Summary of Testimony of  

Susan F. Tierney, Ph.D.

Managing Principal, Analysis Group, Boston

Before the  

U.S. Senate Environment and Public Works Committee  

Subcommittee on Clean Air and Nuclear Safety

June 30, 2011

Oversight Hearing:

Review of EPA Regulations Replacing the Clean Air Interstate Rule (CAIR)

and the Clean Air Mercury Rule (CAMR)

Chairman Carper, Ranking Member Barrasso, and members of the Subcommittee:    

I appreciate the opportunity to testify on the U. S. Environmental Protection Agency’s

implementation of various provisions of the Clean Air Act and address the question of whether

the newly proposed regulations will adversely affect reliability in the power sector and its

ability to serve electricity users in the United States.  

Of specific interest to the Subcommittee are impacts of the EPA’s proposed “Clean Air

Transport Rule” (“CATR”), affecting emissions of sulfur dioxide and nitrogen oxides from

fossil‐fuel power plants in the Eastern half of the U.S., and the proposed “Mercury and Air

Toxics Rule” (“Utility Toxics Rule”), affecting emissions of hazardous air pollutants emitted

from most coal‐ and oil‐fired power plants throughout the country.  Acting upon court orders,

EPA’s two new regulations would replace the Clean Air Interstate Rule (“CAIR”) and the Clean

Air Mercury Rule (“CAMR”) and would address the problems of interstate transport of air

pollution and the emissions of toxic air pollutants that are damaging to human health.  

These are important regulations from an air quality and public health point of view.  But are

they achievable?  Can the nation get both the benefits of lower pollution and improved air

quality, while also keeping the lights on?  Can the industry respond effectively within the

allowable time frames, so that Americans don’t have to choose between achievement of the

health benefits the Clean Air Act requires and the electric system reliability that underpins the

U.S. economy?  I strongly believe that the answer to all of these questions is yes.   

My testimony offers the following reasons why I answer those questions in the affirmative:

1. The U.S. electric industry has a proven track record of doing what it takes to provide the

nation with reliable electricity. Regulated electric utilities, competitive electric companies,

grid operators, and regulators have a strong mission orientation, along with regulatory

requirements, that together ensure that reliable electricity supply is a priority.  

2. By 2011, it is not reasonable to suggest that EPA’s CATR and Utility Toxics Rule are a

surprise, or that EPA’s proposed regulations will require actions that are technically and

economically infeasible. These regulations have been in the works for many years.  EPA’s

proposals allow more flexibility in compliance approaches than previously anticipated.
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3. Many factors besides these new regulations have encouraged owners of coal‐fired power

plants to take steps to reduce their air emissions.  Many states have already adopted

regulations as strict as those proposed by EPA.  Some companies with facilities affected by

the CATR and Utility Toxics rules are already under court orders to achieve similar

outcomes even without the new regulations. And many companies have already taken steps

to install appropriate control equipment: in recent months, chief executive officers of some

of the most affected utility companies in different parts of the country have told their

investors that they are already or will be ready to meet the new EPA air regulations.  These

facts occur within a context in which low natural gas prices are putting pressure on many of

the oldest, least‐efficient and uncontrolled coal plants to retire for economic reasons.

4. Much attention has been, and will continue to be, paid to the impacts of the regulations on

electric system reliability.  Many assessments published in the past year have called

attention to potential gaps that could arise in the absence of market, utility and regulators’

responses.  These studies highlight potential plant retirements under different sets of

assumptions, with the more reasonable estimates indicating strongly that the impacts are

manageable, as long as industry and its regulators respond in a timely fashion.    

5. The industry has various tools to assure that reliability will not be adversely affected.  

Among the more important tools are: the strong system‐planning processes of utility

transmission companies and regional transmission organizations (grid operators); the

opportunities for companies to obtain power resources through the wholesale power

markets that exist in many of the affected parts of the country; the strong least‐cost planning

processes that exist for utilities in other affected areas; the interest and ability of developers

of new power projects to bring new supplies to the market; the fact that state and federal

have a strong track record of taking the steps necessary to ensure that the companies they

supervise are meeting their obligation to provide reliable electric service; the large reservoirs

of untapped cost‐effective energy efficiency in affected states that can be mined relatively

rapidly and can help ease impacts on consumers’ electricity bills; and the statutory tools

available to EPA, the Federal Energy Regulatory Commission (“FERC”), the U.S.

Department of Energy (“DOE”), and the President to take actions to ensure reliable system

conditions when all else fails.

6. Finally, recent market developments provide practical, real‐world evidence that the EPA

clean air regulations are manageable.  Notably, the nation’s largest competitive wholesale

power market – PJM, serving much of the mid‐Atlantic and Midwest regions affected by the

EPA regulations – has recently conducted its annual auction to purchase capacity so that it

will be available far in advance of need.  The PJM auction elicited far more capacity offers

from existing and new suppliers than is needed for reliability purposes during the period

when EPA’s new air rules will go into effect.   

For these reasons, I urge the Senate to continue to take interest in this important topic, but to do

so with an expectation that the industry will respond innovatively and effectively, and with

confidence that Americans can get the benefit of clean air and reliable electricity.  This is do‐

able.   
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Testimony of  

Susan F. Tierney, Ph.D.

Managing Principal, Analysis Group, Boston

Before the  

U.S. Senate Environment and Public Works Committee  

Subcommittee on Clean Air and Nuclear Safety

June 30, 2011

Oversight Hearing:

Review of EPA Regulations Replacing the Clean Air Interstate Rule (CAIR)

and the Clean Air Mercury Rule (CAMR)

Good morning, Chairman Carper, Ranking Member Barrasso, and Members of the

Subcommittee.

My name is Susan Tierney, and I am a Managing Principal at Analysis Group, Inc., an economic

consulting firm headquartered in Boston, Massachusetts.  

I appreciate the opportunity to testify on whether the U. S. Environmental Protection Agency’s

proposals to replace the Clean Air Interstate Rule and the Clean Air Mercury Rule will have

adverse reliability impacts on the power sector and electricity users in the United States.  I do

not think that they will.  The EPA’s proposals to replace those prior rules (as required by the

courts) do not put the nation in a position of having to choose between public health and

keeping the lights on.  Both can be achieved as EPA moves forward to implement the Clean Air

Act and as the industry responds creatively, responsibly, and cost‐effectively so that Americans

can get the benefit of clean air and reliable electricity.  This is do‐able.

My opinion is based in part on my nearly three decades of public and private‐sector experience1

on electric system economics and regulation, on the economics of air and water policy, and on

 

1 I have been involved in issues related to public utilities, ratemaking and regulation, and energy and environmental

economics and policy for over 25 years.  During this period, I have worked on electric and gas industry issues as a

utility regulator and energy/environmental policy maker, consultant, academic, and expert witness.  I have been a

consultant and advisor to private energy companies, grid operators, government agencies, large and small energy

consumers, environmental organizations, and other organizations on a variety of economic and policy issues in the

energy sector.  Before becoming a consultant, I held several senior governmental policy positions in state and federal

government, having been appointed by elected executives from both political parties.  I served as the Assistant

Secretary for Policy at the U.S. Department of Energy from early 1993 through summer 1995, having been nominated

by President Bill Clinton and confirmed by the U.S. Senate.  I held senior positions in the Massachusetts state

government as Secretary of Environmental Affairs (1991‐1993); Commissioner of the Department of Public Utilities

(1988‐1991); Executive Director of the Energy Facilities Siting Council (during the mid‐1980s); and Senior Economist

for the Executive Office of Energy Resources (during the early 1980s).  My Ph.D. in regional planning is from Cornell

University.  I previously taught at the University of California at Irvine, and recently co‐taught a course at the

Massachusetts Institute of Technology.  I currently sit on several corporate and non‐profit boards and commissions,

including as a director of Evergreen Solar, Inc., and EnerNOC, Inc.; chair of the Advisory Council of the National

Renewable Energy Laboratory and the Energy Foundation’s Board of Directors; a director of the Clean Air Task

Force, World Resources Institute, Clean Air – Cool Planet, and the Alliance to Save Energy; and a member of the
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issues at the intersection of electric system planning, system operations, economic and

environmental regulation and performance, and system reliability.   My opinion also stems

from my analyses2 of various studies of electric reliability that have been carried out in the past

year, combined with my knowledge of competitive power markets, the electric industry and its

economic and environmental regulation.   

I understand that the Subcommittee is particularly interested in the impacts of the EPA’s

proposed “Clean Air Transport Rule” (“CATR”), which affects emissions of sulfur dioxide

(“SO2”) and nitrogen oxides (“NOX”) from fossil‐fuel power plants in the Eastern half of the

U.S., and the proposed “Mercury and Air Toxics Rule” (“Utility Toxics Rule”), which affects

emissions of hazardous air pollutants emitted from most coal‐ and oil‐fired power plants

throughout the country.  Together, these two proposed regulations would replace the Clean Air

Interstate Rule (“CAIR”) and the Clean Air Mercury Rule (“CAMR”), as ordered by the courts,

in order for the new rules to properly address the problems of interstate transport of air

pollution and the emissions of toxic air pollutants that are damaging to human health.  

These are important regulations from an air quality and public health point of view.  But are

they achievable?  Will the nation be able to get the benefits of lower air pollution and improved

air quality, while also keeping the lights on?  Can the industry respond effectively within the

allowable time frames, so that Americans don’t have to choose between achievement of the

health benefits the Clean Air Act requires and the electric system reliability that underpins the

functioning of the U.S. economy?  I strongly believe that the answer to all of these questions is

yes.    

 

NYISO’s Environmental Advisory Council.  I serve on the Secretary of Energy’s Advisory Board, where I am a

member of its Gas Subcommittee that is examining shale gas development; and I chair of the Policy Subgroup of the

National Petroleum Council’s study of the North American natural gas and oil resource base.  Previously, I served as

co‐chair of the National Commission on Energy Policy; a director of the Electric Power Research Institute; chair of the

Electricity Innovation Institute’s Board of Directors; a member of the Advisory Council of the Independent System

Operator – New England; a representative to committees of the North American Electric Reliability Council; a

member of the National Academy of Sciences’ Committee on Enhancing the Robustness and Resilience of Electrical

Transmission and Distribution in the United States to Terrorist Attack; and a member of the U.S. Secretary of

Energy’s Electric Reliability Task Force.

2 I have published several analyses on this topic in the last year, some of which are co‐authored: M. J. Bradley &

Associates, LLC and Analysis Group, Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric

System Reliability: Summer Update 2011 Update, June 2011 (hereafter referred to as “MBJA/Analysis Group Summer

Reliability  2011 Update”)(available at http://www.analysisgroup.com/uploadedFiles/News_and_Events/News/

MJBA_Reliability_Report_Update_Summer2011.pdf); Susan Tierney and Charles Cicchetti, “The Results in Context:

A Peer Review of EEI’s ‘Potential Impacts of Environmental Regulation on the U.S. Generation Fleet,’” May 2011

(available at http://www.analysisgroup.com/article.aspx?id=12468); Susan F. Tierney, “Electric Reliability under New

EPA Power Plant Regulations: A Field Guide,” January 18, 2011 (available at http://www.wri.org/stories/2011/01/

electric‐reliability‐under‐new‐epa‐power‐plant‐regulations‐field‐guide); and M. J. Bradley & Associates, LLC and

Analysis Group., Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability, 2010

(hereinafter referred to as “MJBA/Analysis Group 2010 Reliability Analysis”) (available at http://www.analysis

group.com/uploadedFiles/News_and_Events/News/MJBA_Reliability Report_Update_Summer2011.pdf).  

Additionally over the past year, I have been invited to speak on this topic at conferences sponsored by the National

Association of Regulatory Utility Commissioners, the Bipartisan Policy Center, the Massachusetts Institute of

Technology, the National Association of Clean Air Agencies, and other organizations.  
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I offer the following reasons why I answer those questions in the affirmative, and describe each

of these reasons in my testimony below:

1. The U.S. electric industry has a proven track record of doing what it takes to provide

reliable power supplies.    

2. By 2011, EPA’s CATR and Air Toxics are not surprises: they have been anticipated for some

time, and now offer more flexible options than previously expected.    

3. Many things besides these new regulations have caused owners of affected plants to have

taken steps already to modernize their facilities so that their facilities will be ready for the

new EPA regulations.      

4. Much attention has been, and will continue to be, paid to the impacts of the regulations on

electric system reliability.  This has helped send signals to affected parties about the need for

action.  The more reasonable estimates indicate strongly that the impacts are manageable.    

5. There are various tools in place in the industry to assure that reliability will not be adversely

affected.    

6. Finally, recent market developments provide practical evidence that the impacts of the EPA

clean air regulations are manageable.   

THE INDUSTRY HAS A PROVEN TRACK RECORD ON RELIABILITY ISSUES

The starting point is that the U.S. electric industry has a proven track record of doing what it

takes to provide the reliable power supplies.  Regulated electric utilities, competitive electric

companies, grid operators, and regulators have a strong mission orientation, along with

regulatory requirements, which together ensure that reliable electricity supply is a priority.  

For many decides, the U.S. electric industry has developed institutions, operating and planning

requirements, system plans, operating approaches, emergency response protocols, and billions

of dollars of investment to assure reliable electricity supply.  The industry is keenly aware that

the American economy and standard of living depend upon reliable power supplies to run

computers, lighting systems and lamps, clocks and cell phones, TVs and radios, air conditioners

and refrigerators, streetlights and traffic signals, clocks, ATMs and security systems, high‐

precision equipment, agricultural machines, factory production processes, and countless other

devices.  With some notable exceptions, utilities and other electric companies and their workers,

investors, and suppliers, have provided what Americans take for granted and what public

officials insist upon: that electricity be reliably available around the clock, with increasing levels

of environmental performance to assure worker and community safety and public health.    

It is normal practice in the electric industry to look ahead several years to ensure that there will

be sufficient supplies available to meet anticipated customer demand under a wide range of

contingencies.  It can take several years to put in place the new generating equipment,

transmission facilities, and other resources needed to ensure adequate supply.  The North

American Electric Reliability Corporation (“NERC”), for example, works with regional
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reliability organizations representing all parts of the U.S. to assess conditions in upcoming

years.  These assessments provide information about future needs to decision makers in

utilities, power generation companies, providers of energy efficiency services, equipment

manufacturers, investment organizations, fuel suppliers, public agencies, and others.  The norm

is decision‐making under conditions of uncertainty, given that capital commitments must be

made years ahead of a power plant going into operation and with only estimates of future fuel

prices, demand levels, public policies, and other important factors.  

The electric industry has responded well in prior periods (such as the mid‐1990s) when Clean

Air Act requirements led to investments in new pollution‐control equipment and new additions

to generating capacity.  There were no reliability problems arising from those actions, in spite of

concerns raised that there would be equipment shortages and difficulties adding control

equipment on so many power plants in a constrained period of time.    

Further, developers of power plant have been able to attract sufficient investment and receive

approvals to build far more generating capacity than is anticipated to be needed in the next

decade:  Between 1999 and 2008, for example, in response to a variety of market, regulatory and

economic signals, the electric sector added almost 270 gigawatts (GW) of natural gas‐fired

generating capacity, the equivalent of more than 80 percent of the entire existing U.S. coal fleet.3  

Indeed, in just three years between 2001 and 2003, the electric industry built over 160 GW of

new generation,4 many times the amount that analysts project will retire over the next five years

(as I describe further below).  Much of this capacity remains underutilized today – a fact that

can also assist in managing power plant outages required to install pollution‐control systems.  

   

 

3 EIA, Annual Electric Generator Report: Form EIA‐860, 2008.  Currently, there are more than 17,000 electric generation

units in the United States with a combined nameplate capacity of over 1,030 GW.  In 2010, coal‐fired generation

produced 45 percent of the nation’s electricity, followed by natural gas (24 percent) and nuclear (20 percent), with the

remaining amount produced through a combination of hydroelectric power, oil, wind and other miscellaneous fuel

types.  Analysis of monthly and annual power generation data in Energy Information Administration (“EIA”),

“Electric Power Generation and Consumption Data by Month and State, 2001 to the Present” (available at

http://www.eia.gov/cneaf/electricity/epa/epa_sprdshts_monthly.html).

4 Analysis from: MJBA/Analysis Group 2010 Reliability Analysis, page 9.
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Power Plant Capacity Added by Year It Entered Service

Source: Figure 3 from MJBA/Analysis Group 2010 Reliability Analysis, page 9, with figure sourced from  

Ceres, et al., Benchmarking Air Emissions of the 100 Largest Electric Power Producers in the United States, June 2010.

EPA’S NEW CLEAN AIR RULES HAVE BEEN ANTICIPATED FOR A LONG TIME, AND

EPA HAS PROPOSED RELATIVELY FLEXIBLE COMPLIANCE OPTIONS  

By 2011, EPA’s CATR and Utility Toxics Rule cannot reasonably be viewed as unexpected or a

surprise. These regulations have been in the works for several years, with prior incarnations of

these regulations (in the form of CAIR and CAMR) having been known to the industry for

many years.  And there are many reasons why these regulations will introduce less incremental

change than has sometimes been reported:

 The proposed CATR would replace EPA’s 2005 CAIR, which was initially proposed in

December of 2003.5  In December 2008, the U.S. Court of Appeals for the D.C. Circuit

ruled that EPA reconsider its CAIR proposal, but had the rule remain in place until EPA

issued a replacement (which EPA believed, at the time, would take two years to do) to

address the Clean Air Act’s provisions relating to the transport of air pollutant across

state boundaries.6  EPA issued its newly proposed CATR in July 2010.

 Similarly, EPA began its regulatory process relating to mercury emissions in 2003, with

the CAMR proposal finalized in March 2005.7  The Court of Appeals also vacated the

CAMR rule in December 2008, and sent it back to the EPA for replacement.  EPA issues

in newly proposed Utility Toxics rule in March 2011.   

 

5 http://www.epa.gov/cair/rule.html  

6 http://www.epa.gov/cair/.  Also, EPA, “Factsheet: Proposed Transport Rule Would Reduce Interstate Transport of

Ozone and Fine Particle Pollution” (available at http://www.epa.gov/airtransport/pdfs/FactsheetTR7‐6‐10.pdf).

7 http://www.epa.gov/oar/mercuryrule/rule.html  

‐

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Renewable

Hydro

Nuclear

Other

Oil

Gas

Coal

Nameplate

Capacity (MW)
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 Several elements of the new proposals allow for flexibility in affected companies’

responses.  For example:   

o The CATR allows intrastate and limited interstate trading of emission allowances

for SO2 and NOX, consistent with the Clean Air Act:

o The Utility Toxics rule allows companies with multiple boilers and generating

units at a single station to demonstrate compliance through emissions averaging

across the units.   

o And EPA has proposed a “work practice standard” (with annual performance

testing of units using “good combustion practices”) to control emissions of

dioxins and furans, rather than setting a numeric emissions limit.  Together,

these various provisions allow for flexibility in meeting the new regulations.

The bottom line is that these new clean‐air requirements have been anticipated for a long time.  

EPA has proposed relatively flexible compliance options to ensure satisfactory compliance by

affected companies, the majority of which have already taken steps to reduce their emissions of

regulated air pollutants.

MANY PLANTS ARE ALREADY – OR SOON WILL BE – EQUIPPED WITH NEEDED

CONTROLS, AND ECONOMIC CONDITIONS IN FOSSIL FUEL MARKETS FAVOR

NATURAL GAS RELATIVE TO MANY EXISTING COAL‐FIRED POWER PLANTS

Many factors besides these new clean air regulations have caused owners of affected plants to

take steps to modernize their facilities and reduce their air emissions:  many states have already

adopted regulations ahead of the federal standards; many of the pollution‐control technologies

have been tested and are in commercial application; some companies (such as AEP) with

facilities affected by the CATR and Air Toxics rules, are already under court orders to achieve

these outcomes; and many companies have already taken steps to install control appropriate

equipments.  These conditions occur within a backdrop in which supplies of natural gas have

caused gas prices to drop, putting pressure on many of the oldest, least‐efficient and

uncontrolled coal plants to retire for economic reasons.

 EPA’s proposed standards for the Utility Toxics rule – which were based on an extensive

data collection effort from companies owning coal plants – are do‐able.   

o Several states – including Illinois, Massachusetts, New Jersey, Connecticut,

Delaware, and New York – already impose more stringent mercury‐emissions

limits on coal‐fired power plants than have been proposed by EPA.  

o Many of the technologies that are available to satisfy EPA requirements are

already in commercially application, with the industry having extensive

experience with the installation and operation of these control systems.8  

 

8 MJBA/Analysis Summer 2011 Reliability Update; Northeast States for Coordinated Air Use Management, Control

Technologies to Reduce Conventional and Hazardous Air Pollutants from Coal‐Fired Power Plants, March 31, 2011, page 2.
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o The data collected by EPA in the course of developing the replacement to the

CAMR indicate that that power plants meeting the proposed standard have a

wide variety of pollution‐control systems and configurations that are reducing

their mercury emissions.  Analysis of the plants that submitted stack‐test data to

EPA indicate that: nearly 60 percent of these plants are currently achieving the

proposed mercury‐emissions standard; nearly 70 percent currently achieve the

proposed emissions standard for particulate matter (“PM”) emissions; and 73

percent are currently achieving the proposed hydrogen chloride (“HCl”)

emissions standard.9    

 New, lower natural gas prices are already putting economic pressure on coal facilities

even in the absence of EPA regulations

o As mentioned previously, there are many existing and under‐utilized gas‐fired

power plants in the regions that will be affected by the clean air rules. Even

taking into account the effects of the post‐2008 economic downturn on power

plant output, lower gas natural gas prices (and higher coal prices10) to utilities

and independent power producers have meant that gas‐fired power plants

increased their output from 20 percent of all power production in the U.S. in

2007, to 24 percent in 2010, while coal‐fired generation decreased from 50 percent

in 2007 to 45 percent in 2010.  Gas‐fired generation increased in absolute terms,

while coal‐fired generation decreased in absolute levels over that period.11

o Expected low natural gas prices also contribute to basic economic conditions that

favor replacing much of the older, less efficient coal‐fired power plants that lack

emissions controls with new gas‐fired generating capacity.  The figure below

shows the extent to which the availability of greater supplies of natural gas has

 

9 This translates to more than 100 units (out of a total of 178) for mercury; more than 119 units (out of a total of 172)

for PM emissions; and 158 units (out of a total of 217) for HCI emissions.  Note that rather than requiring companies

to comply with standards for each individual hazardous air pollutant emitted from coal‐fired generating units,

however, EPA has proposed the use of “surrogates,” simplifying the monitoring and compliance requirements of the

rule.  For example, PM has been proposed as a surrogate for all non‐mercury metal HAPs, including arsenic,

cadmium, chromium, and lead.  HCl is being used as a surrogate for all acid gas HAPs.  No surrogate was used for

mercury.  MJBA/Analysis Summer 2011 Reliability Update.

10 The average prices (in nominal dollars per short ton) of coal to power companies from 2006 through 2010 were:

Average delivered price of coal to: 2006 2007 2008 2009 2010

Electric utilities $34.26 $36.06 $41.32 $44.47 $45.09

Independent power producers $33.04 $33.11 $38.98 $39.94 $41.40

Source: William Watson, Nicholas Paduano, Tejasvi Raghuveer and Sundar Thapa, EIA, “U.S. Coal Supply and

Demand: 2010 Year in Review,” June 1, 2011 (available at http://www.eia.gov/coal/review/pdf/feature10.pdf)  

11 Analysis of monthly and annual power generation data in EIA, “Electric Power Generation and Consumption Data

by Month and State, 2001 to the Present” (available at http://www.eia.gov/cneaf/electricity/epa/epa_sprdshts_

monthly.html).  
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lowered the Energy Information Administration’s outlook for natural gas prices

over the last three years (from the 2009 forecast to the 2011 forecast).

Natural Gas Prices: Actual (1990‐2010) and Forecast (2010‐2035)

 At least some of the companies that own a substantial amount of the nation’s coal‐fired

generating units have recently reported that they are well positioned to comply with the

upcoming EPA regulations.  As reported in a recent analysis I co‐authored with MJ

Bradley Associates for the Clean Energy Group, recent corporate earnings statements by

chief executive officers of electric generating companies highlight several important

themes : (1) companies have long anticipated these rules; (2) early investments have

positioned these companies well for compliance; and (3) the impact on electricity rates

can be managed.  The excerpts below are from our study (MJBA/Analysis Group

Summer 2011 Reliability Update):

o Benjamin G.S. Fowke, III, President and Chief Operating Officer of Xcel Energy,

said: “Like many of our peers, we are in the process of evaluating what if any

impact [EPA’s Utility Toxics Rule] may have on our operations.  Based on our

preliminary review we do not anticipate that the rule will require extensive

changes to our plans at [Northern States Power] and [Public Service Company of

Colorado]...Our proactive steps to reduce emissions through the MERP project

in Minnesota and our plans for the Clean Air‐Clean Jobs Act in Colorado put us

in good position to comply with these rules.”  April 28, 2011, Xcel Energy Inc. 1st

Quarter 2011 Earnings Call
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o Jim Rogers, President and CEO of Duke Energy, said: “[T]he anticipation of more

stringent environmental rules has long been part of our business plan.  Over the

past 10 years, we have spent $5 billion retrofitting existing units with updated

emissions controls...Today, approximately 75% of our current coal generation

capacity has scrubbers in operation.  This will increase to approximately 90%,

once our fleet modernization program and related retirements are completed...

We have really mitigated a lot of the risk and the cost associated with this

program by the early steps that we took.” May 3, 2011, Duke Energy 1st Quarter

2011 Earnings Call

o According to Gale Klappa, Chairman, President and CEO of Wisconsin Energy:

“We really see very little impact on customer electric rates or our capital plan

between now and 2015 as a result of all the new EPA regulations that have been

proposed...We might see 1% to 2% increase our best guess.  So that gives you an

example of how well we are positioned from the environmental standpoint in

terms of complying with even the new proposed rule.”  May 3, 2011, Wisconsin

Energy Corporation 1st Quarter 2011 Earnings Call

o Theodore Craver, chairman, president and CEO of Edison International said:

“We installed the necessary equipment back in 2009 and are already achieving

these [mercury] limits.  U.S. EPA’s rule contained other draft provisions covering

acid gases and non‐mercury metals, which we can meet by installing the

pollution control equipment we have been planning to use at Midwest Gen to

meet our SO2 emissions commitments to the Illinois EPA.”  May 2, 2011, Edison

International 1st Quarter 2011 Earnings Call

o William Spence, Chief Operating Officer, Executive Vice President and President

of PPL Generation, said: “Our proactive approach to environmental compliance

positions the PPL fleet favorably for future EPA regulation.  Ninety‐six percent

of the competitive coal generation is scrubbed, 88 percent has NOx controls

already installed.”  February 4, 2011, PPL 4th Quarter 2010 Earnings Call

o Mauricio Gutierrez, Executive Vice President and Chief Operating Officer of

NRG reports that: “The proposed [Utility Toxics Rule] provides flexibility in that

compliance can be achieved through facility averaging and company selected

control technology.  It also recognizes the inherent differences in mercury

emissions from lignite coal...[t]he key takeaway is that we do not expect at this

time any additional environmental CapEx beyond what we have previously

announced.”  May 5, 2011, NRG Energy 1st Quarter 2011 Earnings Call

o The Tennessee Valley Authority (“TVA”), which owns 17,000 MW of coal‐fired

generating capacity, announced plans in April 2011 to retire 18 older coal‐fired

generation units at three power plants (2,700 MW) as part of the utility’s vision of

being one of the nation’s leading providers of low‐cost and cleaner energy by

2020.  The utility will replace “older and less‐economical generation with cleaner

sources.”  Tom Kilgore, TVA’s President and CEO, said that a “variety of
Testimony of Susan F. Tierney before the Senate Committee on Environment and Public Works 12   

Subcommittee on Clean Air and Nuclear Safety – Hearing on EPA Clean Air Regulations (June 30, 2011) 

 

 

electricity sources, rather than heavy reliance on any single source, reduces long‐

term risks and helps keep costs steady and predictable....In the longer term,

these actions reinforce our vision to keep bills low, keep our service reliability

high and further improve air quality as we modernize the TVA power system.”  

TVA Press Release, April 14, 2011.  

 At least one more company with a substantial amount of coal‐fired generating capacity

affected by these air rules is already under court orders to achieve similar outcomes as

the new regulations:   

o American Electric Power signed a consent decree with EPA and other parties in

2007 in which AEP agreed to retire, retrofit, or re‐power most of the units that

AEP has recently announced it plans to retire.12  This reinforces the view that

many environmental improvements (and potential plant retirements) have been

in the works for some time.  In response to questions from an investment analyst,

AEP’s chief executive officer recently suggested that the retirements were

reasonable: “Throughout I think almost all of 2009 those plants probably didn’t

run 5% of the time because natural gas prices were such that they simply weren’t

dispatching. When we shut those down there will be some cost savings as well.

And on balance we think that that’s the appropriate way to go not only to treat

our customers but also to treat our shareholders near and long term with that

small amount of the fleet going offline.”13

 

12 Consent Decree entered in the U.S. District Court for the Southern District of Ohio, Eastern Division, with respect

to U.S.A and State of New York, et. al. v. American Electric Power et al. (Civil Action No C2‐99‐1250 (Consolidated

with C2‐99‐1182)), U.S.A. v. American Electric Power (Civil Action No C2‐05‐360), and Ohio Citizen Action, et. al. v.

American Electric Power, et. al. (Civil Action No. C2‐04‐1098), 2007.  The 2007 Consent Decree required AEP to retire,

retrofit or repower, by no later than 12/31/2015, 3,900 MWs of the units covered under the decree; of those units, AEP

has chosen to retire 3,055 MW and repower 845 MW.  In the 2007 Consent Decree, AEP agreed to retire, retrofit or

repower 4,500 MWs of its generating capacity.  The 2007 Consent Decree covered all units AEP has now proposed for

retirement, with the exception of the Welsh unit, whose retirement appears to be related to permitting commitments

associated with other generating units in Texas.   

13 Transcript of Sanford C. Bernstein & Co. Strategic Decisions Conference, June 1, 2011 (available at

http://ofchq.snl.com/Cache/A43E47486F11287831.pdf):   

Question (by Hugh N. Wynne, Senior Analyst, Sanford Bernstein): “So those [CATR and Mercury and Air

Toxics] rules come into effect in 2014 and 2015.  AEP disclosed that as a result of those rules there’s about 5.5

gigawatts of coal‐fired generation capacity that would be vulnerable to closure due to the high cost of

compliance.  We estimate the output of those plants at about 12 million megawatt hours annually. The

generation gross margin associated with AEP’s off‐system sales would seem to imply that that generation is

worth about $150 million or maybe $0.20 a share to AEP. Similarly if you were to lose the capacity revenues

owned by Ohio Power on the sale of capacity from those plants it seems to me that about $180 million of

annual revenue should be at risk or about $0.25 per share. Does AEP view the risk of the closure of these

plants in similar terms? And if so what are your plans to mitigate these potential losses?”

Answer: (Michael G. Morris, Chairman & Chief Executive Officer) “Well this is probably one of those places

where I saddle up with the team from FE. If in fact 80 gigawatts close, most of it in the central section of the

United States, capacity prices and energy prices will more than adequately compensate us for the 5,500

megawatts going off the line. As you know those are high‐cost plants and dispatch infrequently, I am not
Testimony of Susan F. Tierney before the Senate Committee on Environment and Public Works 13   

Subcommittee on Clean Air and Nuclear Safety – Hearing on EPA Clean Air Regulations (June 30, 2011) 

 

 

MANY STUDIES HAVE CALLED ATTENTION TO THE RELIABILITY ISSUES, WITH

THE MORE REASONABLE ONES SUGGESTING THAT THE IMPACTS ARE

MANAGEABLE.

Much attention has been, and will continue to be, paid to the impacts of the regulations on

electric system reliability – in part because it is so important to the American economy.  Many

assessments have been published – calling attention to the potential supply gaps that could

arise in the absence of market, utility and regulators’ responses.  These studies highlight ranges

of impacts on potential plant retirements under quite‐different sets of assumptions.  The more

reasonable estimates indicate strongly that the impacts are manageable.    

My colleagues at MJ Bradley Associates and I performed a review of many such studies last

August,14 on behalf of the Clean Energy Group, and we did an update again a few weeks ago.15  

Additionally, I have analyzed carefully many other reports written on this topic and prepared a

“field guide” to their results.16  Many if not most of the studies were performed prior to EPA’s

issuance of both proposed clean air rules, so did not assume the amount of flexibility built into

those proposals.  Most assumed a range of scenarios in which there were three basic types of

analyses: (a) a base case (no EPA rules, and coal‐plant retirements driven by unfavorable

economics); (b) a series of “moderate” cases (in which a report’s author assumed relative

flexibility in compliance options); and (c) “strict” cases (in which the reports’ analyses assumed

strict, inflexible regulatory compliance).  Few if any of the studies examined the extent to which

new electric resource options not already formally announced would come forward, and in no

case that I am aware of did a study assume that there would be a robust market response

(including new power plants, implementation of new energy‐efficiency and other demand‐side

measures that may now become economical, or even transmission reconfigurations) in

combination with the more moderate cases consistent with EPA regulations.  As a result, in my

opinion the suite of studies tend to overstate the gap in resources.   

   

 

sure on your 12 million megawatt hours, we can surely supply you with data on that going forward. But, I

think that going forward prices of capacity and energy would take care of that. Today – in fact, throughout I

think almost all of 2009 those plants probably didn’t run 5% of the time because natural gas prices were such

that they simply weren’t dispatching. When we shut those down there will be some cost savings as well.

And on balance we think that that’s the appropriate way to go not only to treat our customers but also to

treat our shareholders near and long term with that small amount of the fleet going offline.”

14 MJBA/Analysis Group 2010 Reliability Analysis.  

15 MBJA/Analysis Group Summer 2011 Reliability Update.  

16 See also S. Tierney and C. Cicchetti, “The Results in Context: A Peer Review of EEI’s “Potential Impacts of

Environmental Regulation on the U.S. Generation Fleet,” May 2011; and S. Tierney, “Electric Reliability under New

EPA Power Plant Regulations: A Field Guide,” January 18, 2011, http://www.wri.org/stories/2011/01/electric‐

reliability‐under‐new‐epa‐power‐plant‐regulations‐field‐guide.
Testimony of Susan F. Tierney before the Senate Committee on Environment and Public Works 14   

Subcommittee on Clean Air and Nuclear Safety – Hearing on EPA Clean Air Regulations (June 30, 2011) 

 

 

Even the results I report below, which select the more moderate cases, overstate these impacts

for this reason.  

Study:* Estimated

Capacity

Retirements

(Coal‐Fired):

Notes and document title

PIRA (4/2010)   30‐40 GW PIRA, “North American Environmental Markets Service:

EPA’s Upcoming MACT: Strict Non‐Hg Regs Can Have Far‐

Reaching Market Impacts.”  

ICF for INGAA

(5/2010)

50 MW Report prepared by ICF for Interstate Natural Gas

Association of America, “Coal‐Fired Electric Generation

Unit Retirement Analysis.”  

ICF for EEI

(5/2010)  

25 GW (Scenario 1 – CAIR and MACT)  

Report prepared by ICF for Edison Electric Institute,

“Preliminary Reference Case and Scenario Results.”  

Credit Suisse

(7/2010)  

50 GW Credit Suisse, “A Thought...CATR is First Step in Changing

the Coal Fleet.”  

Bernstein

(10/2010)  

65 GW Hugh Wynne et al., Bernstein Research, “U.S. Utilities: Coal‐

Fired Generation Is Squeezed in the Vice of EPA Regulation;

Who Wins and Who Loses?”  

NERC

(10/2010)

6 GW Based on the “moderate” CATR and MACT cases.

North American Electric Reliability Corporation, ʺ2010

Special Reliability Scenario Assessment: Resource Adequacy

Impacts of Potential U.S. Environmental Regulation.”  

25 GW Based on the “strict” CATR and MACT cases.  

Same document.

CRA        

(12/2010)  

35 GW Ira Shavel and Barclay Gibbs (Charles River Associates), ʺA

Reliability Assessment of EPAʹs Proposed Transport Rule

and Forthcoming Utility MACT.ʺ  

ICF for EEI

(1/2011)  

24 GW Scenario with CATR and MACT (flexibility)  

Report prepared by ICF for EEI, “Potential Impacts of

Environmental Regulation on the U.S. Generation Fleet.”

Note:  Currently there is approximately 1,030 GW of generating capacity in the U.S., of which

approximately 330 GW is coal‐fired generation.

In my opinion, these estimates likely overstate the impacts of EPA’s proposed clean air

regulations: for one thing, EPA’s regulations are more flexible than had been anticipated by the

studies.  And the industry has a wider range of options for responding to capacity needs than

was assumed in the studies above.  Finally, low gas prices are a fundamental disadvantage for

owners of older and inefficient and uncontrolled coal‐fired generating capacity.
Testimony of Susan F. Tierney before the Senate Committee on Environment and Public Works 15   

Subcommittee on Clean Air and Nuclear Safety – Hearing on EPA Clean Air Regulations (June 30, 2011) 

 

 

MANY TOOLS EXIST TO ASSURE RELIABILITY

The industry has various tools to assure that reliability will not be adversely affected.  Among

others, these include:  

 Well in advance of need for new electric capacity resources, there is considerable

information available to decision makers to provide signals about upcoming regulatory

requirement.   

o Federal administrative procedures inherently provide significant advanced

notice of pending changes in environmental requirements.

o EPA has built into its proposals a reasonable level of flexibility from a technology

point of view.

o The many electric reliability (“resource adequacy”) assessments have called

attention to the issues, and identified the regional markets where inefficient coal

plants may retire. They also indicate amounts of capacity needed from the

market (i.e., utilities, competitive power companies and other resource suppliers

(e.g., companies providing demand‐side measures that reduce the amount of

needed new generating capacity)).     

o There are long‐term capacity planning processes in many of the nation’s regional

wholesale markets (such as in PJM, NYISO, and ISO‐NE) and in virtually all of

the areas where state regulators review the resource plans of traditionally

regulated utility companies.   

o The electric industry has proven experience in adding additional generating

capacity, transmission solutions and demand‐side measures when and where

needed, and in coordinating effectively to address reliability concerns.  Already,

42 GW (or 41,983 megawatts (MW)) of new plant capacity is under construction

in various regions of the country for an in‐service date of 2014 – the year when

both the CATR and Utility Toxics Rules would be in effect.  Another 27 GW of

generating capacity is in advanced phases of permitting and in‐service dates by

2014.  (An additional 388 GW of new plant capacity has been announced but I

have not included it here, in light of its much less advanced status.)  While

experience tells us that not all of this capacity will make it into commercial

operation, there is a relatively high likelihood of plants already under

construction moving forward to completion.

 
Testimony of Susan F. Tierney before the Senate Committee on Environment and Public Works 16   

Subcommittee on Clean Air and Nuclear Safety – Hearing on EPA Clean Air Regulations (June 30, 2011) 

 

 

New Planned Generating Capacity Additions by Region (as of 6‐2011)

Reliability

region  

Generating Capacity (MW) Under Construction by Region  

2011 2012 2013 2014 2015+ Total

Total by

end of 2014:

TRE           365          1,228              ‐                ‐                 304            1,897         1,593  

FRCC           308                 6         1,295             ‐                   26            1,635         1,609  

MRO           435          1,044            261             ‐                 206            1,945         1,740  

NPCC        3,571          1,644            367           640              945            7,166         6,221  

RFC        3,608          1,419            142           159                 6            5,334         5,328  

SERC        2,960          6,896         1,790           702                23          12,371       12,348  

SPP        1,080             582                7             ‐                   ‐              1,669         1,669  

WECC        3,042          4,294         2,546        1,593              759          12,235       11,475  

Total

     

15,368         17,113         6,407        3,094           2,268          44,251       41,983  

Generating Capacity (MW) in Advanced Development Phases but Not Under

Construction  

2011 2012 2013 2014 2015+ Total

Total by  

end of 2014:

TRE               1          2,030              ‐           1,000           3,635            6,666         3,031  

FRCC           105               88            217        1,295           4,563            6,268         1,705  

MRO             86             295              50             ‐              1,226            1,656            430  

NPCC           364             865         1,174           829           2,214            5,446         3,232  

RFC           251             653            684             19           5,974            7,581         1,607  

SERC           153             862            654        1,392         12,585          15,646         3,061  

SPP           118             627              ‐                ‐                 138               883            745  

WECC        1,342          1,567         4,960        5,675         17,031          30,574       13,544  

Total        2,420          6,986         7,738

     

10,210          47,366          74,720       27,354  

Source of data: SNL Financial  

 Other tools are available to ensure reliability as time gets closer to compliance deadlines

in the EPA regulations:  

o State and federal regulators do not sit idly by in the face of big important

challenges, such as the reliability and resource planning issues introduced by the

EPA clean air regulations.    
Testimony of Susan F. Tierney before the Senate Committee on Environment and Public Works 17   

Subcommittee on Clean Air and Nuclear Safety – Hearing on EPA Clean Air Regulations (June 30, 2011) 

 

 

 State and federal regulations have a strong track record of taking the

steps necessary to ensure that the companies they supervise are meeting

their obligation to provide reliable electric service.   

 At present, there is active coordination underway by many federal

agencies (EPA, FERC, DOE) involved in policy making for policies

affecting the power sector.

 State agencies with responsibility for energy, utility and environmental

regulations are in discussions to learn about each other authorities and

potential actions that the various agencies in affected states may take to

assure smooth industry responses in their states.

 The national associations of public officials in those states (the National

Association of Regulatory Utility Commissioners, the National

Association of State Energy Offices, and the National Association of

Clean Air Agencies) are assisting the states in these efforts.

 Grid operators (e.g., Regional Transmission Organizations) and regional

reliability councils in various regions are conducting studies to assess the

timing of reliability issues, and to get ready for additional actions in later

years.  The grid operators will be able to coordinate scheduling of outages

to support reliable operations.   

 Some states have begun to call for and review utility plans to comply

with EPA regulations and to assure local reliability requirements.  

 Some states (like New York State) are updating statutes to support timely

reviews of proposals to site new power plant projects.  Other states (e.g.,

California) have experience with streamlining permitting processes to

assure timely state agency reviews of plans.   

 Close‐to and during the compliance period, there are several safeguards that prevent

reliability problems from occurring:

o EPA has the ability to extend the deadlines in the Utility Toxics for one year on a

case‐by‐case basis for affected generating units where the owner has taken steps

to comply in a timely fashion but still needs more time to assure reliable system

operations.

o Grid operators have the ability to deny requests for plant retirements where such

plant closures would raise reliability concerns.  There are examples where the

parties have negotiated consent decrees to allow continued operation while steps

are taken to mitigate the reliability issues.  Examples are: PJM’s denial of

Exelon’s request to close the Eddystone plant in Pennsylvania; the consent decree

affecting continued operation of the Salem Harbor power plant in Massachusetts

while steps were being undertaken to address local reliability issues that would

arise in the event the plant retired; and the FERC’s denial of the closure of the
Testimony of Susan F. Tierney before the Senate Committee on Environment and Public Works 18   

Subcommittee on Clean Air and Nuclear Safety – Hearing on EPA Clean Air Regulations (June 30, 2011) 

 

 

Potomac River Generation outside of Washington, DC, based in part on

reliability concerns raised by the DOE.

o The DOE and the President may exercise emergency authority to assure that

electric system reliability is not adversely impacted as companies take steps to

comply with EPA clean air regulations.  DOE has previously exercised this

authority.

RECENT MARKET DEVELOPMENTS PROVIDE PRACTICAL EVIDENCE THAT THE

IMPACTS ARE MANAGEABLE.

Finally, there are already practical signs that the market is responding to the expectation that

the EPA clean air regulations will go into effect.  Examples include:

 The previously mentioned recent statements of CEOs of companies that own coal‐fired

generating units, which indicate that their companies are reasonably well‐positioned

and that the impacts are manageable.  

 The expeditious actions of states and utility companies to implement steps deemed to be

important for cleaner energy production and public health.  A prime example is the

recent effort in Colorado to implement a state law (the Colorado Clean Energy – Clean

Jobs Law) that required the state’s utilities to take actions similar to those required by

the EPA’s clean air regulations.  Within one year of enactment of that act, the state’s

largest utility (Xcel Energy) had filed plans to comply by shutting down a coal plant and

replacing it with a new gas‐fired generating station, which the state’s public health

agency and utility commission reviewed for compliance with that new law as well as the

state’s long‐standing requirements for least‐cost planning.

 The recent results of the PJM May 2011 “forward capacity auction,” which confirm that

the 13‐state PJM region will have ample electricity supply after proposed EPA clean air

rules take effect on or before January 2015.  This last example deserves a longer

explanation, below, because it exemplifies some of the creative ways that the industry is

responding to the EPA regulations in conjunction with other long‐standing electric

requirements.  

PJM operates the nation’s largest integrated power market that includes hundreds of generating

units providing electric power to 54 million customers in 13 mid‐Atlantic and Midwestern

states, as well as the District of Columbia.  With over one‐sixth of total U.S. generating capacity,

PJM is also home to many of the plants that will be affected by the CATR and the Utility Toxics

rules.  Each year, to assure that there is sufficient generating capacity to meet future demand in

upcoming years, PJM solicits proposals from power suppliers willing to provide capacity to the

market three years forward.  The winners in each year’s PJM Reliability Pricing Model (“RPM”)

auction commit to being available to provide electric service during that future time period, and

to receive compensation (capacity payments) for doing so.   

As indicated by the results of the May 2011RPM auction for power supply for the period from
Testimony of Susan F. Tierney before the Senate Committee on Environment and Public Works 19   

Subcommittee on Clean Air and Nuclear Safety – Hearing on EPA Clean Air Regulations (June 30, 2011) 

 

 

May 31, 2014 through June 1, 2015, PJM will have more than enough capacity to meet federal

reliability standards set by NERC in the year in which both the EPA’s proposed clean air rules

would be in effect.  Notably, more than 4 GW of new capacity came into the market with this

auction, including new generation and new demand‐side resources such as energy efficiency

and demand response.   This outcome shows the variety of ways in which market participants

are providing efficient responses to power requirements as well as environmental requirements.   

In addition, power companies in PJM (such as AEP and Duke‐Ohio) that do not participate in

the capacity auction are required to certify that they have adequate capacity to ensure reliable

service.  These companies have confirmed that they have sufficient electric capacity to meet

their needs through June 1, 2015 – more than five months after the EPA rules are expected to

take effect.  

In my opinion, the PJM auction results also reinforce a key finding in the MJBA/Analysis Group

2010 Reliability Analysis and many studies since then: that the system has the tools to address

the retirement of old, inefficient coal‐fired units, preserve reliable service for customers.

CONCLUSION

For these reasons, I strongly believe that the nation does not need to trade off improvements in

public health for lower electric reliability.  Both of these are essential “givens” for Americans.  

I urge the Senate to continue to take interest in this important topic, but to do so with an

expectation that the industry will respond innovatively and effectively, and with confidence

that Americans can get the benefits of both clean air and reliable electricity.  This investment in

cleaning up and modernizing the nation’s power supply system is important and do‐able.  In

my opinion, there is no reason to delay the implementation of the Clean Air Transport Rule or

the Utility Toxics Rule.