Congressional deadlock means two game-changing Environmental Protection Agency rules are poised to take effect unless a court stops them or the White House weighs in.
The rules will cost electric utilities and their ratepayers billions. But the utility industry itself is split between those that have invested to lower their air pollution ahead of federal regulation and say stricter standards can be met, and those who remain highly coal-dependent and contend the EPA is forcing changes so fast it will endanger electric reliability.
House Republicans have made repeated attempts this year to stop EPA, but none of those efforts are even getting to a vote in the Senate. Given the budget deadlock, there’s little expectation that will change before compliance schedules kick in.
The two rules are the Mercury & Air Toxics Standards (known as the Utility Maximum Achievable Control Technology, or MACT, rule) and the Cross-State Air Pollution Rule, CSAPR. Both stem from the 1990 Clean Air Act amendments.
Predecessors of both rules were issued in the George W. Bush administration and thrown out by courts. That left both rewrites to the Obama administration.
As issued in July, CSAPR ratchets down the permitted sulfur and nitrogen oxide emissions in 27 upwind states, to limit harm to air in downwind states. Some 45 plaintiffs–mainly upwind state governments and power companies–are alleging irreparable harm if the rule takes effect January 1, 2012 as scheduled. They say complying in 2012 may mean shutting facilities and risking power shortages. They want a federal court to delay the rule while its legality is litigated.
Downwind states and cities, plus some utilities and environmental groups, have joined EPA in defending the rule.
The MACT Act
The Utility MACT rule responds to a court decision that mercury emissions cannot be traded like pollutants covered by CSAPR. So the Utility MACT rule sets standards that every generating site must meet, in effect ending the “grandfathering” of old coal and oil plants enabled by pollutant trading systems.
The Utility MACT rule was due to be final November 16 but the court gave EPA a one-month extension to consider final comments. So it’s now under Office of Management & Budget review, and is due out in mid-December. It would take effect in 2015, giving utilities three years to ready their facilities.
There’s no debate that the MACT rules would mean shutdown of many smaller, older coal plants that can’t be upgraded economically, and expensive upgrades to many other coal facilities. Shutdown predictions run somewhere between 30 and 70 gigawatts (of more than 300 coal-fired GW.) EPA estimates this rule will cost $10.9 billion annually in the next decade, for retrofits and replacements. Some utility estimates run much higher.
But the costs, like those for CSAPR, are unevenly distributed, affecting coal-dependent utilities and regions more heavily. Twenty-five states and some utilities are trying to get a federal court to delay the Utility MACT rule, so far unsuccessfully.
The North American Electric Reliability Council has raised concerns that coal plants in locations important to electric grid reliability could be forced shut. The Federal Energy Regulatory Commission is holding a technical conference November 29-30 to discuss the situation.
Inside Support For Regulation
But not everyone in the industry sees a problem. Ralph Izzo, Chairman, CEO and President of Public Service Enterprise Group (PSEG), wrote in an October 27 blog that the rules have been in process for 20 years.
“During the past five years, we have invested more than $2 billion” to replace older PSEG generating units and upgrade others.
Izzo said EPA’s rules are “overdue” and will give the capital-intensive electricity industry the certainty it needs to make large new investments.
John Rowe, Chairman and CEO of Exelon, said in a November 9 statement that the continuing low price of natural gas provides an opportunity for utilities to meet new pollution rules at reasonable cost.
Setting clean air standards, and then letting utilities figure the most efficient way to meet them, is the least expensive way for government to get clean energy, Rowe contended. “Congress should not stop the EPA,” he said, noting the new rules will create new jobs.
Easing The Impact
One difficulty in assessing the rules’ impact is that the average coal plant dates to the 1960s, and utilities are starting to shut many anyway.
Jim Rogers, Chairman, President and CEO of Duke Energy, said October 31 that the wholesale replacements needed mean electricity prices must go up. He said rates, in real terms, have stayed flat for 50 years.
Industry experts are speculating whether the White House will step in, despite the criticism that environmentalists rained on President Obama two months ago after he delayed review of ozone standards to 2013.
Kevin Book of ClearView Energy Partners said, given the importance of MACT to environmental groups, the White House might offer some delay or modification to CSAPR as an “olive branch” to affected states important in the 2012 election.
Christine Tezak, senior energy and environment policy analyst at R.W. Baird & Co., said OMB might add “safety valve” provisions to MACT to ensure grid reliability and ease requirements for utilities to get an additional year for compliance.
