By Tom Kleckner

LITTLE ROCK, Ark. — Industry representatives and those that regulate or work with them gathered here last week to discuss the Clean Power Plan and its implications — primarily near-term uncertainty — for the industry.

Regional compliance or state-by-state? Mass based or rate based? Comply or resist?

One certainty, as FERC Commissioner Colette Honorable joked, is that the Clean Power Plan is “a job-security act for lawyers.”

More seriously, Honorable said, “I do believe it’s important to hear from all the parties.”

Three panels of industry insiders did just that during a seminar organized by the Great Plains Institute and the Bipartisan Policy Center, focused on the Clean Power Plan’s impact on the midcontinent states.

“It was a very useful day. We spent time on the same issues we’re thinking about right now in Iowa,” said Amy Christensen, an administrative law judge with the Iowa Utilities Board. “We’re living and breathing this right now. It’s helpful to hear other speakers talk about the same issues.”

‘Common Currency’

Ted Thomas, chairman of the Arkansas Public Service Commission, told RTO Insider he was particularly struck by comments from PJM Senior Economic Policy Advisor Paul Sotkiewicz on the rate- vs. mass-based issue and use of gas plants.

A rate-based plan caps the emissions of a state’s power fleet based on an average (CO₂ tons/MWh). A mass-based plan caps the total tons of carbon the power sector can emit each year.

“With a mass-based program … you can bring in new gas units and set aside the allowances,” Sotkiewicz explained.

“The thing to me that needs more study is [Sotkiewicz’] thought that mass-based is more accommodating than rate-based, because you can’t use new gas units to manage down your rates,” Thomas said. “The rate[-based] stuff is so complicated. With mass, it’s just tons of emissions. You already have a common currency.”

“Under an emissions-rate regime, new gas [units] can’t be brought in. So why go with an emissions rate if you’re a coal-heavy state?” asked MISO’s Kari Bennett. “With mass-based, you can retire older units and bring in newer ones. It’s easier to facilitate load growth with mass-based approaches.”

Nancy Lange of the Minnesota Public Utilities Commission took a different viewpoint. “I don’t know of any states that have done enough analysis to show one [mass- or rate-based] is more preferable than the other,” she said.

Both MISO and SPP say the mass-based approach would make regional compliance, with trading of emission credits, easier to administer, helping coal-reliant states. SPP released a study in July that indicated a state-by-state compliance approach could result in nearly 40% higher costs than a regional approach.

“The prudent thing is to look at regional compliance,” Honorable said, citing the SPP study.

Costs

“If we’re going to be retiring a significant portion of the nation’s coal fleet, the only substantial winner will be natural gas,” said the Arkansas Electric Cooperative Corp.’s Sandy Byrd, vice president of public affairs and member services. “If there’s going to be a dash for gas, we’ll be building more combined cycles, transmission infrastructure … there will be a huge cost coming that wouldn’t be without the CPP. We need to ensure the consumers know it’s going to happen.”

Jim Hunter, representing the International Brotherhood of Electrical Workers, agreed with Byrd. “We’re betting on gas,” he said, “but when the price goes up — and it will — the price of electricity is going up, too.”

Leakage

The panels also discussed “leakage” and its implications on adding new generation.

The Clean Power Plan covers generators that began construction on or before Jan. 8, 2014. Plants built after then are subject to EPA’s new source performance standard, which limits carbon emissions to 1,000 lbs/MWh for new baseload gas-fired units, versus the 771-pound limit for existing gas plants.

For a state that adopted rate-based compliance but shifts added new plants, the mass-based limit would no longer be equal to the original emission-rate limit.

“It’s a fuzzy concept, as described by the EPA,” said Scott Weaver, manager of strategic analysis for American Electric Power. “I think it’s flawed. The [emission] rates for [new] gas units are less stringent, so you’re shifting emissions from existing units to new units.”

States must decide whether to pursue rate-based or mass-based plans by September 2016. (States can also ask for a two-year extension at that time.)

States that decide not to comply with the Clean Power Plan or submit inadequate plans will be subject to a federal plan.

“State plans make a lot of sense,” Lange said. “It’s important to have the flexibility of a state plan, given states want the control and to maintain flexibility on how a state should comply with the rule.”