Via E&E News:

JEFFERSON CITY, Mo. — No matter the politics or point of view on U.S. EPA’s Clean Power Plan, utilities and other parties in Missouri working on a state compliance strategy unanimously favor a “mass-based” plan to cap power plant carbon dioxide emissions and trading of emissions allowances.

But there is far less agreement about other key decisions facing state air regulators, including just how to allocate valuable emissions allowances and whether retired power plants should continue to receive them.

Missouri’s largest investor-owned utilities are pushing for a free allocation based on historical emissions. And they said the allowances should be irrevocable, meaning they would continue to get allowances for power plants that are retired. The operator of the state’s lone merchant power plant and environmental advocates disagree.

The debate over emissions allowances was one of several key issues outlined by parties yesterday during 15-minute presentations at a Clean Power Plan workshop hosted by the Missouri Public Service Commission.

The commission organized the workshop to complement the work of the Department of Natural Resources, the state environmental regulator, which is charged with crafting Missouri’s compliance plan.

The DNR has said it is “almost 100 percent certain” that it will adopt a mass-based compliance plan rather than the alternative rate-based plan (EnergyWire, Dec. 3, 2015). Under a mass-based approach, carbon dioxide emissions are capped. Under the alternative rate-based approach, states would have to reduce emissions to a certain level, or rate, per megawatt-hour of electricity generated.

Utilities, grid operators and economists widely agree that for states choosing mass-based compliance strategies, trading of allowances can help reduce compliance costs. That means the allowances themselves become a form of currency, and how they are allocated by the state is key.

Missouri’s three investor-owned utilities said allowances should be granted freely to generators based on historical emissions. And utilities also said the allowances should be irrevocable, meaning they would continue to go to units after they are retired.

“Absolutely they should go to units that are retired,” Ajay Arora, Ameren’s vice president of environmental services and generation planning, said in an interview.

Those units would include the utility’s Meramec coal-fired power plant just south of St. Louis, he said. The 831-megawatt plant, which began operating in 1953, is due to be shut down by the end of 2022, the utility said last fall in its long-range plan filed with the PSC.

Continuing to give allowances to retired plants like Meramec could be used for compliance elsewhere in Ameren’s fleet or sold with the proceeds used to develop renewable energy or invest in energy efficiency, he said.

Taking allowances from retired units, meanwhile, would also be a perverse incentive for utilities to continue operating older, inefficient plants, he said.

Robert Janssen, senior vice president of Maryland-based Kelson Energy, the majority owner of one of Missouri’s four combined-cycle gas plants, disagreed. The lowest-cost path to compliance is to give emissions allowances to operating units.

Janssen said increased use of the company’s 650 MW Dogwood Energy Facility outside of Kansas City could help Missouri meet its goal of reducing carbon dioxide by 10.5 million tons a year.

“In all compliance scenarios, grandfathering is about the worst thing you can do to minimize costs for Missouri consumers,” he said.

Environmental groups like the Sierra Club, too, don’t want to see retired coal plants continue to receive free emissions allowances.

“We believe that allowance allocation should be by auction,” said Andy Knott of the Sierra Club’s Beyond Coal Campaign.

Environmental advocates want to see an auction like the one used in the Northeast by the Regional Greenhouse Gas Initiative. Proceeds could then be deployed to support further investment in renewable energy, energy efficiency and aid for low-income customers, Knott said.

‘We do have some common ground’

Yesterday’s workshop was organized as part of a case opened five years ago at the PSC to examine cost and reliability impacts of federal environmental regulations.

The meeting drew dozens of participants and observers, including utilities, clean energy advocates, regional transmission operators and Peabody Energy Corp.

Parties were asked to provide answers to a long list of detailed questions. But there were no cost estimates provided except one from the National Mining Association. Ameren said it was too early to develop a detailed cost estimate, while Kansas City Power & Light and Empire District Electric Co. suggested the analysis would be part of long-range plans filed with the PSC this spring.

“Unfortunately, most responses from utilities indicate that their analysis is not complete or that they are not yet prepared to share it with us,” said PSC Chairman Daniel Hall, who prodded utilities to work closely with state regulators.

“We do have some common ground,” Hall said. “In some states, we would not even be having this meeting. It would be prohibited for state employees to be working on the Clean Power Plan, either by executive order or by executive directives, or simply by ignoring the Clean Power Plan as Senate Majority Leader [Mitch] McConnell [R-Ky.] recommended.”

While Missouri Attorney General Chris Koster (D) is among those who have sued EPA in an attempt to block the Clean Power Plan, state regulators have forged ahead to craft a compliance plan (EnergyWire, Sept. 24, 2015).

Parties are “putting those beliefs aside and putting good business sense over ideology and politics, and making sure that we can work together to put together a plan in a timely fashion,” Hall said.

The commission will remain solely focused on looking at the effects of the carbon rule on reliability and cost. “That is the PSC’s domain; that is our charge by statute,” he said.

See the article here.