HERSHEY, Pa. — PJM and state officials pledged last week to develop a regional plan to minimize the cost of complying with the Environmental Protection Agency’s proposed carbon emission rule. But lawmakers in coal-dependent Kentucky and West Virginia may be more interested in fighting the regulation than in joining in.

“For [a regional solution] to actually happen, it goes way beyond the public service commissions. It has to get [approved by] the governors and the legislators,” West Virginia Public Service Commissioner Jon McKinney told the Mid-Atlantic Conference of Regulatory Utilities Commissioners’ (MACRUC) annual education conference. “I’m handcuffed in my ability to do that. It has to start someplace else.”

Kentucky Public Service Commissioner Jim Gardner said his state “is of two minds” on how it should respond to the proposed rule, which calls for an 18% cut in the state’s carbon emissions by 2030.

While the state’s energy and environment secretary drafted a white paper outlining how the state might respond, the legislature rejected the proposal and enacted a law that prevents the state from complying with all but the first of four “building blocks” the EPA used in calculating state targets, Gardner said. Building block No. 1 is efficiency improvements at existing coal-fired generators.

Joe Goffman, EPA associate assistant administrator, told the gathering that the agency encourages regional compliance, saying that it “tried to make the state boundaries as permeable as possible.”

He said the EPA may consider additional building blocks if they are proposed by states. These are the “early days in our decision making,” he said.

RGGI

Maryland Public Service Commissioner Kelly Speakes-Backman said she was pleased that the EPA mentioned the nine-state Regional Greenhouse Gas Initiative (RGGI) as a potential vehicle for compliance. Maryland and Delaware are the only PJM states currently participating; New Jersey withdrew in 2011.

“We’ve been there. We’ve done that. We’ve been doing it for five years,” Speakes-Backman said. “It just makes perfect sense to me to comply with an environmental rule that affects power plants aligning with the regional nature of our grid … I just can’t see how we do this otherwise.”

PJM: Ready to Help

Mike Kormos, PJM’s executive vice president for operations, told regulators that the RTO can incorporate state implementation plans into its economic dispatch engine.

“There’s many ways you can do it that are maybe something short of a full-blown environmental dispatch,” Kormos said. “There’s ways to price that … that’s a conversation that we’ll have to have with the states.

“We would love to help you model what you are thinking — what the impacts might be, what those unintended consequences may be — and try and get that all out in the open and hopefully bring the best plan for consumers,” he said.

But West Virginia, which the EPA says should cut its carbon emissions by 20% by 2030, may not be ready to embrace a regional approach, McKinney said.

“There may be a middle-American response to this that’s different from the coastal-American response,” he said. “We have legislators and governors who have taken, in some cases, a very opposed case to EPA.”

McKinney suggested some of the opposition is a reaction to what he called the “misleading way” the agency is selling the proposal.

He said the agency underestimated the likely impact on electric rates and coal-state jobs and overestimated the health benefits of the rule by counting the same benefits under multiple EPA programs.

Partial Agreement

Gardner asked Kormos whether Kentucky could swap its state target for participation in a regional compliance plan if not all states agreed.

Kormos said that while PJM would prefer all member states agree to participate in a regional plan, the RTO could work with only a “core set of states.”

“It will obviously work best if … all the states [are] in and are cooperative. I think then we will be able to use all the tools of all the states because I think the states will have different competitive advantages to be able take advantage of different building blocks.”

Kormos cautioned that state implementation plans (SIPs) will affect each other under PJM’s economic dispatch. “While you may have thought your high-carbon units were not going to be dispatched based on whatever you’ve done, if your neighbor has just flat-out retired his [units], ultimately we’re going to end up running yours to supply his load. And that may in fact end up in some cases undoing what you thought [you had accomplished.]”

Kormos said PJM has not drafted any rule changes to respond to the carbon rule “because there’s a lack of understanding on our part on how the states want to respond.”

“Let’s start the conversation early. We’re not bashful about making changes. We’ll make the changes we need to make to keep the system reliable.”

Dallas Winslow, chair of the Delaware Public Service Commission, said his state is eager for the conversation. “We now need to communicate amongst ourselves and also with our governors’ offices and then we need to collaborate over the next 10 months … and see how it is we can help each other,” he said. “I think this probably will slide by us. Two years from now we’ll look back and say, `Wow, we worked together and we were successful.’”

Base Year Question

While many regulators seemed accepting of the carbon rule, others called for changes.

Some states have called for changing EPA’s proposed 2012 baseline year to 2005 so that they get credit for emission reductions over the past decade.

Pennsylvania Public Utility Commission Chair Robert Powelson said a 2012 baseline means the state wouldn’t get to count the impact of its renewable portfolio standard and nuclear uprate projects made between 2005 and 2012. He said Pennsylvania has invested $1 billion in energy efficiency and retired 5,000 MW of coal-fired generation.

PJM CEO Terry Boston noted that 2012 had lower emissions than 2013, when rising natural gas prices caused a rebound in coal-fired generation.

But the EPA’s Goffman said that the agency must be forward-looking because its regulations require limits set based on the “best system of emission reduction adequately demonstrated” (BSER).

“The threshold question we’re really asking is ‘What is the next thing that a source can do to further reduce their emissions,’” Goffman said.

“All we did, in a way, was look at each state’s existing [generation] fleet and look at technologies that have been exhaustively demonstrated as a way of achieving reductions and applying those reductions to each state’s existing fleet.”

The agency had to set the targets “in a way that doesn’t have a perverse effect of having emission reductions that have already occurred offset emission reductions in the future,” he said.

Speakes-Backman said the EPA’s plan was fair, even if it does require Maryland to reduce emissions by 37% — more than either West Virginia or Kentucky. (See Carbon Rule Falls Unevenly on PJM States.)

“If they had taken 2005 as a baseline instead of 2012 they could have just made our goal not 37% but 75%,” she said.

Powelson said that the EPA needs to demonstrate its flexibility by “fast-tracking” the process of approving natural gas pipelines that states need to continue the transition from coal to gas-fired generation.

“Phil, I’m not letting you off the hook,” Powelson said, turning to Federal Energy Regulatory Commissioner Philip Moeller. “You guys need to move quicker [on pipeline approvals] as well.”