Tuesday, November 29, 2011

Reports On EPA Rules Impact On Electric System Reliability

Nov 28: On November 21, M.J. Bradley & Associates LLC (MJB&A) and the Analysis Group issued a 24-page, Fall 2011 update to an earlier analysis, Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability, published in August 2010. The report is the third installment in a series of reports focusing on the reliability implications of two U.S. EPA clean air rules affecting the electric power sector: (1) the Cross-State Air Pollution Rule (Transport Rule or CSAPR); and (2) the national emission standards for hazardous air pollutants from coal- and oil-fired electric utility steam generating units (Utility Toxics Rule or Utility MACT). The report was prepared on behalf of several utility companies including: Calpine Corporation; Constellation Energy; Exelon Corporation; NextEra Energy; National Grid; and Public Service Enterprise Group.
    The first report, published in August 2010, concluded that the electric industry is well-positioned to comply with EPA's proposed air regulations without threatening electric system reliability. The Summer 2011 update, published in August, supplemented the original analysis in light of new information and reaffirmed the prior report's major conclusion that the electric industry can comply with EPA's air pollution rules without threatening electric system reliability. The August report noted that proper planning and implementation can secure important public health benefits, reliable electric service, and efficient market outcomes.

    The "Fall 2011 Update" focuses on the many tools that are available for ensuring electric reliability as companies comply with the EPA rules by installing modern pollution control systems, utilizing allowances or retiring portions of the fleet that are uneconomic to retrofit. Federal and state regulators agree that the industry has the tools to maintain electric system reliability even in the face of coal plant retirements.

    On November 28, the North American Electric Reliability Corporation's (NERC), whose mission it is to ensure the reliability of the North American bulk power system and which is the electric reliability organization (ERO) certified by the Federal Energy Regulatory Commission (FERC) to establish and enforce reliability standards for the bulk-power system, issued another report -- NERC 2011 Long-Term Reliability Assessment. That report indicates, "A decrease in projected generation resources leads to declining planning reserve margins in some areas; however, a majority of areas appear to have adequate resource plans to meet projected peak demands over the next ten years." Regarding environmental regulations, the NERC report indicates, "While more flexibility is provided in some proposed rules, the cumulative effect from environmental regulations may reduce reserve margins in ways that could affect bulk power system reliability, depending on the scope and timing of final regulation implementation."

    The NERC report also provides a section that updates NERC's 2010 Special Reliability Assessment: Resource Adequacy Impacts of Potential U.S. Environmental Regulations. The update indicates, "In the United States, the Environmental Protection Agency is in the process of promulgating four regulations: the proposed Coal Combustion Residuals rule, the proposed Mercury and Air Toxics Standards for Utilities, the proposed Cooling Water Intake Structures rule -316(b), and the final Cross-State Air Pollution rule.
    "While not all of these four regulations are final, and their affects cannot be completely measured, material changes have occurred to these regulations since NERC's 2010 assessment. While many factors affect an owner's decision to retire or retrofit a facility, NERC's analysis of the integrated impact of these regulations on planning decisions shows 36 GW in the 2018 moderate case of projected accelerated retirements and derates. Though this amount appears lower than the 2010 assessment projected, 25 GW of retirements have been announced since then and are no longer included in the projected retirement numbers. More importantly, industry information continues to show that significant retrofits will be needed over the next four years in order to comply with proposed utility air toxics regulations."
    Gerry Cauley, president and chief executive officer at NERC said, "With MACT as the primary driver, the industry faces considerable operational challenges to complete, coordinate and schedule the necessary environmental retrofits. To ensure bulk power system reliability, sufficient time and certainty to schedule retrofits of more than 500 units, as well as acquire replacement resources or prepare system reinforcements is needed."
    Also on November 28, the House Committee on Energy and Commerce, Democratic Staff released a 3-page fact sheet on both the NERC and the MJB&A updated studies and said, the "EPA air rules do not threaten electric reliability." The fact sheet indicates, "These assessments are still based in large part on proposed, rather than final rules. Nevertheless, they provide substantial assurance that the nation can achieve significant air quality improvements from cleaning up old polluting power plants without threatening the reliability of electricity supplies."
    On the NERC assessment, the Democrats said, "Small though they are, NERC's estimated effects of the Mercury and Air Toxics Rule are likely overstated because they are based on assumptions that are unrealistically stringent. For example, instead of assuming that, under the final rule, utilities will select the least costly option to comply with the rule among a range of options permitted by the rule, NERC assumed that every plant without controls would be forced to install more expensive options (wet scrubbers and baghouses). When the nonpartisan Congressional Research Service examined this assumption from NERC's 2010 report, it found: 'NERC assumed requirements that appear to be substantially more stringent than what EPA proposed.'"
    On the MJB&A study, the Democrats comment, "One reason M.J. Bradley predicts no impact on reliability is that '[c]ompanies representing half of the nation's coal-fired generating capacity -- eleven out of the top 15 largest coal fleet owners in the U.S -- have indicated that they are well positioned to comply with EPA's clean air rules because of early investments in their generating fleets.' The report also finds that EPA and the states have legal authority to address potential reliability concerns if necessary."

    Access a announcement of the MJB&A report (click here). Access the complete MJB&A report (click here). Access a release on the NERC assessment (click here). Access the 559-page NERC 2011 assessment (click here). Access the 2010 99-page NERC EPA assessment (click here). Access the Democratic Staff fact sheet (click here). [#Energy/Grid, #Air]