ORLANDO — A top EPA official told state regulators the agency is still in listening mode in drafting its greenhouse gas rules on existing power plants, while some regulators said their customers could face double-digit rate increases as a result.

The Environmental Protection Agency is expected to issue its proposed rules by June. In September, EPA issued GHG rules that effectively banned new coal generation that lacks carbon capture and sequestration (CCS), an expensive and unproven technology.

But Janet McCabe, Acting Assistant Administrator for EPA’s Office of Air and Radiation told the audience at a joint FERC-NARUC panel that the agency will not require CCS for the existing fleet.

Section 111 (d) of the Clean Air Act requires states to develop implementation plans to meet the standard EPA sets.

McCabe said EPA is using a “bottom-up approach” in developing the standard that will acknowledge the varying fuel mixes by state and the remaining life of fossil fuel plants.

“People are asking `What’s the target?’ We will ultimately [answer] that,” McCabe said. “But we keep pushing back. We’re not ready to do that until we have more discussion and see what’s reasonable to do.”

In recognition that the transmission grid crosses state lines and that power companies own plants in multiple states, EPA will encourage states to join in regional solutions, McCabe said.

Florida Commissioner Eduardo Balbis told the audience at another panel discussion that the regulations could increase monthly bills by as much as $38 for customers of coal-dependent Gulf Power. For fixed income customers, he said,”even a $1increase is something that’s untenable.”

Kentucky Commissioner Jim Gardner also warned of “incredible increases” for some customers in his state, which got 97% of its electricity from coal last year.

Len Peters, who heads Kentucky’s Energy and Environment Cabinet, said a 25% increase in the state’s electric rates (currently in the bottom 10 nationally) will cost 70,000 jobs because it is has the most energy-intensive economy in the U.S., with half of its electricity used by manufacturers.

Skiles Boyd, vice president of environmental management and resources at DTE Energy, predicted a big workload for lawyers.

“The Clean Air Act was not written to handle greenhouse emissions … We’re going to be pounding a whole lot of square pegs into round holes,” he said. “If it’s done wrong there will be stranded costs and that will cost customers. They’ll be mad at us. They’ll be made at [state regulators] and they’ll be mad at the administration.”

Rate-Based Versus Mass-Emissions Standards

Kentucky has asked EPA to allow it to pursue a “mass-emissions” approach to reducing total average emissions rather than a standard that sets an emissions threshold of tons per MWh.

“We can work with the utilities in the state to develop retirement plans,” Peters said. “Whose feet do you [EPA] hold to the fire? You hold the state’s feet to the fire.”

But Steve Schleimer, vice president of governmental and regulatory affairs for Calpine, said a market-based approach, such as the cap-and-trade program used by the nine states in the Regional Greenhouse Gas Initiative is cheaper and fairer. “You can’t draw a border around Kentucky in the electric market,” he said.

Reliability Issues

Gerry Cauley, CEO of North American Electric Reliability Corp., said NERC expects plant retirements will cause particular reliability challenges in Texas, the Midwest and New England.

Cauley said NERC is less concerned with having sufficient capacity than in having capacity that can provide grid stability. Renewable resources lack the inertia that allows large traditional generators to help stabilize the grid, Cauley said.

“This is not the usual utility whining,” Cauley said. “Once you get to 20%-30% integration of renewables and distributed generation this problem is real.”

PJM Executive Vice President for Markets Andy Ott echoed Cauley’s concern, asking “should we be compensating for some of these basic services we’ve taken for granted?” he asked.

Roles for Nuclear, Renewables, Efficiency

Several speakers at the conference said the new regulations will require the U.S. to make a renewed commitment to nuclear power.  “If you want to sustain these gains it can’t be simply a reliance on low natural gas [prices] and the [weak] economy,” said Chris Hobson, chief environmental officer for Southern Co.

“Renewables can’t provide baseload” power, said Kentucky’s Peters.

Massachusetts Commissioner David Cash disagreed. “I actually can see a future when renewables are the bulk of that,” Cash said, citing the potential of offshore wind. Cash acknowledged renewables will have to be supported by storage to overcome their intermittency.

Peters and Cash also disagreed over how much “low-hanging fruit” remains in the form of energy efficiency.

Cash said benefit cost ratios for efficiency investments are still in the range of 3- to 5-to-1. “I still think there’s a huge amount of low-hanging fruit,” he said.