Mike Kormos, COO of PJM Interconnection
by James A. Bacon
More than four months since the Clean Power Plan (CPP) established final state goals for reduced carbon dioxide emissions, no one is sure what compliance will cost. Here in Virginia, guesstimates have been all over the map, with the coal lobby suggesting that rates could more than double while environmentalists claim electric bills actually could go down, assuming conservation measures reduce consumption.
There are multiple layers of uncertainty. Under the CPP, each state is required to devise its own plan to meet state targets. One question is which economic assumptions to use. As Mike Kormos, chief operating officer of PJM Interconnection, blogged last week, five or 10 years ago, no one foresaw the cost of natural gas falling below $2 per million BTUs, as it has in some parts of the country. The price of natural gas in the near- and long-term is a critical variable in appraising the relative merits of coal, gas-fired, nuclear and renewable energy sources.
A second uncertainty is how those state plans, once chosen, interact with one another in a regional market for electricity. Virginia is part of the PJM regional transmission organization, which creates mechanisms for utilities to buy and sell electricity in wholesale markets over a 13-state region. Decisions made by one state can influence the availability of power in other states.
Wrote Kormos: “The bottom line everyone wants to know is the bottom line: what will it cost to comply with CPP. ”
At this stage, it’s way too early to tell how it will all shake out. PJM, whose mission is to maintain the reliability of the regional electric grid at the lowest cost, is trying to help. At the request of state decision makers, the member-owned organization is developing dozens of scenarios based on different combinations of assumptions to inform states’ decision-making.
One of the biggest choices states face is whether to select a “mass”-based approach or a “rate”-based approach for reducing CO2 emissions. A mass-based approach sets targets based on the absolute volume of CO2 emissions by electricity producers within a state. A rate-based approach sets targets based on CO2 emissions per kilowatt hour of electricity generated. A rate-based approach might be more advantageous to certain states, but PJM officials tell me that the mass-base approach would benefit states acting collaboratively to meet their targets.
State air regulators — in Virginia, that would be the Department of Environmental Quality — must submit their state compliance plans to the Environmental Protection Agency by September 2016. That gives them nine more months to sort through issues of extraordinary complexity.
Since August, when the CPP guidelines were issued, PJM been developing an economic model capable of analyzing the compliance pathways laid out in the CPP. Working with stakeholders over the coming months, wrote Kormos, PJM will strive to achieve a “common understanding” of the cost drivers.
“Our first concern, at the end of the day, is to make sure that the system stays reliable,” said Kormos. “Sensitivities on both compliance choices and economic variables will be performed to provide a range of potential outcomes. When we know what the individual states want to do, we will study how the state plans impact each other as part of the PJM region.”
