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EPA promises to avoid cap, but some utilities want trade

The Obama administration says it won't use the Clean Air Act to cap greenhouse gas emissions, but some power companies want U.S. EPA to allow for the trading side of a cap-and-trade program, representatives of the utility industry told agency officials during a public hearing this afternoon.

It was the first of five sessions that were scheduled by EPA to get advice on a new round of rules limiting greenhouse gas emissions from power plants and refineries. Through the new regulations, called New Source Performance Standards, the agency won't set a limit on emissions for the entire utility sector, said Gina McCarthy, the head of EPA's air office.

But several utilities, such as California-based Pacific Gas and Electric Co. and Calpine Corp., suggested that the New Source Performance Standards could allow trading if they are harmonized with the new cap-and-trade programs in California and the Northeast.

Others urged the agency to let utilities meet the new standards by averaging greenhouse gas emissions from different power plants, which would allow them to meet limits at a lower cost. Among them was Pamela Faggert, vice president and chief environmental officer at Dominion Resources Inc., who said the Virginia-based power company was looking for measures that allow for "market-based choices."

McCarthy replied to comments by saying the agency is "open" to different ways to design the rules for existing facilities, which suggests the agency may consider tools such as trading, offsets and averaging. But McCarthy repeated a vow that the agency won't replicate the legislation that stalled in Congress last year.

"Our goal isn't to decide on a number for greenhouse gases that ought to be achieved," McCarthy said. "This is not about that. It's not the way the tool is used. It's not a cap-and-trade program, so while you're discussing alignment with various state programs, those are great things for us to explore, but we certainly do not have a greenhouse gas number in mind."

Though utilities generally agreed that EPA should use the standards to set a "floor" for new facilities, they were split about the best way to address the existing facilities. Some utilities raised concerns that companies with older or more carbon-intensive fleets would be hit hardest by the standards, transferring wealth from one part of the country to another.

Those types of concerns were raised by an official from coal-dependent Southern Co. and by John McManus, vice president of environmental services at American Electric Power Co. Inc.

By the end of the decade, the company's coal-heavy fleet will be less carbon-intensive because of a slew of new environmental rules, McManus said. He said the standards should reflect where companies are starting from and take their reductions into account.

"I'm not sure we have the capacity to do much more than what we see that we're going to have to do at AEP in the next 10 years," he said. "Retrofits, retirements, replacements -- we're going to have our hands full, and if we have to go much beyond that, it's going to be a challenge."

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