(Corrects paragraph 23 to say three of Clean River Energy's 12 plants are powered by coal, instead of most of them)
By Valerie Volcovici
WASHINGTON, April 1 (Reuters) - Long before the Obama administration promised sweeping rules to limit pollution from power plants, states in the crosshairs of what critics call a "war on coal" have been finding ways to meet the expected new standards.
President Barack Obama last June directed the Environmental Protection Agency to propose national standards to lower carbon emissions from the more than 1,000 U.S. power plants, a centerpiece of his national climate strategy.
On Tuesday those plans moved a step closer to reality when EPA's proposed rule arrived at the White House for review by the Office of Management and Budget, which is expected to evaluate the proposal by June 1.
Under the plan, states must meet whatever target or goal the EPA sets through tailored strategies called state implementation plans. Regulators in some coal-dependent states guessed that being engaged in the process early on meant the agency would be less likely to draft rules that would be impossible to meet.
John Lyons, Kentucky's assistant secretary for climate policy, has been a fixture at meetings around the country with other state regulators and with federal EPA officials to discuss the pending rules and offer ideas for coal-dependent states like his own.
Kentucky relies on coal for more than 95 percent of its electricity, and the state's manufacturing sector, which Lyons said provides around 250,000 jobs, relies on a cheap and stable electricity supply.
"We want to be at the table, not served for dinner," Lyons told Reuters.
"We are not kowtowing to EPA. We are engaged in the discussion and giving our viewpoint," Lyons said, adding that ideas from coal-reliant states serve as a counterweight to "unrealistic" proposals from some environmental groups.
The "war on coal" rhetoric is expected to ramp up in step with the EPA's most sweeping carbon rules to date.
Local lawmakers in Kentucky and several other states, some with close ties to the coal industry, are considering bills or resolutions that would make it harder for states to comply with new EPA rules or would block compliance altogether.
Some of the bills follow legislative templates introduced by the American Legislative Exchange Council (ALEC), a lobbying group that focuses on limited government. Arizona, Florida, Ohio, Illinois and West Virginia are considering such actions.
"Although ALEC resolutions will not change state law, ALEC and its industry supporters are hoping these resolutions will discourage governors and impede EPA action," said Aliya Haq, who tracks such bills as special projects director with the Natural Resources Defense Council, an environmental group.
Developing state plans for compliance with federal rules has been a highly technical and time-consuming process.
Richard Sedano, U.S. programs director for the nonprofit Regulatory Assistance Project, has helped states such as Oklahoma, North Carolina and Virginia, which have their share of climate-change foes, prepare for carbon regulations. Lawmakers in some of those states actively oppose the EPA's ability to use the Clean Air Act to regulate carbon.
Sedano helped Oklahoma's utility and air authorities manage EPA regulations and identify how to capitalize on the energy efficiency gains it had already made in order to comply with EPA's mercury and air toxicity edicts.
They have done a lot more in Oklahoma that most people would expect," he said, noting that the state is represented in the U.S. Senate by Republican James Inhofe, one of the EPA's most vocal foes in Congress.
Some regulators in Midwestern states which get more than half of their electricity from coal have been preparing for the EPA's plant regulations for more than two years.
"This conversation started long before EPA was willing to even state it would propose a rule," said Brad Crabtree, vice president for fossil energy at the Great Plains Institute, a sustainable energy think-tank based in Minneapolis.
The institute convened industry, state regulators and environmental organizations to discuss how the region will respond to the pending EPA rule.
In late 2013, GPI's working group presented to the EPA its recommendations on how to craft a rule that wouldn't disrupt the coal-sensitive region, such as requesting that the agency recognize programs states already have in place.
Agreeing to those basic parameters was a breakthrough, said Crabtree. Several participants in the process were opposed to the idea of EPA regulating carbon emissions from power plants, and may still challenge the agency in courts.
"What we have been careful to do all along is to set aside the question of whether EPA should exercise authority and focus the discussion on if the EPA moves forward, what is the optimal way to design a rule," he said.
For example, Great River Energy, a utility with 12 power plants in Minnesota and North Dakota, including three coal plants and others that use natural gas, biomass waste and fuel oil, recently presented to the EPA a proposal for a regional market-based system that would give coal-dependent utilities a way to comply with the new rules.
The idea is gaining traction and has sparked discussions as a potential way for other states within the Midwest's Independent System Operator (ISO) network to work as a region to meet federal standards, said Jon Brekke, vice president of energy markets at Great River Energy.
LEGAL CHALLENGES STILL AN OPTION
In West Virginia, where coal accounts for over 95 percent of electricity generation, the office of Governor Earl Ray Tomblin in February issued "five guiding principles" to guide the EPA toward its final power plant rule.
The principles include limiting the agency to requiring emissions reductions from "inside the fence line," using the best available pollution control technology.
Jeff Herholdt, director of West Virginia's Department of Energy, said, though, that the Obama administration shouldn't single out the coal industry in its drive to lower carbon emissions. The state expects to mount a legal challenge.
North Carolina's air regulatory agency has published a white paper that analyzes whether the EPA can use section 111 (d) of the Clean Air Act - the legal basis for its proposed rule - to regulate greenhouse gas pollution from power plants.
Donald van der Vaart of the state's Department of Environment and Natural Resources, warned Congress in November of "serious questions concerning EPA's authority" on the matter. He told Reuters the state is wary of developing plans to meet a rule that might get struck down by the courts.
"States are meant to go off and do their plans and then have to go back and repeal them, and we end up spending resources that we don't have right now," van der Vaart said.
For a summary of the EPA's existing power plant rule: http://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201310&RIN=2060-AR33# (Editing by Ros Krasny and Eric Walsh)
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