Friday, August 19, 2011

CRS Report Analyzes So-Called EPA "Train Wreck" Regulations

Aug 8: A recent 50-page Congressional Research Service (CRS) report, EPA's Regulation of Coal-Fired Power: Is a "Train Wreck" Coming?, (No. 7-5700), provides an overview and analysis of many of the regulatory impact studies conducted by interest groups that discuss the impact of proposed regulations by U.S. EPA. The analysis emphasizes the impact on coal-fired power plants, but also includes discussions of regulations affecting other industry sectors. The report includes an important reference appendix of Bibliography of Analytic Reports which lists the various analytic reports with Internet links by policy and advocacy groups both for and against the regulations. CRS mission is to "serve the Congress throughout the legislative process by providing comprehensive and reliable legislative research and analysis that are timely, objective, authoritative, and confidential, thereby contributing to an informed national legislature."
    The report indicates that, "Given the central role of electric power in the nation's economy, and the importance of coal in power production, concerns have been raised recently about the cost and potential impact of regulations under development at the Environmental Protection Agency (EPA) that would impose new requirements on coal-fired power plants. Six of the rules, which have drawn much of the recent attention, are Clean Air Act regulations. Two others are Clean Water Act rules, and one is a Resource Conservation and Recovery Act rule. The majority are expected to be promulgated over the next 18 months. All together, these rules have been characterized by critics as a regulatory "train wreck" that would impose excessive costs and lead to plant retirements that could threaten the adequacy of electricity capacity (i.e., reliability of supply) across the country, especially from now through 2017.
    "Although some question why EPA is undertaking so many regulatory actions in such a short timeframe, supporters of the regulations assert that it is decades of regulatory delays and court decisions that have led to this point, resulting in part from special consideration given electric utilities by Congress under several statutes. Further, several of the current regulatory developments have been under consideration for a decade or longer, or are being reevaluated after an earlier action was vacated or remanded to EPA by the courts. The regulations are supported by proponents and EPA as having substantial benefits for public health and the environment.
    "Recent reports by industry trade associations and others have discussed potential harm of EPA's prospective regulations to U.S. electricity generating capacity, with emphasis on coal-fired generation. One of these reports, by the Edison Electric Institute (EEI), which represents investor-owned utilities, has attracted considerable attention by depicting a timeline in which multiple rules would take effect more or less simultaneously over the next five years. Congress has shown significant interest in these issues, and bills have been introduced that would de-fund or restrict EPA's ability to develop rules, and which would legislate new regulatory analytic requirements. The report describes nine rules in seven categories that are at the core of recent critical analyses, with background on the rule and its requirements and, where possible, a discussion of the rule's potential costs and benefits.
    "The EEI and other analyses discussed here generally predate EPA's actual proposals and reflect assumptions about stringency and timing (especially for implementation) that differ significantly from what EPA actually may propose or has promulgated. Some of the rules are expected to be expensive; costs of others are likely to be moderate or limited, or they are unknown at this point because a rule has not yet been proposed. Rules when actually proposed or issued may well differ enough that a plant operator's decision about investing in pollution controls or facility retirement will look entirely different from what these analyses project. Further, promulgation of standards is not the end of the road: court challenges are likely, potentially delaying implementation for years, and even when final, EPA rules must be adopted by states and implemented over time through
state-issued permits.
    "The primary impacts of many of the rules will largely be on coal-fired plants more than 40 years old that have not, until now, installed state-of-the-art pollution controls. Many of these plants are inefficient and are being replaced by more efficient combined cycle natural gas plants, a development likely to be encouraged if the price of competing fuel -- natural gas -- continues to be low, almost regardless of EPA rules."
    CRS concludes, ". . .evaluating regulatory impacts, compliance costs, and possible retirement decisions depends on facility-specific considerations—micro, not macro. Utilities and states will be affected differently. Rules when actually proposed or issued may well differ enough that investment or retirement decisions look entirely different. Technology options available to a unit or plant depend on the specific rule, and compliance costs may be less than projected. Even some units with high assumed control costs, or others that look to be marginal economically, may install controls and continue to operate. Many utilities have already installed technology needed to comply with new rules; for them, costs will be minimal: EPA said that, with regard to the most expensive proposed rule, the Utility MACT, more than half of the coal-fired units fall in this category. The EEI and NERC [North American Electric Reliability Corporation] reports did not account for the fact that plants' compliance costs may be less because of investments already made in pollution control equipment.
    "Frequently overlooked in analyses of EPA regulations are the benefits to public health and the environment that will occur, benefits that for the most part are difficult to monetize. EPA does estimate benefits of individual rules, while acknowledging that it is challenging to quantify benefits due to data limitations and uncertainties in approaches used to value benefits. The costs of the rules may be large, but, in most cases, the benefits are larger, especially estimated public health benefits. Neither the EEI nor the NERC report addresses benefits."
    CRS indicates that several other conclusions bear repeating:
  • The studies sponsored by industry groups (EEI and NERC) were written before EPA proposed most of the rules whose impacts they analyze, and they assumed that the rules would impose more stringent requirements than EPA proposed in many cases.
  • Of the regulations so far proposed, the Utility MACT, which will set standards for power plant emissions of mercury and other hazardous air pollutants, appears to be the most expensive. EPA's analysis concluded that it will impose annual costs of $10 billion to $11 billion annually
  • Other rules that industry expected to impose major costs now appear less likely to do so. The Cooling Water Intake rule, for example, proposes a less costly, more flexible regulatory option than EEI and NERC anticipated. Further, NERC believes that few coal-fired EGUs will be affected by this rule, which will have greater impact on older, oil-fired units. The Coal Combustion Waste Rule has been delayed, with no deadline for promulgation.
  • For coal-fired plants, the primary impacts will be on units more than 40 years old that have not, until now, installed state-of-the art pollution controls. Many of these plants are inefficient, and are being replaced by more efficient combined cycle natural gas plants.
  • Lower prices for natural gas and recent increases in its projected availability may reduce the impact of the proposed rules on electric utilities and consumers, although they may lead to more retirements of coal-fired units.
  • There is a substantial amount of excess generation capacity at present, due in part to the recession and also due to the large number of natural gas combined cycle plants constructed in the last decade, muting reliability concerns.
    CRS also provides concluding thoughts on the uncertainty of the actual implementation of EPA rules including changes in effective dates, court challenges, interactions and actual state-level implementation, permitting and compliance schedules -- all of which involves time periods of years in actual final implementation of regulations. CRS concludes, "In short, the road to EPA regulation is rarely a straight path. There are numerous possible causes of delay. It would be unusual if the regulatory actions described here were all implemented on the anticipated schedule, and even if they were, existing facilities would often have several years before being required to comply. Unable to account for such factors, which will vary from case to case, timelines that show dates for proposal and promulgation of EPA standards effectively underestimate the complexities of the regulatory process and overstate the near-term impact of many of the regulatory actions."
    Access the CRS report on the Foley Hoag's Environmental Practice Group website (click here). [#All]