## The Effects of Title
IV of the Clean Air Act Amendments of 1990 on Electric Utilities: An Update



# Executive Summary

|Available Formats
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The Clean Air Act Amendments of 1990
address numerous air quality problems in the United States that were not
entirely covered in earlier legislation. One of these problems is acid
rain caused by sulfur dioxide (SO2) and nitrogen oxides (NOx)
emissions from fossil-fueled electric power plants and, to a lesser extent,
from other industrial and transportation sources.

Title IV of the Act created a two-phased plan, administered
by the U.S. Environmental Protection Agency (EPA), to reduce acid rain
in the United States. Phase I runs from 1995 through 1999, and Phase II,
which is more stringent than Phase I, begins in 2000. Title IV contains
a table listing 261 generating units that are required to comply with Phase
I. They are generally referred to by EPA as Table 1 units. Most of these
units are coal fired with relatively high emissions. An additional 174
units are participating in Phase I based on the rules established by EPA,
allowing a utility to designate substitution or compensating units as part
of their Phase I compliance plans 
[1]. 
Therefore, 435 units are now considered Phase I units. More than 2,000 
units will be affected by Phase II.

|SO2 Emissions From
Electric Utilities, 1985, 1990, 1994, and 1995(Million Tons)                                                                                                                                                                                                                                                                                                                                                    
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                   
|1985                                                                                                                                                                                                                                                                                                                                                                                                                               
|Phase I Units                                                                                                                                                                                                                                                                                                                                                                                                                      
|(28)                                                                                                                                                                                                                                                                                                                                                                                                                               
|Non-Phase I Units                                                                                                                                                                                                                                                                                                                                                                                                                  
|(72)                                                                                                                                                                                                                                                                                                                                                                                                                               
|Total                                                                                                                                                                                                                                                                                                                                                                                                                              
|(100)                                                                                                                                                                                                                                                                                                                                                                                                                              
|aIncludes units that
had SO2 emissions in 1995 only. 
Note: SO2 emissions for 1985, 1990, and 1994 are estimated.
Percentages are shown in parentheses.
Sources: 1995: U.S. Environmental Protection Agency, �1995 Compliance
Results, Acid Rain Program,� EPA/430-R-96-012 (Washington, DC, July 1996).
1994 and prior years: Energy Information Administration, Form EIA-767,
�Steam-Electric Plant Operation and Design Report.�



|Average Price of Electricity for Six Utilities, 1990-1995                                                                                                                                                                                                                                                                                                          
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                   
|Note: The average is for Pennsylvania Power
& Light, Illinois Power, Potomac Electric Power, Georgia Power, Cincinnati
Gas & Electric, and Southern Indiana Gas & Electric.
Source: Energy Information Administration, Financial Statistics of Major
U.S. Investor-Owned Electric Utilities, DOE/EIA-0437(94/1) (Washington,
DC, December 1995 and previous years).

This report updates and expands a report published by
the Energy Information Administration in 1994 titled, Electric Utility
Phase I Acid Rain Compliance Strategies for the Clean Air Act Amendments
of 1990; it describes the strategies used to comply with the Acid Rain
Program in 1995, the effect of compliance on SO2 emissions levels,
the cost of compliance, and the effects of the program on coal supply and
demand.



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|1996 SO2 Emissions Allowance (Spot Market)
Supply and Demand at the EPA Auction, March 1996                                                                                                                                                                             
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                        
|SO2 = sulfur dioxide.
EPA = U.S. Environmental Protection Agency.
Note: All bids to the left of the vertical EPA supply at quantity 150,000
were winning bids. Source: U.S. Environmental Protection Agency, Acid Rain
Division, 1996 EPA SO2 Allowance Auction Summary.

### SO2 Emissions Compliance Results in 1995

The acid rain program allocated emissions allowances to
Phase I units, authorizing them to emit one ton of SO2 for each
allowance. Some utilities obtained additional allowances from three auctions
and from bonus provisions in the Act. All 435 generating units had sufficient
allowances to comply with Title IV in 1995. By complying with Title IV,
Phase I units significantly reduced their SO2 emissions compared
to previous years; they emitted 5.3 million tons of SO2 in 1995,
45 percent less than the 9.7 million tons emitted in 1990, and 34 percent
lower than the 8.0 million tons emitted in 1994. In contrast, non-Phase
I units emitted 6.6 million tons in 1995, 12 percent higher than the 5.9
million tons they emitted in 1990, and 5 percent higher than the 6.3 million
tons they emitted in 1994.



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### Estimated SO2 Compliance Costs

Industry-wide annualized compliance costs are estimated
at $836 million (1995 dollars). These costs represent only 0.6 percent
of the $151 billion electric operating expenses of investor-owned utilities
in 1995. Using scrubbers is estimated to cost $322 per ton of SO2
removal and is the most expensive compliance method. Modifying a high sulfur
bituminous coal-fired plant to burn lower sulfur subbituminous coal, which
is estimated to cost $113 per ton of SO2 removal, is the least
expensive.

|Annualized SO2 Compliance
Cost for CAAA90 Title IV (1995 Dollars)a                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Method of Compliance for Title IV                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Scrubbing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Title IV Scrubbers                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|NSPS Scrubbersd                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Switching                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Bituminouse                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Subbituminous (Powder River Basin (PRB))                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Subtotal                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|No Cost Switchingf                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|PRB & CO/UT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Natural Gas                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Midwest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Others                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Subtotal                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|aPreliminary annualized
compliance cost for SO2 could be changed as MIT finalizes their
estimates. Costs are not included for low NOx control and continuous
emissions monitoring systems.bThe baseline year to compare 1995 SO2 emissions
is 1993. It is assumed that the reductions before 1993 are not due to the
CAAA90, but to economic reasons. The 1995 SO2 emissions reductions
are the difference between the SO2 emissions that would have
been observed in 1995 in the absence of Title IV and the actual emissions.
The SO2 emissions that would have been observed in 1995 was
calculated as the product of the emissions rates in 1993 and the heat input
in 1995.cA capital charge of 14 percent is used to annualize initial
fixed investments in scrubbers or switching to lower sulfur coal. The 14
percent includes 9 percent of capital cost and 5 percent of 20 years' linear
depreciation.dThe New Source Performance Standards (NSPS) scrubbers were
installed before Title IV was passed. Only variable costs of extra reductions
are included for these scrubbers, not any fixed cost.eBituminous switching from high-sulfur to low-sulfur coal includes
premiums paid for low-sulfur bituminous coal.fThe �No Cost Switching� for SO2 reductions would
have taken place regardless of Title IV. Most of these are switches to
low-sulfur subbituminous western coal (Powder River Basin and Colorado
and Utah) due to the reduction in coal prices, especially the decline in
rail rates.
Sources: Massachusetts Institute of Technology, Center for Energy and Environmental
Policy Research, SO2 Compliance Costs with Title IV,
Memorandum (from Juan-Pablo Montero on December 24, 1996) to Art Fuldner
and Ron Hankey, Office of Coal, Nuclear, Electric and Alternate Fuels,
Energy Information Administration. Massachusetts Institute of Technology,
Center for Energy and Environmental Policy Research, More on SO2
Compliance Costs with Title IV, Memorandum (from Juan-Pablo Montero
on January 13, 1997) to Art Fuldner, Office of Coal, Nuclear, Electric
and Alternate Fuels, Energy Information Administration.

### 

### Compliance Methods Used by Table
1 Units in 1995

|Compliance Methods Used by Table 1 Units in 1995a
(Percent of Table 1 Units)                                                                                                                         
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                     
|aDoes not include 174 substitution and compensating
units.bIncludes switching to natural gas or petroleum and repowering.
Source: Energy Ventures Analysis, Inc., The Utility Report (December
1995).

|SO2 Reductions by Compliance Method at
Table 1 Units in 1995a(Percent of SO2 Reductions)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|aDoes not include 174 substitution and compensating
units.bIncludes switching to natural gas or petroleum and repowering.cNine percent of the 1995 SO2 emissions reductions
were at units that used allowances as their compliance method. The average
sulfur content of coal consumed by these units was reduced by 16 percent
from 1985 to 1995.
SO2 = sulfur dioxide.
Note: Percent reductions of SO2 emissions were computed using
1985 as the base year.
Source: 1985 Emissions: U.S. Environmental Protection Agency, National
Allowance Data Base, Version 2.11 (January 1993). 1995 Emissions:
Acid Rain Division, U.S. Environmental Protection Agency.

A utility could use one or more of the following compliance
methods: (1) fuel switching and/or fuel blending with lower sulfur coal,
(2) obtaining additional allowances, (3) installing flue gas desulfurization
equipment (i.e., scrubbers), (4) using previously implemented emissions
controls, (5) retiring units, (6) boiler repowering, (7) substituting Phase
II units for Phase I units, and (8) compensating Phase I units with Phase
II units. Most utilities (52 percent of Table 1 units) used fuel switching
and blending in 1995. This method accounted for 59 percent of the reduction
in SO2 emissions in 1995 compared to 1985. Competitive prices
of lower sulfur coal, low shipping costs, lower than expected costs for
boiler modifications, and little deterioration in plant performance with
lower sulfur coal were the reasons most utilities switched to lower sulfur
coal. Also, because the industry is restructuring for competition, some
utilities are reluctant to commit funds for more expensive solutions. For
instance, scrubbers, which are relatively expensive, were chosen by only
10 percent of Table 1 units.

|Profile of Compliance Methods
for Table 1 Units                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Compliance Method                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Fuel Switching and/or Blending                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Obtaining Additional Allowances                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Installing Flue Gas Desulfurization Equipment
(Scrubbers)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Retired Facilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|aBase year of 1996
was used to calculate average age.bOne SO2 allowance permits one ton of SO2
emissions.cBase year of 1985 was used to calculate SO2 emissions
reductions.
SO2 = Sulfur dioxide.
Note: Fuel switching includes Phase I units switched to a lower sulfur
coal in the 1990s. This category also includes units using State-mandated
previously implemented controls that may have been switched prior to 1990.
Other includes units that were repowered and those that switched to natural
gas or petroleum. Totals may not equal sum of components because of independent
rounding.
Sources: Compliance Method: Energy Ventures Analysis, Inc., The
Utility Report December 1995. Age and Capacity: Energy Information
Administration, Inventory of Power Plants 1994, DOE/EIA-0095(94)
(Washington, DC, October 1995). 1985 Emissions: U.S. Environmental
Protection Agency, National Allowance Data Base, Version 2.11 (January
1993). 1995 Emissions: Acid Rain Division, U.S. Environmental Protection
Agency.



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|U.S. Coal Receipts at Electric Utility Plants by Sulfur
Level, 1990 and 1995(Percent)                                                                                                                                                                                                             
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                  
|Note: High sulfur level is greater than 2.5 pounds of
sulfur per million Btu. Low-to-medium sulfur level is less than or equal
to 2.5 pounds of sulfur per million Btu.
Source: Federal Energy Regulatory Commission, Form 423, �Monthly Report
of Cost and Quality of Fuels for Electric Plants.�

### Effects of Compliance on Regional
Coal Supply and Demand

Because fuel switching has been the compliance method
used by most utilities, lower sulfur coal sales in the United States have
increased substantially. In 1990, for example, low-to-medium sulfur coal
accounted for 67 percent of total coal receipts at electric utilities,
increasing to 77 percent by 1995. This switch to lower sulfur coal has
affected regional coal distribution patterns. Between 1990 and 1995, sales
of low-to-medium sulfur coal from the Powder River basin (Wyoming and Montana)
increased by 78 million tons; sales from the central Appalachian region
(Virginia, eastern Kentucky, and southern West Virginia) increased by 15
million tons; and sales from the Rocky Mountains (Colorado and Utah), increased
by 10 million tons. In contrast, for the same period, sales of higher sulfur
coal from the northern Appalachian region (Maryland, Pennsylvania, Ohio,
and northern West Virginia) decreased 29 million tons; and sales from the
Illinois basin (Illinois, Indiana, and Western Kentucky) decreased by 40
million tons.





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### Compliance Strategies and Costs
of Six Utilities

Compliance strategies and costs were examined in detail
for six utilities with a total of 71 units (22.8 gigawatts of generating
capacity) affected by Phase I. Most of the units were switched to lower
sulfur coal to meet their SO2 emissions limitations. A few scrubbers
were installed, but they were expensive relative to other compliance strategies.
Substitution units, which in most instances generated extra emissions allowances,
were used extensively by these utilities. Although the compliance costs
represented a relatively small percentage of the utilities' total costs,
the costs varied widely among the six. Average costs for SO2
and NOx controls and continuous emissions monitoring systems
[2]
ranged from a low of $16.39 per kilowatt at Cincinnati Gas & 
Electric to $208.90 per kilowatt at Southern Indiana Gas and Electric 
Company.

Annual operation and maintenance costs (which in this
analysis are primarily allowance purchases) ranged from a high of $19.4
million at Illinois Power to a low of $1.8 million at Potomac Electric
Power Company. Depreciating capital costs over 15 years results in annual
capital costs ranging from just over $1 to almost $14 per kilowatt of Phase
I capacity.



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### Phase II Compliance Strategies

To meet stronger emissions limits under Phase II, some
utilities are planning ahead by overcomplying in Phase I. For example,
some utilities are installing scrubbers now instead of using a less expensive
option. Many utilities have not finalized their Phase II compliance plans.
One survey of 116 utilities conducted by the Industrial Information Services
Company found that 41 percent of the respondents will switch fuels for
Phase II and 28 percent will acquire additional emission allowances. For
many utilities, fuel switching has proved to be the most cost-effective
choice in Phase I, and many of them will probably continue this strategy
in Phase II. For utilities selecting allowances as a strategy for Phase
II, extra allowances can be obtained from numerous sources.

Utilities receiving extra allowances for installing scrubbers
or for complying earlier than required are selling some of their allowances
at relatively low prices. Some higher sulfur coal producers have bundled
emissions allowances with their sales to help maintain their customer base.
It is estimated that only 12 to 20 gigawatts of capacity may be scrubbed
to comply with Phase II because a number of utilities that had originally
planned to install scrubbers have either deferred installation, or canceled
them in favor of fuel switching or purchasing allowances.



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### Notes

[1] Phase I affects 435 generating
units powered by 445 boilers. Title IV states that 261 generating units
are to be covered in Phase I of the program as Table A units (subsequently
referred to in EPA's regulations as Table 1 units). These 261 generators
are attached to 263 boiler units. Miami Fort generator 5 has two boilers.
R.E. Burger generator 3 has two boilers. Similarly, the 182 boilers brought
into Phase I as substitution and compensating units are attached to 174
generators.[BACK TO TEXT]

[2]
Continuous emissions monitors were required to be operational on November 15, 
1993 for Phase I units and on January 1, 1995 for Phase II units 
(with the exception of NOx/CO2 at oil- and gas-fired 
units).[BACK TO TEXT]