This post was originally featured on the America’s Power Plan blog. To view more Q&As, go to APP’s “Ask the Experts” page, or check out APP’s monthly newsletters, which include previous Q&As and much more.

By Sonia Aggarwal, Eric Gimon, and the experts of America’s Power Plan

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Q: The new EPA standards for carbon pollution have taken center stage in our state. What can regulators do to help our state comply?

A: First, some context. For states looking to implement EPA standards, the news is good. In a new study released at the summer conference of the National Association of Regulatory Utility Commissioners (NARUC) in Dallas, Texas, the Analysis Group Senior Advisor Susan Tierney and Vice Presidents Paul Hibbard and Andrea Okie concluded that states are already well positioned to implement EPA’s Clean Power Plan. The report, “EPA’s Clean Power Plan: States’ Tools for Reducing Costs & Increasing Benefits to Consumers,” is based on a careful analysis of states that already have experience regulating carbon pollution. It finds that those states’ economies have seen net increases in economic output and jobs. “Several states have already put a price on carbon dioxide pollution, and their economies are doing fine. The bottom line: the economy can handle – and actually benefit from – these rules,” said Dr. Tierney.

States are in control of their strategy for compliance. Because states have the flexibility to take a portfolio approach to reducing carbon, and because ultimate responsibility for those reductions will lie with the owners and operators of power plants, regulators will inevitably be central to the success of new state programs. Luckily, regulators have many tools to respond to these new standards. Ken Colburn of the Regulatory Assistance Project put together this handy guide describing “Ten Steps Regulators Can Take Now to Prepare for 111(d).”

The new EPA Clean Power Plan opens the door for innovation and thoughtful reorganization of the regulator-utility relationship. One option is to move regulatory focus to forward-looking performance criteria and away from cost-of-service approvals based on backward-looking trends. Ron Lehr’s paper on Utility and Regulatory Models for the Modern Era provides a great overview of this approach, and includes specific recommendations on how to make the transition most effectively.

Because compliance with EPA rules is centered on total state emissions criteria as opposed any particular solution, the scene is set for turning these criteria into performance metrics for utilities in line with the suggestions put forward by Sonia Aggarwal and Eddie Burgess in “New Regulatory Models,” written for the Western Interstate Energy Board. Utilities could be given clear carbon emissions targets that apply portfolio-wide, alongside clear targets for affordability and reliability. Penalties could be incurred for failure to achieve emissions targets or achieving them at too high a cost, while financial rewards could be offered if utilities succeed in curbing emissions at lower costs than anticipated. This would preserve the flexibility inherent in the EPA rules while incentivizing utilities to innovate and seek the most effective market solutions.

In addition to opening the door for a new relationship between regulators and utilities, the new EPA standard also provides an opportunity for utility regulators to work more closely with air regulators. Joint notice, hearings and administrative records can provide all interested parties with efficient processes through which good decisions can be reached. States also have the opportunity to anticipate future requirements, so long term joint planning can open additional options for cost effective, long run solutions.

Q: I saw that Brookings piece on how expensive renewables are. What’s that all about?

A: Usually, the Economist does a good job of checking facts. This time, however it seems they relied on a deeply flawed analysis from Brookings. Amory Lovins from the Rocky Mountain Institute breaks it down here. Amory’s paper is a bit longer than our usual Q&As, but we really think it’s worth taking a look at his analysis, so we'll leave you with that this month.