CPP can be changed under Trump, but lots of hoops to jump through
We held our latest conference call with Tom Lorenzen of Crowell & Morning to analyze what could happen to the Clean Power Plan putting a deeper context on the back of the latest election results. Mr. Lorenzen has over a decade of Justice Department experience managing the legal defense of EPA rules. Overall, we see the Clean Power Plan as a key watch item as President elect Trump gears up for 4 years in the White House. As a reminder, President elect Trump has publically vowed to undo the Clean Power Plan, a clear positive to legacy coal generators. Our discussions with Mr. Lorenzen revealed that there are many different possible outcomes; overall while the plan could indeed be impeded in a variety of manners, the key question is whether the underlying Endangerment finding from the Supreme Court in 2007 is unlikely to be reviewed. Rather, the timeline and stringency of any future rule could well be substantially reduced, if new rules are introduced at all through the course of the following administration.
Obama administration would need to move fast for DC Circuit Court review
Discussions with our speaker noted that judges at the DC Circuit will be under pressure to get a decision from the DC Circuit prior to the January 20th Inauguration Day. A positive decision could force the Trump administration through a lengthy appeals process involving the Supreme Court which we note would mostly likely not have a decision until Summer of 2018. If the decision is still pending in the court at the time of inauguration the newly appointed administration would have the ability to file motion to hold the case in abeyance, giving the administration additional time and resources to make a case to appeal the rule if this is granted.
Regional Haze: Risks to conventional criteria pollutant rule review too
Following recent court issued stay for Texas v. EPA, we emphasize risk to review many of the more conventional rules including state specific Regional Haze regulations including Texas. We note this has been a closely scrutinized aspect of the latest impact from the administration change, but caution that given the litany of potential regulations impacting this market, the ongoing settlement discussions between TCEH/Vistra and the EPA could well continue (and result in coal retirements nonetheless). Broadly, pending rules appear to have a disproportionate impact on PRB and more of an impact of far Western states rather than focusing on eastern generation, where rules have already largely been met. Any rules not yet finalized by the EPA or litigated could be revisited by a Trump EPA, which will essentially allow for various plans to be reviewed or revised. However, in particular, our speaker cautions that the much discussed MATS rules implemented under the Obama administration are unlikely to see review given both their impact has already taken effect and potential impacts on argument for CPP not to be interpreted through Section 112 of the CAA.
Bottom line: Undoing possible, but will likely be a long drawn out process
Following our conference call (full transcript below) we believe it is possible for Trump to make a serious dent in the CPP, but note the litigation process in doing so will likely be time consuming, possibly lasting into 2H18. We emphasize the bulk of the near term impacts to coal are largely already under way with the delay in CPP really beginning to impact planning in the 2019+ onward timeframe. We see this as particularly slowing deployment of coal to gas transitions and new renewables across states without meaningful existing renewable targets, particularly including the Southeast.