Three months after U.S. EPA released its final Clean Power Plan, state regulators, power plant owners, politicians and other groups continue to wade ever deeper into a lengthy menu of compliance options presented by the 1,600-page rule.
Rate- or mass-based compliance plans? To litigate or comply? Or both? And if they comply, to what extent will states shift away from coal to natural gas or renewables or efficiency? Or what combination of all three? Will allowances be allocated or auctioned if they choose a mass-based plan?
Closely watching all of this are regional grid operators such as the Midwest Independent System Operator. Like a chef handed a sack of groceries and told to prepare a meal, MISO must adjust to state compliance plans and make wholesale energy markets work as efficiently as possible.
Unlike many of the parties involved, MISO won't lobby states to adopt a specific strategy. But it is busy analyzing and modeling EPA's rule with hopes of providing information that will help regulators make decisions that hold down costs and promote reliability.
MISO has begun a study to evaluate how decisions by states to choose rate- or mass-based compliance strategies could affect the generation mix within MISO's 15-state footprint. That study is expected to be completed by around the end of March. Then, MISO will use the results to provide more granular information to states and begin its next study to evaluate the need for additional transmission.
"As states start to lean one direction or the other, we can start to refine the analysis to reflect the emerging reality," said Clair Moeller, MISO executive vice president of transmission and technology.
MISO, which is hosting a Clean Power Plan workshop tomorrow, will evaluate the impact on states using EPA model plans. One will assume all states select a rate-based compliance approach; the other will assume states adopt mass-based plans.
Moeller said it's too difficult to guess how states will choose to comply or if they will elect to have a federal plan imposed.
"It's a really complicated set of questions because you've also got the state policy questions around renewables, conservation programs, their litigation strategy," he said. "All of those things are in the mix, and that's why it's really hard for the states to come out early with a preference."
Yet whatever they choose is likely to have a significant effect on the flow of energy and the need for new transmission and other infrastructure. Siting and building new transmission lines takes at least five years, prompting anxiety that there won't be enough time to get it in place before 2022, when states must start showing CO2 emissions reductions.
"Our big worry is that that lack of stating a preference will cause a lot of chaos toward the end," Moeller said.
Choices add complexity
While MISO and other regional transmission operators for years have had to juggle uncertainty over pending environmental rules, such as EPA's Mercury and Air Toxics Standards, and how new regulations affect the power grid, the Clean Power Plan is exponentially more complex, Moeller said.
With MATS, generators generally had few choices. They could install pollution controls or shut the plant. For the Clean Power Plan, there are many compliance strategies, including adding renewables, dispatching more natural gas and energy efficiency. And to the extent they choose to deploy more solar generation, is it utility-scale solar or on customer rooftops?
"What the mix of that is is pretty hard to handicap," Moeller said.
For MISO and other nonregional transmission organizations, state-level compliance with federal environmental regulations isn't necessarily easily synced with regional energy markets.
"The structure of the Clean Air Act is state by state; the energy markets have ignored state boundaries since about 1957," he said. Yet, if states choose to act alone and not trade credits and allowances, "all of the consumer economic advantage of being able to share generation across state boundaries could evaporate."
Specifically, a state that doesn't participate in a trading program could become an island. That could mean higher reserve planning margins, more infrastructure and higher costs for consumers.
"If you retreat to a state-by-state [approach] and you don't enter into one of these trade-ready regimes, all of the consumer economic advantage of being able to share generation across state boundaries could evaporate," Moeller said.
Cooperation has its benefits
An analysis from MISO of EPA's draft rule showed the benefits of multi-state cooperation -- an estimated $3 billion in annual savings (EnergyWire, Sept. 18, 2014).
MISO in particular points to the significant wind energy resources in its northern states and the access to natural gas generation in the South as an advantage it doesn't want to see lost.
"Being able to use that diversity to keep costs down seems like something we ought to be working on as a MISO community," Moeller said.
Southwest Power Pool, which has a Clean Power Plan Task Force that meets monthly, did a similar analysis last year that showed significant benefits of multi-state cooperation (EnergyWire, July 28). PJM Interconnection LLC and many economists have likewise found that bigger is better when it comes to emissions credit trading and other market-based solutions.
Both grid operators said they can make energy markets work regardless of what compliance strategy states adopt as long as there's a common currency -- effectively, a price on carbon emissions that gets factored in.
"As long as they have compliant megawatts to offer, the energy markets will pick the cheapest one and dispatch that," Moeller said.