being inked.
• Details Slipped Out, But Nothing Certain – The final rule is expected to be pretty close to the proposed rule, which is unfortunate.  The rule suffers from statistical errors, inaccurate technological assumptions, and inadequate economic and reliability analysis.  Given that the rule is one of the most expensive air rules ever, the American public deserves better.
• Costs Still Likely To Be High – The EPA power-sector rules will impose significant costs on consumers and on industries that depend on affordable and reliable power to remain competitive in the international marketplace.  For every one job that may be created in order to comply with the rule, we expect four higher-paying energy and manufacturing jobs to be lost.  Already this is the most expensive rule ever written for power plants. According to the EPA’s own analysis, this one regulation could cost as much as $130 billion. This is more than the utility industry has spent over the past four decades to comply with all of EPA’s other rules.  An analysis by NERA of this and other pending EPA regulations projects jobs losses of 183,000 jobs per year and energy prices could increase by $170 billion.
•  Health Benefits are From Other Non-MACT Rules – Unfortunately, most of the rule’s benefits come from reducing soot emissions.  But those emissions are already well controlled by the Clean Air Act, meaning Americans can expect few incremental health benefits from this expensive rule.
• Timeline Stills Remains in Question – One of the issues that seem uncertain is the timeline issue.  Many operators have said they will shut down facilities if they are required to add new controls within three years.   EPA has said they would be flexible to issue extension, but many utilities aren’t interested in that option as it requires them to admit violating clean air laws.  There are also rumors about the administration drafting some sort of presidential memorandum clarifying that the EPA administrator can invoke existing authority under the Clean Air Act to provide a one-year extension, but those details still remain unclear.
•  Reliability Issues Remain on the Table – The EPA and the Federal Energy Regulatory Commission have been told by over 50 public officials, individual states, and experts that electric reliability could be in jeopardy — the first time such widespread reliability concerns have ever been raised about EPA regulations. For an across-the-board discussion of retirements and possible impacts on reliability, take a look at the ERCC letter to the Cass Sunstein of Nov. 14 – first section.  It summarizes our views in one spot.  We also respond to the recent DOE reliability assessment here and reflect on the NERC assessment here.
• Inhofe Files Disapproval Resolution – Senator Inhofe has filed a joint resolution disapproving Utility MACT.  The Congressional Review Act (CRA) provides that once the resolution has 30 supporters, the resolution may be discharged from the committee of jurisdiction (Environment and Public Works) and placed on the calendar.  At that time, the resolution can be considered under “privileged motion” status (i.e. not subject to amendment, or to a motion to proceed to other business) and passed by a simple majority vote. If passed by both chambers and signed into law, the joint resolution would effectively overturn Utility MACT.
•  AP Story Details Mercury Issue By Plant –  Dina Cappiello has a major AP Impact story out today that details some of the impacts of the new EPA rule.  Her detailed survey said as many as 68 plants could close.  These plants generate enough electricity for more than 22 million households, but are some of the some of the oldest and highest emitters in the country.  The survey is based on interviews with 55 power plant operators and on the Environmental Protection Agency’s own prediction of power plant retirements.  The story also adds that even with these power losses, the plants’ “demise probably won’t cause homes to go dark.”

“Probably” seems to be the way decisions are continuing to be made in government.  The source quoted here (Electric Reliability Coordinating Council) has an interest in maintaining sufficient electrical generating capacity.  Sufficient for Manufacturing, heating our homes, and providing for the conveniences we have grown accustomed to in our daily lives.  Director Scott Segal adds the following points today in a memo:

“As you may have seen, it looks like EPA has said that it will make a major Clean Air Act announcement at a children’s health center tomorrow at 2:00pm.  It is likely that EPA will be unveiling the utility maximum achievable control technology (Utility MACT) final rule that the Administrator purportedly signed last Friday.  In anticipation of this event, we thought it might be helpful to ask and answer some pertinent questions related to the rule.

   Is Utility MACT likely to be a costly rule in terms of jobs?
Answer:  Utility MACT will undermine job creation in the United States in several different ways.  It will result in retirement of a significant number of power plants and either fail to replace that capacity or replace it with less labor-intensive forms of generation.  It will increase the cost of power, undermining the international competitiveness of almost two dozen manufacturing industries, and it will reduce employment upstream in the mining sectors.  All told, it is anticipated that the rule will result in the loss of some 1.44 million jobs by 2020.  While some jobs are created by complying with the new rule, the number and quality of those jobs is far less than those destroyed.  We estimate that for every one temporary job created, four higher-paying permanent jobs are lost.  The bottom line:  this rule is the most expensive air rule that EPA has ever proposed in terms of direct costs.  It is certainly the most extensive intervention into the power market and job market that EPA has ever attempted to implement.

    EPA says the benefits of the rule greatly outweigh the costs.  Is that true?
Answer:  Unfortunately no.  Most of the benefits EPA claims to the rule come from reducing soot emissions.  But EPA also is on the record saying that most of these soot benefits come in areas already achieving the Agency’s prescribed standards for soot.  EPA has said that soot emissions in those areas are already so low that they pose no threat to human health and the environment, even for very susceptible populations.  Therefore, the rule is expected to have almost NO incremental health benefits over and above what current law is achieving.  Recently, former OMB official and current George Washington University expert on regulatory affairs Susan Dudley wrote that the rule likely has no real benefit and is so costly that it will actually undermine public health.  See http://thehill.com/blogs/congress-blog/energy-a-environment/200539-epas-risks-outweigh-rewards-for-new-mercury-rule

    EPA is announcing its rule at a children’s health facility – does that mean it has an impact on children’s asthma?
Answer:  No.  There is no direct relationship between today’s action and children’s asthma.  EPA has reported that “between 1980 and 2010…total emissions of the six principal air pollutants dropped by 67 percent.”  See http://epa.gov/airtrends/aqtrends.html#comparison  Over this same period – as soot (or particulate matter) emissions have fallen sharply, childhood asthma rates have increased – likely as a result of better-insulated homes or other indoor exposures.  The broader strain on treatment facilities from the rule is evident.  With respect to treatment costs, it is important to note that U.S. hospitals spend $8.5 billion annually on energy, often equaling between one and three percent of a hospital’s operating budget. Additionally, EPA estimates, in the U.S., the health sector is the second most energy-intensive commercial sector. Under Utility MACT and interstate rules, energy costs are estimated to increase 23.5% over the next decade. Hospital administrators will have no choice but to pay attention to the cost of energy as these surging energy costs will squeeze hospital budgets like never before. Without adequate power supply, built upon a foundation of stable and cost-effective coal-fired generation, the healthcare sector and the American public can expect rapidly increasing costs that consumers can ill-afford.  A real threat to the control of asthma symptoms, however, is the availability of lower cost, over the counter epinephrine inhalers, which regulators citing the Clean Air Act will be pulling off the shelves on December 31 – making the cost of addressing asthma symptoms go up by a factor of three.  See http://news.heartland.org/newspaper-article/2011/12/07/banning-epinephrine-inhalers-fda-making-it-harder-breathe

    There are public health “experts” present with EPA.  Doesn’t that add credibility to their claims?
Answer:  You can’t be sure.  The American Lung Association has been paid some $20 million by the EPA over the past ten years.  Then, at events like this one, the ALA stands up and defends EPA rules – or even buys advertisements on EPA’s behalf.  See http://www.canadafreepress.com/index.php/article/40175  Given that ALA’s endorsement of the final Utility MACT was offered before they could have possibly reviewed EPA’s work, their views must be met with some skepticism.   Indeed, seven physicians that serves in the US House of Representatives wrote the EPA Administrator complaining that EPA’s rule has few health benefits and may even injure public health due to its high costs and impact on employment.  For a copy of that letter, see http://burgess.house.gov/UploadedFiles/09222011_Letter_to_Lisa_Jackson.pdf

    Not all utilities oppose the rule.  Why is that?
Answer:  Some power companies have business models that allow them to charge more for the power they provide as the wholesale clearing price for energy increases – even if they are spending no more money on compliance with new regulations.  For these companies, the more expensive environmental regulations are for their competitors in other regions, the higher the clearing price will be, and the more money they will make.  Somewhat perversely, this economic reality gives these companies a motive to support the most expensive and least flexible EPA rules – provided they fall primarily on their coal-fired competitors.  For a description of this, including quotes from earnings calls, see http://online.wsj.com/article/SB10001424052748704694004576019730082447432.html

   EPA says that it has ensured greater flexibility in the Utility MACT rule now.  Why isn’t that enough?
Answer:  While we are still reviewing it, at first blush, the final rule appears to be pretty close to the proposed rule, which is unfortunate.  The rule suffers from statistical errors, inaccurate technological assumptions, and inadequate economic and reliability analysis.  Given that the rule is one of the most expensive air rules ever, the American public deserves better.  As for relying solely on EPA to grant discretionary amounts of additional time, that can be dangerous from a planning and reliability perspective.  As the nation’s grid operator – the NERC – observed, it is better to address the timing and scope of the regulation at the front end.

    Do the states support EPA’s actions?
Answer:  At least from a reliability perspective, most do not.  Concern with reliability is widely shared by some 27 states as reflected in briefs filed in the deadline case regarding Utility MACT, letters from governors, and rulemaking comments filed by public service commissioners and other state officials. For example, attorneys general representing half the states noted that Utility MACT “has the potential to undermine significantly the reliability of our Nation’s electrical supply and significantly increase the cost of electricity to the consumer.” Amer. Nurses Ass’n v. Jackson, Civ. No. 1:08-CV-02198-RMC.  Of particular interest are the views of state public utility commissions – the frontline for reliability concerns – around the nation. The Pennsylvania Public Utility Commission found that the rule “could lead to expensive upgrades at greater cost to ratepayers or premature retirement of fossil units which could compromise system reliability.” The Public Utilities Commission of Ohio wrote to EPA that, “The current and foreseeable economic environment indicates that Ohio’s ratepayers will be hard-pressed to absorb rate-shock due to the implementation schedule advanced in the proposed rule.”

Its a sure bet Michigan jobs will go away in certain parts of the upper peninsula, and given the backhanded way in which the current white house occupiers pee where they eat, it is likely not an isolated concern.

A billion here, a billion there.  Hardly any pressure on the working stiffs when those costs are passed along.

Right?