Opinion

The State Scramble Over Carbon Emissions

Check out Part 2 of this series: our interactive map of Q&As with utility regulators from 15 states.

DALLAS—David Littell bounded through a corridor in the downtown Omni hotel last week, stopping breathlessly in his tracks when he saw a fellow state utility regulator, Joshua Epel. He’d just had another idea for how states can comply with the EPA’s historic proposal to reduce carbon emissions from the electric sector. And he had to share it that second.

Littell, a commissioner from Maine, had just left a panel discussion led by Epel, chairman of the Coloradan commission, at the summer meeting of the National Association of Regulatory Utility Commissioners. The subject: how to “dig in” to guidelines from the EPA on how to reduce greenhouse gas emissions and meet requirements of the rule, which is expected to be finalized next summer.

Littell and Epel are two of the more than 200 state commissioners who will have to put into practice detailed plans to reduce emissions in their states anywhere from 11 percent to 72 percent. The challenge before them is unlike anything the federal government has ever asked for, and the work has subsumed many of their schedules.

That level of focus makes sense. The EPA has given each state a different reduction figure to meet and left them to decide on the details and draft plans for compliance. Around the country, the process for interpreting the proposal and writing these plans will be different. But at the end of the day, state regulators will be responsible for implementing the gritty details.

They are tasked with making sure there aren’t power outages and keeping electricity affordable. That’s why they’re poring over the 645-page draft rule in anticipation of a mid-October deadline for comments. And with that due date quickly approaching, epiphany moments from people like Littell are critical to brainstorming work.

Epel says the work will get done, “people will just work extraordinary hours to do it.” And he says the real issue isn’t the comments, but the final rule. “That’s when decisions have to be made.”

The EPA’s proposal has been out for less than two months, and the reactions from commissioners at the days-long NARUC meeting last week ranged from cautious optimism to confusion to outright frustration.

Littell is hoping Maine might be able to comply without making any changes because of the progress it has already made through the Regional Greenhouse Gas Initiative. Alaina Burtenshaw, a commissioner from Nevada, felt better about the proposal until her state started to decipher the specifics.

“It’s very confusing. When we first read it we thought oh, wow, we’re in pretty good shape,” Burtenshaw said. “We don’t feel that way anymore.”

In one session, Jon McKinney, a commissioner from coal-reliant West Virginia, plowed through a Top 10 list of problems with the draft rule, mainly about EPA’s modeling on what might be possible for states to achieve and the timeline for getting there.

The reactions vary because the rule will affect states so differently depending on their individual requirements and capabilities.

States with renewable energy standards and efficiency programs might be better prepared than coal-dependent states—although some of them argue they are getting squeezed tighter while states that haven’t worked as hard to reduce emissions get off easier.

The rule is more complicated than past proposals because it doesn’t prescribe specific actions to take. It gives states four “building blocks” to work with, explains how they might be used. But it leaves it to the states to figure out exactly how to use those options or come up with something different.

Many commissioners see that flexibility, which the EPA has taken pains to emphasize, as a sort of double-edged sword. On the one hand, it’s great to have options. But on the other hand, states have their work cut out for them in figuring out which options are feasible, economic and approved by the EPA.

“At staff committee, the phrase I heard used is that it’s giving us so much flexibility, we don’t know what to do with it,” Littell said.

EPA’S FOUR BUILDING BLOCKS: OPTIONAL OR NOT?

The EPA gave states four options to reduce carbon emissions: making coal plants more efficient, using more natural gas generation, increasing renewable energy and finding ways to cut back on the aggregate amount of power used.  It predicted how each state could use those options and set overall reduction requirements.
But commissioners are wondering whether their states can really forego one or two of the building blocks and still reach the figures the EPA envisions. If not, the options aren’t exactly optional. And that’s is a big deal in states with a lot of coal power, most of which have electricity needs or political environments that make it difficult to shut down those plants.

Take for example, North Dakota. The EPA’s proposal assumes that growth in power demand will slow. But North Dakota is one of the states expecting a big increase in electricity demand.

“This is a hard time to be implementing rules that restrict generation…and the facilities in our portfolio, which are largely coal,” said North Dakota Commissioner Julie Fedorchak, adding that her state wants a “viable pathway for coal.”

“We have coal in abundance, it’s a proven fuel in a harsh climate, and it’s affordable and reliable,” Fedorchak said. But she says utilities are more likely to build natural gas plants because of the cost associated with bringing down emissions from coal facilities.

If a state doesn’t submit a plan that would reach the requirement or misses milestones later on, the EPA has said there will be consequences. What those consequences will be is unclear, however. Most commissioners agree the federal agency doesn’t have authority to force a state to use the renewable power or energy savings building blocks—which are not necessarily covered by the Section 111(d) of the Clean Air Act, the portion of law being used for the rulemaking.

Joe Nipper, senior vice president of government relations for the American Public Power Association, said community-owned electric utilities are telling him the building blocks are implausible at the levels the EPA suggests. And at least a handful of commissioners agreed with Nipper’s members that it is next to impossible to improve “heat rates,” or coal plant efficiency, by 6 percent.

A number of states and at least one regional transmission organization, the Midcontinent Independent System Operator, are starting work on the proposal by verifying that the EPA’s assumptions about how much a state could use each building block are achievable.

But Janet McCabe, EPA’s air administrator, insists that each of the blocks “leaves headroom.”

“The EPA is not expecting state plans to use the four building blocks in the way EPA has used them,” she said.  “We assume and anticipate that states will either not be able to do a building block at all or not choose to or will do it to a lesser or greater degree and focus on something else.”

Proponents of the rule say that even if states don’t use the options laid out, there are plenty more they could try. A group of 51 former state regulators signed a letter last week declaring their confidence that the proposal is workable, and the Analysis Group has a report on all the tools states could use.

Two of the additional ideas former commissioners discussed are making wires more efficient (so that about 7 percent of power isn’t lost on the way to consumers) and issuing rebates for turning in appliances that use a lot of electricity, among many others.

Demand response, or incentivizing customers to use less power at peak times, is one method that isn’t spelled out in great detail in the proposal but could be a big help in retiring dirtier “peaking plants” that are only called on when necessary, five of the former commissioners agreed in a joint interview with Morning Consult.

“This is exercising new muscle, for sure, but it’s not completely unknown,” said Sue Tierney, who was a commissioner in Massachusetts and used to be an assistant secretary at the Energy Department.

At the same time, there have been plenty reports claiming the opposite: that there will be institutional and practical issues with implementation.

MOVING THE STARTING LINE

Another big complaint from many states is that EPA used 2012 as their base year for calculating reductions.

There was some serious confusion over the starting year when the draft rule first came out, a miscommunication that EPA Administrator Gina McCarthy took the blame for when she spoke at the conference last week.

The overall reductions figure—30 percent nationwide from 2005 to 2030—was meant to give the U.S. a comparable number to negotiate with internationally in the hopes of spurring similar action abroad, McCarthy said.

“The 2012 indicates that we’ve taken the most recent base year, and we’ve looked at where states are, and we’ve looked at opportunities for going to cleaner sources or increasing efficiency,” McCarthy said. “The 30 percent from 2005 was just how we articulated the cumulative result from the individual state standard, it had no impact on decision-making.”

Throughout the rule-writing process, states have insisted that they should get credit for early work, for dramatically expanding renewable energy over the last decade and taking other steps to cut greenhouse gases.

But speaking to reporters after she addressed NARUC, McCarthy made it sound unlikely that the EPA would rethink that date.

“We believe that the states that have shown leadership here are actually getting credit for that leadership,” McCarthy said. “Many of the standards you’re seeing reflect the already aggressive nature that some states have taken in terms of reducing their carbon pollution.”

That work “fed into the standards,” and states that haven’t done as much have time between 2012 and 2020 to get a jump start, she said.

Janet McCabe, acting head of EPA’s air office, told Morning Consult that the EPA is hearing lots of those concerns from states and is reviewing them.

“This is a rule about identifying and applying the best system of emission reduction to the power plant fleet,” she said. “You start with where the power plant fleet is, and 2012 was the most current year that we had information for what the power plant fleet is doing.”

Some states have also suggested the EPA should use a baseline that averages several years together because 2012 was an exceptional year in the electricity world. It saw both Hurricane Sandy and a derecho that caused widespread power outages.

McCabe said the EPA has used that approach in the past and will take those comments into consideration.

HERDING CATS TO GET STATES, STAKEHOLDERS TOGETHER

Writing a plan for complying with such an extensive federal regulation involves a huge number of stakeholders, including utilities, generators and consumer interest groups. And the process for getting feedback and working through the details is different in each state. For some, there will be a formal task force that could be headed by the department of natural resources, environmental quality or health, or the governor’s office. Regulators will have an active role in most states, although not all.

Utah’s commission, for example, won’t be involved until a much later stage, when cost recovery becomes an issue, said commissioner Thad Levar. Other states are so far relying on informal discussions between agencies.

The draft rule also gives states extra time if they choose to work with other states.

Northeastern states in the Regional Greenhouse Gas Initiative, a multi-state program to cap emissions, are discussing ideas through that organization. In the South, Louisiana is involved through the Entergy Regional State Committee, which includes Arkansas, Louisiana, Mississippi, Texas and the Council of the City of New Orleans, Commissioner Lambert Boissiere III said.Louisiana also hired a consultant to dive into the potential impacts of the rule.

Regional transmission organizations or independent system operators are a go-to coordination option for states that participate in them. Some states are in more than RTO, meaning they might have to participate in multiple talks or pick one.

In the West, options for multi-state talks are a bit trickier. Western states have long been reluctant to join an RTO and subject themselves to more federal regulation. So there’s no natural organization for planning these sorts of initiatives.

And some states fear they would be worse off working with others.

“Right now, North Dakota would probably stand to lose by joining another state in this implementation because other states have much more serious, significant goals,” Fedorchak said.

There’s also potential for bad blood between states. The EPA rule looks at generation, not consumption. But states like California have built and paid for a lot of renewable generation in neighboring Nevada. And it looks like Nevada will get credit for that work because it houses those facilities, Burtenshaw said.

If states don’t work together, they will have one year to come up with a plan after the rule is finalized.

That’s not much time when you consider that states have limited legislative periods, and these plans could likely require legislation.

“We need three years,” says Ellen Nowak, a Wisconsin commissioner. “And we told the EPA that, and I know some other states did too.” Wisconsin’s legislature meets more often than some other states, but Nowak says one year is still a crunch.

“It’s better to do it right than do it fast,” Nowak said.

McCabe says the EPA built in extra time because of those very reasons and “it’s important that this program move along.”

Still, she says she knows some of the complaints will need to be addressed in the final rule.

“EPA can’t know the specific needs and opportunities that every single state in the country has and their constraints,” she says. “So this period of time gives you time to tell us what those are and to work through those.”

In the meantime, states are scrambling to come up with comments that cover all their concerns. Some worry that if they don’t mention everything before they deadline, they won’t have a right to an appeal.

“As more people go through this exercise, the unintended consequences of the way the rule is structured and its ambiguities become apparent,” said Alan Minier, chairman of the Wyoming Public Service Commission. “I for one am concerned that it will become apparent after the 120-day comment period, as the year rolls out.”

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