Among the many questions about the pending EPA carbon rules on existing generation are how state implementation rules will mesh with regional compliance approaches and what role RTOs such as PJM will play.

PJM stands ready to help, Paul Sotkiewicz, PJM’s chief economist, told a Bipartisan Policy Center forum last week.

The economies of scale that RTOs have brought to unit dispatch, planning and other grid functions can also help reduce the costs of complying with the greenhouse gas rules, Sotkiewicz said.

“We can reflect the cost of environmental retrofits. It makes sense to piggyback on the existing infrastructure,” he said.

While it will be up to state officials to decide what the RTO role is and whether they want to participate, states that go it alone, he said, “are leaving money on the table.”

Two visions for how RTOs might take part were sketched out earlier this year. In January, PJM and other RTOs asked the EPA to allow states to meet the greenhouse gas rules through regional caps and to include a “safety valve” to maintain reliability.

ISO/RTO Council

The ISO/RTO Council (IRC) said that it usually doesn’t take policy positions on EPA regulations, but that it wanted to ensure EPA officials “recognize the relationship between proposed environmental rules, electric system reliability and economically efficient dispatch.”

The council’s seven-page proposal asks the EPA to allow states to adopt State Implementation Plans (SIPs) based on “a regional measurement mechanism for determining compliance.” The group also said the EPA’s regulations should include a process to mitigate reliability impacts of the regulations.

MISO Role Envisioned

In February, The Brattle Group and Great River Energy, a cooperative in MISO, proposed that RTOs build the carbon emission limits into their markets instead of making individual generators or states meet them.

For the states that joined MISO or other regional operators, “It doesn’t seem like much of a stretch to add carbon management to that plate,” said Jon Brekke, vice president of Great River.

The proposal would have RTOs and ISOs translate EPA emission reduction limits into targets for their regional power markets. The reductions would be met by applying an RTO- or ISO-administered carbon price to generation and refunding the revenues to load serving entities based on consumption levels.

“This not a social cost of carbon … this is an economic signal,” said Brekke, who added that it would avoid stigma as a “tax” because the funds would go to LSEs rather than government.

Asked after the forum whether MISO was willing to take on the market-clearing role envisioned in the plan, Brekke responded: “We know that MISO is willing to facilitate a discussion that’s state-led.”

The idea of a regional solution is “getting traction,” he added. “Whether it’s our approach or another is secondary.”

RGGI Redux?

A top Delaware official, meanwhile, pitched the nine-state Regional Greenhouse Gas Initiative (RGGI) as a “plug-and-play” solution that other jurisdictions could adopt.

Carbon emissions in RGGI states have dropped by nearly 52% since 2005, thanks to energy efficiency and fuel switching — as well as the lackluster economy.

Current emission levels are 45% below RGGI’s 2013 cap, said Collin O’Mara, secretary of the Delaware Department of Natural Resources and Environmental Control. Participating in addition to Delaware are Connecticut, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island and Vermont.

Money collected through RGGI is reinvested in energy efficiency and renewable energy giving every expenditure a multiplier effect twice or triple the investment he said. (New Jersey Gov. Chris Christie, however, used some of the revenues to balance his budget before pulling the state out of the program in 2011.)

Rather than calling it cap and trade, however, O’Mara suggested a less politically combustible name: “budget and invest.”

New Jersey’s Democratic-controlled legislature has tried on several occasions to pass legislation reversing Christie’s decision, but it has been defeated by vetoes. “I don’t see [rejoining RGGI] happening in the near future,” said New Jersey Board of Public Utilities Commissioner Jeanne Fox.

Seams

The PJM-MISO seam has vexed both regions for years, but when it comes to GHG compliance it could be a boon, Sotkiewicz said.

State implementation plans for the four states split between PJM and MISO — Michigan, Illinois, Indiana and Kentucky — could manage emission allowances across RTO borders, he said.

“Rather than seams being a problem it actually creates fungibility between different regional compliance programs,” Sotkiewicz said. “Rather than being a barrier, per se, it almost becomes an opportunity.”