NRG Says States Should Consider Dropping RGGI

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By Gerald B. Silverman

Jan. 6 — A major electric power company is bucking the trend in its industry and urging states in the Regional Greenhouse Gas Initiative (RGGI) to consider abandoning the nine-state greenhouse gas emissions trading program in favor of individual state approaches.

NRG Energy Inc., in formal comments submitted to RGGI as part of the program's ongoing review, said it favors a “state measures” approach for the nine RGGI states as a way to comply with the Environmental Protection Agency's Clean Power Plan (RIN 2060-AR33), which limits carbon dioxide emissions from existing power plants. State measures would include policies and programs that would not be federally enforceable but are intended to reduce carbon dioxide emissions beyond the standards imposed directly on power plants. However, states would be required to include federally enforceable backstop programs should those measures fail to achieve the required emissions reductions.

“We recommend the RGGI states do not automatically implement RGGI as its only compliance option and instead consider the state measures approach,” Shawn Konary, senior environmental director for NRG's east region, said in written comments to RGGI.

NRG, which has 13,000 megawatts of electric generating capacity in the RGGI region, said RGGI should endorse a national program and “avoid restrictions from a regionally restricted based program.”

“We recommend that each RGGI state review its state-specific structure and apply a state measures plan that may or may not be based on RGGI,” he said.

NRG's position is a significant departure from other electricity companies, which favor RGGI as the best vehicle for complying with the Clean Power Plan. It also differs from the views of many environmental groups, state regulators and others who have heralded RGGI as a model for compliance.

RGGI Program Undergoing Review

NRG's comments were submitted as part of an ongoing program review being undertaken by RGGI. Eight other companies in the power sector were among the 26 formal comments that have been submitted.

RGGI will hear from power companies, environmentalists and others Feb. 2 at a stakeholders' meeting in Wilmington, Del. The agenda for the meeting will be released in late January, but the key topics are expected to follow up on those raised at the first stakeholders meeting in November (222 ECR, 11/18/15).

NRG said a state measures approach, as opposed to an emissions standards approach, would include other sectors of the economy and other programs such as renewable portfolio standards, conservation and fuel efficiency.

Steve Corneli, NRG's senior vice president for sustainability policy and strategy, told Bloomberg BNA that “a state measures approach can achieve very large emission reductions at a very low cost without imposing a costly burden on all affected existing generators and on electric consumers.”

‘Shock the System.'

In an e-mail following up on the NRG comments, he said “it makes more sense to start with no-cost and low-cost emission reductions, rather than attempting to shock the power system with ever higher prices on carbon emissions.”

Corneli said NRG, like other companies with coal plants, can best reduce emissions with the least cost to customers and investors “through fleet-wide optimization that includes retiring or re-purposing the least economic of existing plants, rather than imposing a costly tax on all of them.”

“The state measures approach is tailor made to achieve these low–cost emission reductions first, with the expectation of a future price on carbon, should the less costly state measures not achieve the emission reductions required by the CPP.”

Near Unanimity From Other Companies

Other power companies that submitted comments are virtually unanimous in endorsing the RGGI model, and most favor a mass-based approach, which would cap the total tons of carbon dioxide emissions that could be emitted, versus a rate-based approach, which would limit carbon dioxide emissions from the power sector per megawatt-hour of electricity generated. They also support expanding RGGI to include other states beyond the nine-state region.

The other companies, all of which participate in RGGI's quarterly auctions as so-called compliance entities, include: BP plc, Brookfield Renewable Energy Group, Calpine Corp., Consolidated Edison Inc., Dynegy Inc., Emera Energy Inc., Exelon Corp. and TransCanada Corp.

Con Edison, one of the largest power companies in the region, urged RGGI to consider the possibility of using a rate-based approach to comply with the Clean Power Plan, although it said it generally supports the mass-based method.

“The option of shifting to a rate-based program after 2020 should not yet be removed from consideration given potential state and federal policies to encourage the electrification of the transportation sector,” it said in its comments. “The RGGI states should not foreclose the electricity sector from contributing to reducing carbon emissions across the economy by establishing prohibitively stringent emissions caps for the electricity sector.”

Christopher Wentlent, vice president of energy policy at Constellation, which is owned by Exelon Corp., said RGGI should consider reducing emissions beyond the requirements of the Clean Power Plan.

Exelon Favors Stringent Goals

Exelon, which has 8,600 megawatts of generation capacity in the RGGI region, recommended that RGGI consider a range of more stringent goals, including meeting the goal shared by many RGGI states to reduce greenhouse gas emissions by 80 percent from 1990 levels by 2050. Exelon generates more than 62 percent of its total electricity from nuclear power, which is not regulated by the Clean Power Plan.

“The RGGI states should establish emission goals that continue the downward trajectory they have already embraced, and should consider even more ambitious long-term carbon reduction goals,” Wentlent said in his comments.

RGGI Should Include Transportation

Twenty-six environmental groups submitted joint comments that urged RGGI to go beyond the emissions limits in the Clean Power Plan and to consider expansion of the program to the transportation sector. 

They asked RGGI to model three scenarios that would meet the states' long-term emissions reduction goals: a power sector cap that reduces emissions by 89 percent by 2050; a power sector cap that would reduce emissions by 100 percent by 2038; and an emissions reduction program for the transportation sector.

“At least through 2030, the electric sector will need to continue to account for the bulk of the overall emission reductions,” the environmental groups said in their comments. “While reducing emissions from the transportation sector is a critical piece of reaching states’ long-term climate goals, progress in the transportation sector is incremental, tracking in large part turnover of the vehicle fleet and necessitating significant penetration of low- and zero-emitting vehicles.”

The groups said the program review presents “a good opportunity to begin to dig into” the issue of expansion to the transportation sector, but it will likely require additional time beyond the EPA's September 2016 deadline for submitting state plans.

Five states have begin to explore a program to limit carbon emissions in the transportation sector .

Higher Reserve Price Needed

Wentlent of Exelon also said RGGI should consider raising the minimum reserve price for allowances sold in its quarterly auctions, as a way to set a strong market signal to support low- and zero-carbon generation.

“A more robust reserve price provides a strong signal to support investment in the very assets that will drive RGGI states towards meeting their emission reduction goals, while potentially increasing the revenue available for energy efficiency and other programs that help reduce emissions in a cost-effective manner and protect consumers from higher electric prices,” he said.

RGGI requires that states use most of the proceeds from the quarterly auctions of carbon allowances to fund energy efficiency, renewable energy and other consumer benefit programs.

Calls for Allowance Limits

Emera Energy, a Canadian-based company with three natural gas plants in the RGGI region, recommended that RGGI consider limiting the amount of allowances that can be purchased by commodities firms, traders and other so-called non-compliance entities.

In its comments, Emera recommended that non-compliance entities be prevented from purchasing more than half the allowances sold at each RGGI auction. There are no current limits on the type of entities that can purchase allowances, although no single entity can purchase more than 25 percent of the allowances offered for auction.

Under RGGI, electricity generators must hold one carbon allowance for each short ton of carbon dioxide emissions. Some electric companies have expressed concern about the growing number of allowances owned by non-compliance entities.

NRG said “speculative activity has greatly increased” in the past two years. “As compared to the early years of the program, there is now significantly more opportunity for market intervention and speculation that can run counter to the intended efficient operation of the RGGI market,” it said.

NRG recommended that RGGI consider placing holding limits on non-compliance entities that would control the number of allowances they may hold.

According to RGGI, 45 percent of the carbon allowances in circulation were held by non-compliance entities following its last auction.

To contact the reporter on this story: Gerald B. Silverman in Albany at gsilverman@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com