EPA's McCarthy pushes states to adopt carbon-cutting 'investment strategy'

Her comments yesterday before the National Association of Regulatory Utility Commissioners, or NARUC, were brief -- less than 30 minutes, including questions. But in what at times came across as barnstorming in the oil industry's backyard, McCarthy described the thinking behind EPA's plan to slash carbon emissions at power plants. Then President Obama's top environmental regulator pressed for action by the states, as regulators consider the approach they'll take to meet federal emissions targets.

"We really wanted this to be an opportunity to look at a short- and long-term investment strategy, not a pollution control strategy," McCarthy said. Carbon pollution, she said, "can be reduced in the electricity sector in ways that are very far from pollution control technologies."

EPA's Clean Power Plan released last month aims to cut carbon emissions at power plants 30 percent by 2030 compared with 2005 levels. Targets vary by state. And the proposal has been a major theme at NARUC's summer meetings, as the cost of implementation and electric reliability dominated those discussions.

In her talk, McCarthy said the agency is open for state-by-state discussions about how to best implement the administration's signature plan for addressing climate change, a patchwork of emissions-reduction targets and enforcement mechanisms the White House wants on the books before leaving office. Some of the usual options for slashing power plant emissions are on the table, McCarthy noted, including using highly efficient coal plants and expanding the use of renewable energy and gas.

"There is nothing that we have heard so far that would indicate that flexibility should not continue and isn't the best approach moving forward," she said.

Presidential priority

On Sunday, a chief economist for grid operator PJM Interconnection LLC suggested that too much flexibility could work against the proposal, in part because states could find themselves working at cross-purposes depending on how they develop their plans (EnergyWire, July 14).

When asked about that yesterday in a briefing with reporters, McCarthy said PJM probably would like for entities it deals with to work together in some way.

Obama considers carbon to be an "incredibly important rulemaking process," she added, and the Supreme Court's interpretation of the Clean Air Act seems to be a "very good one" for the agency's carbon plan. A 120-day comment period is underway, and McCarthy called for parties to get their comments in early -- especially if they think EPA "missed the boat" in terms of data or framing of issues.

"The earlier you say that, the more we can figure out whether that boat is in the right direction or whether it's sinking and what we need to do to shore it up," she said.

The administrator drew a number of questions from commissioners, including from New Jersey's Jeanne Fox, who asked about possible regional approaches. "There is a tremendous opportunity for states to work together, and in some ways it would be tremendously beneficial, especially when you're dealing with renewable energy," McCarthy said.

Another attendee asked about potential enforcement of the plan. McCarthy said it is "a real and federally enforceable program." The more states step up, the more will be understood about how to work in a partnership, she said.

"I don't think it's a surprise to anybody that this is the Clean Air Act and we can enforce the requirements and we fully intend to," McCarthy said.

Robert Kenney, who chairs the Missouri Public Service Commission, asked about alternative modeling and what happens if the cost isn't found to be reasonable.

McCarthy said the goal was to be reasonable and appropriate but said it's important for states to look at the underlying analysis behind the numbers. Electric reliability and affordability in the power sector won't be compromised, she said.

"If states really look at this as investment opportunities, they're going to find themselves surging past that 2030 endpoint," she said.

'Let's just keep working together'

Earlier yesterday, Lynn Good, CEO of Duke Energy Corp., pressed the issue of electric reliability as it ties into future regulations -- an issue of both substance and politics. Good, who runs one of the largest coal plant fleets in the country and has been under fire for her handling of coal ash disposal in North Carolina, pressed executives to consider the costs.

"We need to keep our eye, as we transform, on reliability, we need to keep our eye on costs, and we need to constantly challenge ourselves," Good said.

Cheryl LaFleur, acting chairwoman of the Federal Energy Regulatory Commission, urged the industry to consider more investment in natural gas pipelines, electric transmission and technology. Gas is expected to be the source of more electricity, as aging coal plants are retired by utilities like Duke.

"I think what it will require is a tremendous amount of coordination between the federal government and the states, between different federal agencies, between different sectors," she said.

Donna Nelson, the chairwoman of the Public Utility Commission of Texas, said she was concerned that EPA was unintentionally punishing states that were early movers, noting the state's wind energy growth. McCarthy told reporters that states that have shown leadership are getting credit. EPA's relationship with Texas is "healthy," she said, despite tension over approaches to clean-air regulations.

In an interview, Nelson said McCarthy showed good faith by visiting the Dallas meeting. But Nelson said she remained concerned about Texas' ability to meet the carbon standard. She said a workshop is planned for August to discuss the issue, which she said could have implications for how generation is dispatched in Texas' competitive market.

Nelson said it would be great to file comments early but said that might be difficult, "just given the breadth and depth of the rule and the length of it and the due diligence we have to do." She said she's not sure if comments would be filed or if the proposal would be challenged.

While some issues have been raised about an approaching 2020 time frame when the carbon plan would begin to phase in, McCarthy told NARUC attendees that states can find paths forward.

"Let's just keep working together," she said. "I think planning is crucial. I am here because the energy world is vital in this discussion. You can help provide an opportunity to bridge what I've always seen as a gap at [the] state and local level between environment and energy regulators in their lack of understanding of what one another does."