Making the right assumptions is key to estimating CPP costs

Executive Column —Mike Kormos, executive vice president and Chief Operations Officer

As the states begin to develop their plans for implementing the Environmental Protection Agency’s Clean Power Plan, PJM is providing data and analysis to help support decisions.

State air regulators are charged with submitting their states’ compliance plans, or an extension request, to the EPA by September 2016.  They will consider many options and variables—rate-based or mass-based approaches, participating in trading or not.

PJM is providing analysis to the state authorities to support consideration of their states’ compliance options.  We have been working with them since the CPP was first proposed over a year ago. Since the final rule was released in August, we developed a draft modeling scope and timeline and have been soliciting feedback on our proposed modeling effort from states and PJM members.  We plan to study each of the compliance pathways laid out in the CPP for select model years representative of the compliance period.

The bottom line everyone wants to know is the bottom line: what will it cost to comply with CPP.  The estimates from our analysis will depend on a range of assumptions. The final cost will depend on the plans states adopt, implementation of these plans and actual future economic conditions.

Five or 10 years ago, we did not see the cost of natural gas being below $2 a million British thermal unit as it is today in some parts of the PJM footprint. Our analysis is not intended to be a forecast of future conditions.  However, the analysis will enable the states to assess the relative cost and reliability implications of the various compliance pathways.

Our first concern, at the end of the day, is to make sure that the system stays reliable. 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.

Over the coming months, PJM will produce information to provide outreach and common understanding as to the costs drivers. Ultimately, we want to make sure information is available to help states make informed decisions.