DRAFT 7/30/15

**Memorandum**

**To:** Clean Power Plan Docket **Subject: MATS Supreme Court Decision has Little Im pact on the Clean Power Plan** 

**Date:** July 2015 On June 29, 2015, the U.S. Supreme Court reversed a portion of the U.S. Court of Appeals for the D.C. Circuit (D.C. Circuit) decision uphold ing the Mercury and Air Toxics Standards (MATS). 1 Specifically, the Court reversed the D.C. Circuit ’s conclusion that EPA was not required to consider cost when determining whether regulatio n of EGUs was "appropriate and necessary” pursuant to section 112(n)(1) of the Cle an Air Act. This decision does not affect the analyses done to develop the Clean Power Plan (CPP) goals and will have little, if any, impact on its i mplementation. EPA has explicitly taken cost considerations into account in developing the CPP. In addition, the approach EPA used to set state goals under the CPP relies on power sector da ta from 2012 – data that is unaffected by MATS which has a 2015 compliance deadline. Moreove r, many units affected by MATS are already in compliance with that standard and the ac tions the industry has taken or announced in response to MATS are not actions that can be eas ily reversed. **Most investments for MATS compliance have been mad e**  : More than half of the units that are subject to MATS came into compliance in Ap ril 2015. The rest, over 400 units, received one-year extensions for compliance from their state s and are planning to come into compliance or retire by April 16 of next year or sooner 2 . Based on numerous conversations that EPA staff has had with the industry and with the grid operato rs, EPA is informed that those that are planning on coming into compliance are well on the way to completing MATS related retrofits. In addition, some controls that units are currently running are needed to comply with other requirements, such as the Cross-State Air Pollution Rule, state control requirements, consent decrees, regional haze or state permit requirements . Decisions to discontinue using controls, while having potentially serious adverse effects on public health locally or regionally, would

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

have little impact in terms of CPP compliance. The operation of pollution controls requires a small amount of energy from the power plant itself (sometimes referred to as an “energy penalty”), such that when controls are turned off, the economics of the facility might be altered in a way that could result in changes in CO2 emissi ons 3 . The cost to operate these units may also decrease, and thus electricity generated from these plants might be slightly more competitive. However, these factors are likely to r esult in very small differences for power plant operators, and are not likely to have a substantial impact on expectations of future CO2 emissions and the cost of compliance with the CPP.

**Coal and Oil Plant Retirements:** In the past decade, there have been significant cha nges in both the mix of generating capacity and in the s hare of electricity generation supplied by different types of generation. As EPA stated in th e Regulatory Impact Analysis for the CPP, these result from multiple changes taking place in the power sector, including normal replacements of older generating units with new uni ts, changes in the electricity intensity of the US economy, economic growth and regional changes in the US population, technological improvements in electricity generation from both ex isting and new units, changes in the prices and availability of different fuels, and substantia l growth in electricity generation by renewable and distributed generation (to name a few). The evo lving economics of the power sector, in particular the increased natural gas supply and rel atively low natural gas prices, have resulted in more gas being used as base load energy in addit ion to supplying electricity during peak load. Thus it is not surprising that since MATS was promu lgated there have been a number of coal retirements. SNL reports that from January 2012 th rough July 9, 2015, 198 units totaling 33 GW of coal capacity have retired. 4 In the changed environment of the power sector, t hese units are no longer economic to run. It would be a mistake to assume that these retirements were all, or

3 There is less than a 1% energy penalty associated with the controls most often used for MATS compliance including ACI, DSI and a fabric filter. This includes reagent and sorbent handling a preparation. See: http://www.netl.doe.gov/File%20Library/Research/Ene rgy%20Analysis/Publications/Rev3Vol1aPC_NGC C_final.pdf

4 SNL Financial; data 7/9/20153

even mostly, the result of MATS. In EPA’s economic analysis of MATS, the agency estimated that less than 5 GW of capacity would retire as a r esult of MATS. Moreover, most plant retirements are permanent. Plants that have retired are often torn down, coal contracts are given up, waste cleanup and remediation begins, and access to transmission service is terminated. In many cases, new cleaner replacement capacity has come on line with new transmission lines and other infrastructure or tran smission upgrades have been made so that the plant is no longer needed. These changes are r eflected in EPA’s projections for CPP compliance.

There are an additional 12 GW of coal and oil capa city that are projected to retire by April, 2016 according to the Energy Information Adm inistration. 5 As previously stated, there are many reasons that the operators of these plants choose to retire them, and many of those reasons are unrelated to MATS. Many large power ge nerators have already said that they would not alter their plans to retire plants becaus e of the Supreme Court decision. 6 Moreover, even if some units did decide to delay their retire ment plans, it would not alter the CPP emission guidelines, performance rates, and state g oals since the methods and approach used by EPA uses the historical 2012 adjusted baseline f or purposes of applying its “best system of emission reduction.”

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

6 SNL Financial, June 30, 2015