Environmental Protection Agency (EPA) officials are seeing “no surprises” as the power industry plans compliance with new mercury rules, but some industry officials say the surprises are still to come – in customer bills.

EPA Assistant Administrator Gina McCarthy told the National Association of Regulatory Utility Commissioners in Baltimore this week that “just a handful” of companies with specific compliance challenges have come to EPA to discuss getting additional time to comply with the Mercury and Air Toxics Standard (MATS).

McCarthy said compliance is being eased, economically and technically, by ample natural gas and successful application of injection technologies.

More older, higher-emitting coal plants are retiring than EPA had anticipated, but not because of EPA rules, she said. Rather, it’s because low natural gas prices and flagging demand from more efficient consumers are making those old coal plants uneconomic, she said.

McCarthy said vendors of mercury abatement technologies are reporting success with dry sorbent injection and activated carbon injection, which lowers coal plants’ compliance cost.
But Jeff Burleson, Vice President of Southern Co., said Southern customers may see rates rise 10-20% for all the retrofits and replacements being forced by the EPA, not just through MATS but along with other pending rules affecting effluent water quality, cooling water intakes, coal ash disposal, and greenhouse gas emissions.

As Costs Climb, More Plants Retired

Southern wants to ensure its plants comply with all environmental rules long-term, he said, but that could mean adding on the order of $2 billion to the cost of a 1,000-megawatt generating plant.

Burleson said Southern has already invested $8.5 billion in compliance at its coal plants. Some 12,000 MW of newer capacity will continue to be economic with MATS retrofits, he said, but of the remaining 8,000 MW in Southern’s fleet, at least half will be retired.

Southern will make up the lost capacity with natural gas capacity and transmission improvements, Burleson said, but the company projects the total compliance cost at $13-18 billion.

Burleson said part of the cost is EPA’s short deadlines for compliance, and costs would be lower if EPA added some breathing room. EPA has set an initial three-year MATS deadline, with a fourth year allowed by state regulators and a fifth year possible under terms still being hashed out.

The mercury rule was first issued in 2005 but vacated by the courts in 2008. The latest rewrite was finalized in December 2011.

Paralysis by analysis” – Dougherty

Jim Dougherty, President of Babcock Power Environmental, said while larger utilities are lining up equipment and contractors, unregulated and smaller utilities may find themselves unable to get vendors for projects in time.

Dougherty warned of “paralysis by analysis” as state regulators balk at the costs of compliance projects and ask for more study of alternatives.

James Gardner, Vice Chairman of the Kentucky Public Service Commission, said his state is facing loss of energy-dependent industry from the costs of retrofitting or replacing coal capacity.

John Bear, President/CEO of the Midwest Independent System Operator (MISO), said he does not see how compliance can be completed on EPA’s time line without creating problems for electricity reliability.

MISO is trying to line up the time frames for retrofit outages across its system, as generators come to decisions about what technology changes are needed and secure contractors to do the work. Bear said it is already evident that more capacity will need replacement than is now planned. It’s unclear if the gap will be made up through demand-side measures like conservation, efficiency and demand response, or by new generation, likely natural gas if fuel supplies can be secured.

The shift to increasing use of natural gas in a region that has depended more heavily on coal is creating new risks, Bear said, with the electric system now vulnerable to failure of a large natural gas pipeline.