**Memorandum**

**To:** Clean Power Plan Docket **Subject: MATS Supreme Court Decision has Little Impact on the Clean Power Plan**  **Date:** August 3, 2015 On June 29, 2015, the U.S. Supreme Court reversed a portion of the U.S. Court of Appeals for the D.C. Circuit (D.C. Circuit) decision upholding the Mercury and Air Toxics Standards (MATS). 1 Specifically, the Court reversed the D.C. Circuit’s conclusion that EPA was not require d to consider cost when determining whether regulation of EGUs was "appropriate and necessary” pursuant to section 112(n)(1) of the Clean Air Act

. This decision does not affect the analyses done to develop the Clean Power Plan ( CPP) goals and will have little, if any, impact on its implementation. EPA has explicitly taken cost considerations into account in developing the CPP. In addition, the approach EPA used to set state goals under the CPP relies on power sector data from 2012

– data that is unaffected by MATS which has a 2015 compliance d eadline. Moreover, many units affected by MATS are already in compliance with that standard and the actions the industry has taken or announced in response to MATS are not actions that can be easily reversed. **Most investments for MATS compliance have been made** : More than half of the units that are subject to MATS came into compliance in April 2015. The rest, over 400 units, received
one -year extensions for compliance from their states and ar e planning to come into compliance or retire by April 16 of next year or sooner 2

. Based on numerous conversations that EPA staff has had with the industry and with the grid operators, EPA is informed that t hose that are planning on coming into compliance are well on the way to completing MATS related retrofits

. In addition, some controls that units are currently running ar e needed to comply with other requirements, such as the C ross - State Air Pollution Rule , state control requirements, consent decrees, regional haze or state permit requirements

. Decisions to discontinue using controls, while having potentially serious adverse effect s on public health locally or regionally, would

1 Michigan v. EPA, 135 S.Ct. 2699 (2015). 2 SNL Financial, May 14, 20152

have little impact in terms of CPP compliance

. The operation of pollution c ontrols requires a small amount of energy from the power plant itself (sometimes referred to as an “ energy penalty”) , such that when controls are turned off, the economics of the facility might be altered in a way that could result in changes in CO2 emissions 3

. The cost to operate these units may also decrease, and thus electricity generated from these plants might be slightly more competitive

. However, these factors are likely to result in very small differences for power plant operators, and are not likely to have a substantial impact on expectations of future CO2 emissions and the cost of compliance with the CPP. **Coal and Oil Plant Retirements:** In the past decade , there have been significant changes in both the mix of generating capacity and in th e share of electricity generation supplied by different types of generation. As EPA stated in the Regulatory Impact Analysis for the CPP, these result from multiple changes taking place in the power sector, including normal replacements of older generating units with new units, changes in the electricity intensity of the US economy, economic growth and regional changes in the US population, technological improvements in electricity gener ation from both existing and new units, changes in the prices and availability of different fuels, and substantial growth in electricity generation by renewable and distributed generation (to name a few) . The evolving economics of the power sector, in part icular the increased natural gas supply and relatively low natural gas prices, have resulted in more gas being us ed as base load energy in addition to supplying electricity during peak load. Thus it is not surprising that since MATS was promulgated there h ave been a number of coal retirements . SNL reports that from January 2012 through July 9, 2015, 198 units totaling 33 GW of coal capacity have retired

. 4 In the changed environment of the power sector, these units are no longer economic to run. It would b e a mistake to assume that these retirements were all, or even mostly, the result of MATS. In EPA’s economic analysis of MATS , the agency estimated that less than 5 GW of capacity would retire as a result of MATS. Moreover, most plant retirements are permanent. Plants that have retired are often torn down , coal contracts are

3 There is less than a 1% energy penalty associated with the controls most often used for MATS compliance including ACI, DSI and a fabric filter. This includes reagent and sorbent handling a preparati on. See: http://www.netl.doe.gov/File%20Library/Research/Energy%20Analysis/Publications/Rev3Vol1aPC_NGCC_final.pdf

4 SNL Financial; data 7/9/20153

given up , waste cleanup and remediation begins, and access to transmission service is terminated. In many cases, new cleaner replacement capacity has come on line with new transmission lines and other infrastructure or transmission upgrades have been made so that the plant is no longer needed

. These changes are reflected in EPA’s projections for CPP compliance.
There are an additional 12 GW of coal and oil capaci ty that are projected to retire by April, 2016 according to the Energy Information Administration

. 5 As previously stated, there are many reasons that the operators of these plants choose to retire them , and many of those reasons are unrelated to MATS. Many large power generators have already said that they would not alter their plans to retire plants because of the Supreme Court decision. 6 Moreover, even if some units did decide to delay their retirement plans, it would not alter the CPP emission guide lines, performance rates, and state goals since the methods and approach used by EPA uses the hist o r i cal 2012 adj usted baseline for purposes of applying its “best system of emission reduction

. ”

5 EIA Electric Power Monthly May 2015 issue. http://www.eia.gov/electricity/monthly/

6 SNL Fina n cial, June 30, 2015