Experts say accurate Clean Power Plan cost estimate won’t arrive for years

By Elizabeth Harball | 11/30/2015 09:26 AM EST

Interest groups recently have rolled out a proliferating number of price tags for the Obama administration’s new limits on power plant carbon emissions. The estimates are often vastly different — some call the rule affordable; others determine it will be costly. Nonetheless, they are already ammunition for politicians debating the Clean Power Plan on both sides of the aisle.

Interest groups recently have rolled out a proliferating number of price tags for the Obama administration’s new limits on power plant carbon emissions. The estimates are often vastly different — some call the rule affordable; others determine it will be costly. Nonetheless, they are already ammunition for politicians debating the Clean Power Plan on both sides of the aisle.

For example, an analysis backed by the American Coalition for Clean Coal Electricity found the energy sector will spend up to $292 billion to comply with the Clean Power Plan. Both U.S. EPA and environmental groups called this a gross overestimate, arguing that under policies incentivized by the climate rule, consumers will spend between 7 and 7.7 percent less on electricity by 2030.

However, the utilities and regional transmission organizations that must put the Clean Power Plan into action aren’t comfortable making predictions about the rule’s cost quite yet.


The possibilities involved in compliance are enormously complex, they say, and it will be months until states indicate which of a bevy of paths they might choose. Those decisions will have a major impact on how expensive the Clean Power Plan is.

"We’re not necessarily trying to say we know what the cost is going to be because, quite frankly, we don’t. I don’t think anybody truly knows," said Michael Kormos, executive vice president and chief operations officer of PJM Interconnection, the Mid-Atlantic grid organization. PJM will release preliminary economic modeling in the spring, but Kormos stressed that many unknowns will remain.

"Everything is really going to be based on the assumptions … what gas prices will be, what the cost of renewables will or won’t be in 2025," Kormos said. "The biggest uncertainty is, what are the individual states going to do, and how do [the plans] stitch back together?"

Paths under ‘unique rule’

Under the final Clean Power Plan, EPA presented states with a web of compliance choices. States can meet their targets under a rate-based system, a limit on pounds of carbon emissions per megawatt-hour. Or states can choose a mass-based target, meaning EPA caps the total pounds of carbon that power plants can emit.

In each of these systems, EPA is allowing states to participate in separate carbon-trading programs — either within a single state or among states. These could be limited to in-state trading or could involve other states. Trading could greatly reduce overall compliance costs, grid experts agree. However, states may make decisions that limit whom they can trade with.

At this point, it’s anyone’s guess what size and scope of carbon-trading systems might evolve under the Clean Power Plan. States will only hint at their leanings in an initial filing next September and won’t have to submit final compliance plans until 2018.

Power Plan chart
This U.S. EPA diagram shows the inherent complexity of the Clean Power Plan. | Photo by Phil Taylor.

"It’s kind of a unique rule," said Amlan Saha, vice president at M.J. Bradley & Associates LLC, a consulting firm helping states model compliance options. "When a rule was finalized in the past, we at least knew what form it would take when it’s implemented.

"The fundamental thing we will need to estimate anything like cost or impact on rates is to know which state is going to do mass and which state is going to do rate," Saha added. "That is totally not clear at this time. We are seeing some signals here and there, but if we are to do a pure technical economic analysis of the rule, we are still far away from the stage where we would be able to do that meaningfully."

At this point, organizations responsible for the electric grid like PJM and the Midcontinent Independent System Operator (MISO) are focused on modeling economic scenarios to give states an idea of the relative cost of different compliance paths.

"Obviously we’ve got some bookends we can look at. What if all states go mass-based and do regional trading? What if all states go rate-based and do regional trading? What if you have a mixture of the two?" said Kari Bennett, senior director of program strategy for MISO, a regional transmission organization that serves 15 states in the Midwest and South.

"EPA, in giving states a lot of options, introduced a lot of complexity," Bennett said. "We’re trying to be thoughtful and deliberate in how we are analyzing our options and the complexity."

Modeling 90 scenarios?

Trying to predict how carbon trading systems might work isn’t the only challenge for Clean Power Plan cost calculators.

The future price of energy resources like natural gas and renewable energy can be modeled but is ultimately uncertain. Also, Saha explained that it’s tricky to pick apart which costs are due to the Clean Power Plan and which costs are attached to other policies.

"A lot of states have very ambitious [renewable portfolio standards] or energy efficiency standards in place," said Saha. "To the extent that those programs bring in a lot of renewable energy or energy efficiency savings, should we assign any of those costs to the CPP?"

Bennett explained that MISO is not attempting to model all possible costs associated with the regulation.

"We know that there is also the potential for things like employment impacts that could end up factoring into ultimate total costs," said Bennett. "That is really hard for us to factor in — those end up being really localized and case-specific cost scenarios."

In the end, regional transmission organizations must model many scenarios and communicate what they mean to states and power companies, said Kormos. But that will be a challenge because the rule can play out in so many ways, he added.

"I forget the total number of scenarios we are going to run, but it is probably in the 70, 80, 90 range at this point," he said.

Dodging the ‘target on their backs’

Analysts behind some recent cost estimates on the Clean Power Plan defended their conclusions as reasonable given that EPA published its own cost estimate when the rule was released in August.

"EPA has to do it for the regulatory impact analysis; people want to know whether that seems like a reasonable estimate or not, so that’s why we did it," said Anne Smith of National Economic Research Associates Inc. (NERA), an author of the report prepared for the American Coalition for Clean Coal Electricity determining the rule would cost up to $292 billion.

Smith recently testified before the House Science, Space and Technology Committee and criticized EPA’s cost calculations and claims regarding the health co-benefits of the Clean Power Plan.

Asked why, unlike regional transmission organizations, NERA limited its modeling to specific scenarios, Smith responded, "We didn’t have time to do 90 [scenarios]. We had time to do five, and given that our objective is to get a bounding on the order of magnitude and nature of impacts rather than to make business decisions off of this, I don’t think it merited doing a whole lot more."

Thomas Hewson, principal at Energy Ventures Analysis and author of a report that determined the rule will cause a $214 billion increase in electricity prices by 2030, also defended his conclusions, even though he did not model for multistate trading. The report was commissioned by the National Mining Association.

"We were trying to come up with a case comparable with what EPA modeled; EPA did not do trading," Hewson said. "I realize that trading definitely can potentially ease some of the issues in many states."

Hewson also said that the fact that the National Mining Association commissioned the report did not influence his findings.

"The people who pay me to do the reports obviously were first people who felt they had the target on their backs," Hewson said. "I do not feel that it’s in anyone’s interest to slant or bias results or to try to get some preconceived notions."

‘You can almost get any number you want’

Environmental advocacy groups also defended their claim that due to energy efficiency incentives, electricity bills will be lower under the Clean Power Plan. But they also acknowledged states must embrace energy efficiency for this to happen.

A recent Public Citizen report claiming that the Clean Power Plan will lower electricity bills said: "It is important to note that the actual outcomes will depend on state policy choices. State officials will decide how to comply with the Clean Power Plan, and they can choose policies that are better or worse for electricity customers."

David Arkush, managing director of Public Citizen’s Climate Program, argued it is unlikely states will forgo the opportunity of energy efficiency.

"It really does mystify me why any governor or state official wouldn’t want to promote energy efficiency," Arkush said.

But utilities and regional transmission organizations remain wary of the projections being put out by interest groups.

"When you are looking at cost projections, you really need to look at the assumptions they are using," Kormos of PJM said. "You can almost get any number you want by obviously changing the assumptions to fit."

Reporter Emily Holden contributed.