Tuesday, June 14, 2011

BPC Says EPA Rules Are Manageable For Electric Reliability

Jun 13: The staff of the Bipartisan Policy Center (BPC) Energy Project released a 56-page report on Environmental Regulation and Electric Sector Reliability. The report follows last week's release by American Electric Power (NYSE: AEP) of a lengthy and detailed plan for complying with a series of EPA proposed air and climate proposed regulations which it said would impact coal-fueled power plants. AEP indicated it would have to prematurely shut down nearly 6,000 megawatts (MW) of coal-fueled power generation (25 percent of its current coal-fueled generating capacity), cut hundreds of power plant jobs, and invest from $6 billion to $8 billion in capital investment [See WIMS 6/10/11]. 
    The BPC report's main findings are:
  • The impacts on the reliability of the electric system due to retirements and retrofits necessary to comply with EPA regulations are manageable;
  • Compliance with regulations will drive noticeable cost increases and produce significant health benefits;
  • The industry and its regulators face significant planning challenges, but there are a number of tools and policies available for addressing localized reliability concerns; and
  • Legislation may be able to facilitate a smoother, lower cost transition without jeopardizing health and environmental protections.

    Over the course of several months, the BPC hosted a series of three workshops to assess the possible impacts of regulation and identify a range of strategies for managing associated reliability concerns. The workshops featured presentations and panel discussions by nearly 60 energy experts, including representatives of the electric utility industry, environmental organizations, labor unions, state regulators, regional transmission organizations, federal agencies, and Congressional staff. The report's findings and recommendations build on the expert presentations and public dialogue at these workshops, BPC's review of a range of existing analyses, and BPC's own analytic work.

    According to a cover letter for the report from Joe Kruger, Director for Energy and Environment, BPC Energy Project:
"A smooth and cost-effective transition to a cleaner, more reliable power generation fleet is essential for our economy. Balancing protection of public health and the environment with concerns about the economic impacts of new regulations is always controversial, and the suite of recent EPA regulations of power plants has reinvigorated this familiar debate. The report issued today by the BPC, Environmental Regulation and Electric System Reliability, is the product of an extensive effort by BPC to examine reliability and cost issues associated with forthcoming EPA regulations.
"Over the course of several months, the BPC collaborated with the National Association of Regulatory Utility Commissioners (NARUC), and Northeast States for Coordinated Air Use Management (NESCAUM) to host three day-long workshops. These workshops featured presentations and panel discussions by nearly 60 energy experts, including representatives of the electric utility industry, environmental organizations, labor unions, state regulators, regional transmission organizations, federal agencies, and Congressional staff. These stakeholders contributed to a vigorous, fact-based discussion of the regulatory and technical challenges at hand and available strategies to manage reliability concerns surrounding forthcoming EPA regulations. To supplement these discussions, BPC staff conducted its own independent analysis and thoroughly reviewed the range of existing analyses.
"Overall, the report finds that the impacts on the reliability of the electric system due to EPA regulations are manageable and that there are tools available at the Federal, state, and local levels to address localized reliability risks. Nevertheless, the electric power sector and its regulators face significant planning challenges if the aim is to avoid localized reliability problems and minimize impacts on electric rates. Further, while recognizing the political difficulties, the report finds that there may be an opportunity to enact a legislative fix that could guarantee the environmental benefits of the Clean Air Act and provide a lower cost transition for the power sector.
"Going forward, BPC will continue to examine the challenges and opportunities facing the electric power sector as it transitions to a cleaner, more modern fleet. Please don't hesitate to contact us if you have questions about this report or future BPC initiatives in this area."
    The report indicates, "Key benefits of the suite of EPA regulations include the avoidance of tens of thousands of premature deaths annually, reductions in pollution-related illnesses, and improved visibility and ecosystem health. These new conditions in the power sector are expected to increase the number of coal-fired power plants that will be retired in the next several years; in fact, a number of plant shutdowns have recently been implemented or announced."
    The report highlights a number of recent developments that it says are especially relevant from the standpoint of addressing reliability concerns:
  • EPA's proposed cooling water regulations are far less stringent than assumed in the vast majority of analyses, many of which considered worst-case scenarios in which cooling towers would be required on all existing units.
  • Some commercially available, lower-cost technologies (e.g., dry sorbent injection) for treating hazardous air pollutants were not factored into most previous analyses. Including them significantly reduces retirement projections.
  • Most of the units projected to retire are small, older units that are already operating infrequently. Some of these units may be needed to meet peak demand on the hottest and coldest days or to provide voltage support. In some cases, there may be viable mechanisms, other than one-to-one capacity replacement, available to serve these needs.
  • The industry has significant amounts of existing natural gas generating capacity that is currently underutilized and may be available to take up the slack, depending on the region.
  • Some previous assessments do not account for market responses to future retirements, specifically to the potential for adding new capacity to meet reserve margins. Assuming timely permitting, the need for modest new capacity resources could be met with quick-to-build natural gas turbines, as well as demand side resources.
    The report analyzed the various forthcoming U.S. EPA regulations including:
  • Transport Rule – On July 6, 2010, EPA proposed the Transport Rule, a replacement for the Clean Air Interstate Rule (CAIR) which was previously remanded in a 2008 court decision. The newly proposed Transport Rule would require 31 states and the District of Columbia to meet state pollution limits for sulfur dioxide (SO2) and nitrogen oxides (NOX) as a means to ensure compliance with National Ambient Air Quality Standards (NAAQS) for ground-level ozone and fine particulate matter (PM).
  • Utility Air Toxics Rule – On March 16, 2011, EPA proposed its Utility Air Toxics Rule under a court-ordered deadline to control hazardous air pollutants, including mercury, acid gases and nonmercury metals. As specified by the Clean Air Act, the Utility Air Toxics Rule provides that plants must com ply with emission limitations for hazardous air pollutants within three years, but allows an additional year for plants to come into compliance if such time is necessary to install pollution controls.
  • Coal Combustion Waste Disposal Regulations – On June 21, 2010, EPA published a proposed rule to take comment on whether or not coal combustion waste should be regulated as hazardous waste.9 These wastes, which primarily consist of coal ash, are generated in large quantities by the power sector. According to the proposal, ash could be regulated as "special waste" under the Clean Air Act's hazardous waste provisions (Subtitle C). Alternatively, EPA could deem the coal ash non-hazardous and regulate under Subtitle D, with self-implementing requirements that are not subject to federal enforcement.
  • Clean Water Act Section 316(b) Cooling Water Intake Structures – To protect fish and aquatic ecosystems, EPA proposed regulations on March 28, 2011 for cooling water intake structures at electric generating units (EGU) and other industrial facilities that draw large amounts of water out of rivers, lakes, and oceans. This proposed regulation responds to a settlement agreement that was reached after EPA's earlier cooling water proposals were litigated.
  • Greenhouse Gas Performance Standards – On December 23, 2010, EPA announced that it will propose greenhouse gas performance standards for power plants by July 2011 and finalize standards by May 2012. This action is being taken under a settlement agreement. At public "listening sessions" to inform this rulemaking process, EPA indicated that its greenhouse gas performance standards would not be designed to induce "game-changing" technology improvements; rather the Agency aims to bring older plants up to modern standards of efficiency.

    The Bipartisan Policy Center (BPC) is a think tank that was established in 2007 by former Senate Majority Leaders Howard Baker, Tom Daschle, Bob Dole and George Mitchell "to develop and promote solutions that can attract public support and political momentum in order to achieve real progress. The BPC acts as an incubator for policy efforts that engage top political figures, advocates, academics and business leaders in the art of principled compromise. Too often partisanship poisons our national dialogue. Unfortunately, respectful discourse across party lines has become the exception - not the norm.

    "To confront this challenge, the BPC seeks to develop policy solutions that make sense for the nation and can be embraced by both sides of the aisle. After reaching shared solutions through principled compromise, we work to implement these policies through the political system. The BPC is currently focused on the following issues: health care, energy, national security, homeland security, financial services, and transportation. Each of these efforts is led by a diverse team of political leaders, policy experts, business leaders and academics. The BPC provides a bipartisan forum where tough policy challenges can be addressed in a pragmatic and politically-viable manner."

       Access an overview and link to the complete report, executive summary, cover letter, technical appendix (click here). Access Information from all three workshops (click here). Access links to videos from the workshops (click here). Access an online form to comment on the report (click here). Access the BPC website for more information (click here). [*Energy/Coal, *Air, *Climate]