Ky. regulators walk tightrope on Clean Power Plan

By Jean Chemnick | 03/04/2015 12:58 PM EST

Kentucky regulators say they’ve figured out how they might write an implementation plan for the U.S. EPA Clean Power Plan without violating a state law that severely limits their options.

Kentucky regulators say they’ve figured out how they might write an implementation plan for the U.S. EPA Clean Power Plan without violating a state law that severely limits their options.

The Energy and Environment Cabinet hopes to avoid having EPA impose an implementation plan for curbing carbon dioxide emissions with a strategy that relies on retirements of coal-fired power plants that were already planned for the next 15 years.

The agency says those plant shutdowns could generate enough emission reductions to let Kentucky meet its 2030 EPA target.


Kentucky Energy and Environment Secretary Leonard Peters told a Washington, D.C.-area climate conference last week that his agency believes relying on plant shutdowns would not run afoul of House Bill 388, a state law that bars Kentucky from basing its plan on mandated fuel switching, renewable energy or other "systemwide" policies.

The bill — inspired by the conservative American Legislative Exchange Council — cleared both chambers of the state Legislature unanimously last year and was signed into law by Democratic Gov. Steve Beshear.

"Obviously, it’s always in the background," Peters said of the new law.

Peters said his staff wouldn’t complete a plan before the term-limited Beshear leaves office at year’s end. His staff intends to hand the incoming administration an "80 percent" plan — or set of recommendations — on how to navigate between the state law and the need to provide EPA with a compliance outline by deadlines starting in 2016.

"Will the next governor take that and move with it? I don’t know," Peters said. "But we want to give him an opportunity to look at what we have been thinking the last several years."

Kentucky Assistant Secretary for Climate Policy John Lyons said in January the state law would all but ensure that Kentucky will face the federal implementation plan EPA is writing (Greenwire, Jan. 12).

The Kentucky law limits the state plan to requiring energy efficiency upgrades on site at coal-fired power plants, but that requirement means it will fall short of the reduction requirements EPA is seeking. EPA has warned it will use its authority to impose an emissions plan of its own if states lag.

But Peters said his agency’s lawyers now believe the state law may not prevent Kentucky from writing a plan that assumes expected reductions from coal retirements caused by unrelated market forces and policies, such as EPA’s mercury rule for power plants.

These may not technically, he said, be the "inside the fence line" reductions at power plants envisioned by the framers of the state law, but they are not mandates, either. And current market conditions and EPA’s proposed carbon dioxide standard for new power plants should guarantee that the retiring units are replaced by combined-cycle natural gas plants rather than new coal — an emission savings Kentucky can claim credit for.

"I think the general feeling is that we are going to move forward with some recommendations and some thoughts that are a little bit broader, and see whether or not that can fit in with the constraints of the legislation that we have, and make the judgment at that point in time as to whether that would be consistent with an interpretation of that legislation," Peters said.

‘Very Kentucky-centric’

Kentucky is set to lose a dozen coal-fired generating units between now and 2017, according to data collected by the Department of Energy’s U.S. Energy Information Administration.

East Kentucky Power Cooperative Inc., the Tennessee Valley Authority, Kentucky Utilities Co. and Louisville Gas & Electric Co. are all slated to take coal-fired capacity offline. And Peters said more will follow, contributing the lion’s share of Kentucky’s obligation to cut its power sector’s CO2 by 18.3 percent compared with 2005 levels by 2030.

EPA set Jan. 8, 2014, as the dividing line between new and existing power plants for purposes of its Clean Air Act rules, signaling that the agency will credit states under the existing source rule for reductions made after that date. That should include all coal-fired closures after that date as well as any other changes that bring down Kentucky’s power-sector emissions.

"We believe that as we look at our fleet today, with some retirements that are highly likely between 2020 and 2030, we can meet it," Peters said, referring to the 18.3 percent cut.

The Energy and Environment Cabinet held a closed-door meeting Feb. 20 to gather feedback on this idea, with guests drawn from industry and stakeholder groups including the Kentucky Coal Association, the Kentucky Chamber of Commerce, several local utility groups and the Cumberland Chapter of the Sierra Club.

"It was very Kentucky-centric," Peters said.

The point of the meeting, Lyons said, was to determine whether the coal plant retirements idea had stakeholder support, or whether it was seen to conflict with the state law.

The Cabinet plans to continue the dialogue with stakeholders until EPA finalizes its rule in midsummer, after which Peters, Lyons and their colleagues will have only a few months to complete their "80 percent" proposal before the new administration takes office. The next Cabinet would complete and submit the plan.

But some groups that participated in the February meeting said they didn’t want to see their state submit a plan to EPA at all — even one that didn’t mandate new systemwide reductions.

Bill Bissett, president of the Kentucky Coal Association, said in an interview with Greenwire that Peters and his staff appeared to be on course to undercut not only the state law, but Attorney General Jack Conway’s bid to have the rule thrown out in court.

Conway, who is also favored to win the Democratic nomination to replace Beshear, joined with 11 other state attorneys general last August to file a pre-emptive lawsuit against EPA, hoping to kill a rule they said would be disastrous for their states’ coal sectors.

Bissett said he’d like to see the state agency ask for more time to develop a plan, with the hopes that Conway’s suit will prevail and a compliance plan will become unnecessary.

"Kentucky’s coal industry and many others believe strongly that an extension on the development of Kentucky’s response can and should be sought," he said in an email to Greenwire.

"As to Kentucky’s ability to comply if coal plant closures up to 2030 are included, I doubt that anything will satisfy the EPA and their ideologues," he continued. "Their endgame remains to move this country away from the use of coal as a source for electricity, and this central philosophy should be remembered when dealing with this federal agency."

But Lyons said Kentucky would be better off charting its own course on the rule.

"We certainly believe that it’s better to choose our own destiny than allow EPA to [impose a federal implementation plan on] us and not know what you’re going to get," said Lyons, though he noted that the agency will release a proposed model rule this summer before states submit their plans beginning in 2016. That plan, depending on what it looks like, might influence the next administration’s choice about how to proceed, he said.

Can the plan be enforced?

But one challenge with the coal plant retirement option is that it would rely on voluntary actions by utilities while EPA demands that state plans be enforceable.

"How do you make [coal-fired power plant closures] part of a plan that doesn’t look like you’re requiring shutdowns and fuel switching, which the law strictly prohibits?" Lyons asked.

Enforceability will be an issue, said Jennifer Macedonia, a senior adviser who tracks the issue for the Bipartisan Policy Center.

Kentucky will need to demonstrate in its plan that the reductions it assumes will come from plant retirements do in fact happen. The state agency could do that by building a review process into its plan that would allow it to stay on track or make adjustments, she said. It could also require utilities to adhere to a particular retirement schedule for their coal-fired power plants as a condition of permitting.

But that kind of requirement would be unlikely to gain the support of state lawmakers of either party who see the Clean Power Plan as an assault not only on the Bluegrass State’s coal sector but on its robust manufacturing base.

Kentucky’s congressional delegation has pledged to do all it can to kill the rule legislatively and has asked state officials to stand firm as well. Rep. Ed Whitfield (R-Ky.) has promised to use his chairmanship of the House Energy and Commerce Subcommittee on Energy and Power to advance legislation to roll back the rule.

And Senate Majority Leader Mitch McConnell (R) wrote in an op-ed in the Lexington Herald-Leader yesterday that state officials must refuse to comply with the measure even if EPA threatens to impose a "draconian" federal implementation plan (see related story).

"It sounds like a scary outcome," he wrote. "But states shouldn’t be frightened, nor should they allow themselves to be bullied."