### May 17, 2011

The Honorable Lisa Jackson

Administrator

U.S. Environmental Protection Agency

1200 Pennsylvania Avenue, N.W.

Washington, D.C.

Dear Administrator Jackson:

I wanted to follow up on a report I sent to the EPA several months ago on the impact of

the agency’s upcoming proposed air rules on electric system reliability. That report,

which I co

‐ authored with Michael J. Bradley and others, concluded that electric

reliability will not be compromised if the industry proactively manages the transition to

a cleaner, more efficient fleet.

Since then, I have analyzed carefully many other reports written on this topic in the

“field guide” enclosed, and pointed out the many ways that different participants in the

electric industry can take steps to respond cost

‐ effectively to the new regulations, per

my recent speech at MIT, enclosed.

I continue to believe that given its many tools and dynamic markets, the electric

industry is well

‐ positioned to respond to EPA’s proposed rules. A recent example can

be found in the results of the market response to the May 13 th 

### PJM forward capacity

auction. I thought it was worth bringing these results to your attention in light of some

recent reports claiming that EPA rules would threaten reliability by causing the

retirement of too many power plants. The results of this auction confirm that the 13

‐

state PJM region will have ample electricity supply after proposed EPA air and water

rules take effect on or before January 2015.

As you may know, 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

nation’s coal plants, most of which will fall under the proposed Clean Air Transport

Rule (CATR) and the Air Toxics rules.

Each year, to assure that there is sufficient generating capacity to meet future demandTierney Letter to EPA Administrator Jackson

– 5

‐ 17

‐ 2011 2



### 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.

As indicated by the results of last week’s RPM auction for power supply for the period

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

meet federal reliability standards set by North American Electric Reliability

Corporation (NERC) in the year in which both the EPA’s proposed CATR and Air

Toxics 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 that do not participate in the capacity auction, like

AEP and Duke

‐ Ohio, 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.

As you know, potential reliability impacts were mentioned by utilities that rely heavily

on coal in their testimony on April 15 th



### , 2011, before the House Subcommittee on Energy

and Power. They cited Edison Electric Institute’s (EEI) 2010 modeling of the impact of

EPA regulations on the electric power sector. I co

‐ authored the enclosed peer review of

the EEI modeling released last week and concluded it was based on worst

‐ case

assumptions that have not materialized and climate change legislation that was not

enacted into law. PJM’s capacity auction results confirm that the EEI model is based on

unreasonable assumptions that led to overestimates of the number of power plant

retirements.

The PJM auction results also reinforce a key finding in my August 2010 report and

many analyses since then: the system has the tools to address the retirement of old,

inefficient coal

‐ fired units and preserve reliable service for customers. We do not need

to trade off improvements in public health for lower electric reliability; both of these are

essential “givens” for Americans. This investment in cleaning up and modernizing the

nation’s power supply system is important and do

‐ able.Tierney Letter to EPA Administrator Jackson

– 5

‐ 17

‐ 2011 3



### Hopefully, these new facts will help put to rest claims that EPA regulations will cause

the lights to go out and end the argument that Americans must choose between reliable

electricity and clean air.

Sincerely,

Susan F. Tierney, Ph.D.

Managing Principal

Analysis Group

cc: The Honorable Regina A. McCarthy, Assistant Administrator for Air & Radiation

Enc:

 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.

 S. Tierney, “Electric Reliability under New EPA Power Plant Regulations: A Field

Guide,” January 18, 2011

 S. Tierney, “EPA Regulations, Power Generation Capacity & Reliability,” MIT

Center for Energy & Environmental Policy Research Workshop

– May 5, 2011.

### The Results in Context:

A Peer Review of EEI’s “Potential Impacts of Environmental Regulation on the U.S.

Generation Fleet”

May 2011

PREPARED BY

Susan F. Tierney, Ph.D. Charles Cicchetti, Ph.D.

Analysis Group, Inc. Senior Advisor to Navigant Consulting

and Pacific Economics GroupA Peer Review of EEI’s “Potential Impacts of Environmental Regulation on the U.S. Generation Fleet”



### 1 Summary

In January of 2011, the Edison Electric Inst itute (“EEI”) released a report entitled

“Potential Impacts of Environmental Regulat ion on the U.S. Generation Fleet” (“Report”)

focusing on possible impacts of federal environmen tal laws and regulations on the electric power

industry. Recently, the Report was cited in te stimony before the United States House of

Representatives Energy and Commerce Committee, an d in a variety of other forums, to support

the claim that new environmental regulations w ill trigger as much as 70-80 GWs of coal plant

retirements by 2015 1 

### . This peer review analysis evaluate s the Report’s findings in light of the

actual proposed Utility Ai r Toxics and cooling water intake regulations which the Environmental

Protection Agency (“EPA”) released in March 2011, two months after EEI issued the Report.

We conclude that the Report was based up on worst-case assumptions which have not

materialized and upon climate change le gislation never enacted into law.

The Report does not adequately distinguish between the non-environmental drivers of

changes in the electricity industr y and the various EPA rulemakings . There is also inadequate

discussion of the non-traditional alternatives availabl e to meet system requirements, or of various

initiatives underway to strengthen the resiliency and reliability of the electricity network. The

Report’s excessively conservati ve and often misleading assumptions affect EEI’s modeling

results.

1 See Subcommittee on Energy and Power, Committee on Energy and Commerce, United States House of

Representatives Hearing, April 15, 201 1, Thomas A. Fanning, Chairman, Pr esident, and Chief Executive Officer,

The Southern Company, Transcript at line 2112, p. 104.A Peer Review of EEI’s “Potential Impacts of Environmental Regulation on the U.S. Generation Fleet”



### 2 There is one reference case and 9 scenario runs in the Report 2 

### . We reproduce the

Report’s Table 1 3 

### and annotate it with information on these assumptions.

Although not apparent from the labels used for the different scenarios, all of the facility

retirement scenarios contain one or more of the following assumpti ons that were unreasonable at

the time that EEI’s consultants conducted thei r study: (1) that the Waxman-Markey climate

change bill passed both houses of Congress, despite the fact that the legislation failed over ten

2 The Report includes a reference case and 9 alternative scen arios that reflect different combinations of assumptions

regarding EPA regulations and natural gas prices. The si x scenarios that reflect a carbon price are the Report’s

Scenarios: “2”; “2+Alt CO2”; “2+Alt Air”; “2+Alt Ash”; “2+$1.50 gas”; “2+$3.00 gas.”

3 See EEI, ICF “Potential Impacts of Environmental Regulation on the U.S. Generation Fleet”, January 2011,

(“Report”) Table 3.1, “National Co al Retirements (GW)”, p.11.A Peer Review of EEI’s “Potential Impacts of Environmental Regulation on the U.S. Generation Fleet”



### 3 months ago ; 4 

### (2) that EPA would impose a one-size-fi ts-all cooling tower requirement on U.S.

power plants over the course of the next decade, despite the fact that EPA Administrator Jackson

confirmed in an December 16, 2010 letter to C ongress that EPA rejected a one-size-fits-all

approach (a position that now can be seen in the new regulations proposed in March 2011); 5 

### or

(3) that industry could not use less costly, altern ative technologies and resource options to reduce

air toxics emissions despite the fact that many coal plan ts already do use th ese technologies and

many utilities now use differe nt options to meet custome rs’ reliability requirements.

Reliance on so many fundamentally unrealisti c assumptions undermines the usefulness of

the Report’s overall results, since these unreas onable assumptions overstate the impact of

environmental regulations. As such, the results could lead policymakers to an unreasonable and

unsupported conclusion that Americans must chos e between improving the nation’s health and

affordable, reliable electricity.

Moreover, contrary to so me testimony before the House Energy and Commerce

Committee, the Report does not support the prop osition that new EPA regulations will drive 70-

80 GWs of retirements by 2015. Only two scenar ios – “Scenario 2” (Run 5 in Table 1) and

“Scenario 2 + Alt Ash” (Run 8 in Table 1) – showed more than 70 GWs of incremental

retirements by 2020, not by 2015. These scenario s contained all thre e of the erroneous

assumptions described above.

We agree with EEI that competitive pressures from natural gas-fired plants fueled by

4 This assumption is in the Report’s Scenarios: “2”; “2+Alt CO2”; “2+Alt Air”; “2+Alt Ash”; “2+$1.50 gas”;

“2+$3.00 gas.”

5 Report Scenarios: “1”; “1+Alt Water”; “2”; “2+A lt CO2”; “2+Alt Ash”; “2+$1.50 gas”; “2+$3.00 gas”.A Peer Review of EEI’s “Potential Impacts of Environmental Regulation on the U.S. Generation Fleet”



### 4 relatively inexpensive shale gas ar e forcing some inefficient, olde r coal plants out of business. 6



### This is shown in the Reference Case, estimating that 22 GW of coal pl ants will retire by 2015

based on current fuel price and other economic a ssumptions as well as all policies currently on

the books (e.g., state mercury regulation, state- based renewable standa rds, the Clean Air

Interstate Rule).

The most reasonable scenario of the 9 mode led in the Report is the “Scenario 1 + Alt

Air” (Run No. 3), which predicts 24 GWs of in cremental coal retirements beyond the Reference

Case. Market forces alone will cause approxima tely one-half of the retirements (22 GW) under

this scenario without any new EPA regulati ons. To put the incremental 24 GWs into

perspective, the U.S. currently enjoys over 100 GWs of excess capacity and has a demonstrated

track record of building new capacity 7 

### when needed. In just th ree years between, between 2001

and 2003, electric generators in the U.S. added 160 GWs of new gas-fired generation. 8



### Likewise, the electric industr y has a proven track record of timely installing mandated

environmental controls. Well ove r half of the industry already is in compliance and control

technology experts have reported that the remaining plants ca n install controls within the

compliance timeline.

To conclude, the Report’s scenario assumptions have turned out to be overly aggressive

compared to EPA’s actual proposed rules, and as a consequence, the Report overstates cost and

retirement impacts related to the EPA rules. No thing in the Report alters our conclusion that the

industry is well positioned to co mply with the actual regulati ons on the proposed schedule.

6 These retirements are shown in the Reference Case results.

7 North American Electric Reliability Corporation (“NE RC”), 2009 Long-Term Reliab ility Assessment: 2009-2018,

October 2009.

8 Energy Information Administration (“EIA”) Annual Electric Generation Report: Form EIA-860, 2008.A Peer Review of EEI’s “Potential Impacts of Environmental Regulation on the U.S. Generation Fleet”



### 5 The Results in Context

A. Key Assumptions in the Report Lead to Overstated Retirements and

Compliance Costs

EEI prepared its Report before EPA had issued its proposed cooling water intake

regulations and Utility Air Toxics Rule. The Report’s authors made certain binding assumptions

about the impending rules that we now can test against EPA’s actual proposals. Although the

Report’s scenarios were intended to bracket the range of possible outcom es, all nine of EEI’s

scenarios depict far more aggressive enviro nmental standards than the actual proposed

regulations and laws. Indeed, in some cases, EEI’s assumptions even conflict with facts known

prior to the Report’s prep aration. For example:

 Six of the nine scenarios 9 

### modeled (Runs 5-10) contain an underlying assu mption that the

Waxman-Markey bill went into law, im posing a rising price on carbon dioxide (“CO 2 

### ”),

starting at $26/ton beginning in 2016. It was well-known in January when the report was

carried out, however, that Congress did not enact Waxman Markey and no federal

legislation or regulation imposes a price on CO 2



### .

 Eight of the nine scenarios 10 

### modeled (Runs 2, and 4-10) fail ed to consider less costly

methods of controlling certain air emissions through dry sorbent injection, even though

Midwest Generation, 11 

### one of the largest merchant coal generators in the nation, had

announced that these less costly technologies could be deploy ed to control emissions and

would not require plant retirements.

9 The Report includes a reference case and 9 alternative scen arios that reflect different combinations of assumptions

regarding EPA regulations and natural gas prices. The si x scenarios that reflect a carbon price are the Report’s

Scenarios: “2”; “2+Alt CO2”; “2+Alt Air”; “2+Alt Ash”; “2+$1.50 gas”; “2+$3.00 gas.”

10 Report Scenarios: “1”; “1+Alt Water”; “2”; “2+A lt CO2”; “2+Alt Ash”; “2+$1.50 gas”; “2+$3.00 gas”.

11 In its third quarter 10-Q filed on October 29, 2010, Mi dwest Generation stated: “Testing of [dry scrubbing with

sodium-based sorbents] demonstrated significant reductions in SO 2 emissions and...is expected to require

substantially less capital and installation time....”, 10-Q at p.55.A Peer Review of EEI’s “Potential Impacts of Environmental Regulation on the U.S. Generation Fleet”



### 6  Eight of the nine scenarios 12 

### modeled (Runs 2, 3 and 5-10) assumed EPA would require

cooling towers as a “one-size-fits-all” mandate on every U.S. fossil and nuclear power

plant over the next decade. Yet, in a December 16, 2010 letter to Congressman Fred

Upton, EPA Administrator Lisa Jackson advi sed Congress that: “I do not favor a onesize-fits-all federal mandate.”

Finally, the report ignores an important fact for policymaker s to consider: a significant

portion of the industry has already installed the types of control equipment anticipated in the new

air regulations. Over 150 GWs of the total 320 GWs of coal units in the U.S. have such controls

and another 55 GWs are inst alling the equipment now. 13 

### In sum, over two thirds of the nation’s

coal plants are either complying or soon will comp ly with the regulations and remain in business.

B. Low Natural Gas Prices Drive Ab out 50 Percent of Predicted Retirements

Since 2008, natural gas prices have fallen over 60 percent 14 

### as a result of the opening up

of abundant, new domestic natura l gas from shale formations. 15 

### In turn, low gas prices have

been a primary driver of wholesale elec tricity prices bei ng down over 30 percent. 16 

### In many

12 Report Scenarios: “1”; “1+Alt Air”; “2”; “2+Alt CO 2”; “2+Alt Air”; “2+Alt Ash”; “2+$1.50 gas”; “2+$3.00

gas.”

13 M. J. Bradley & Associates/Analysis Group, “Ens uring a Clean Modern Electric Generation Fleet while

Maintaining Electric System Reliability,” August 2010, p. 18.

14 On July 1, 2008, gas peaked at $13.60 per MMBtu its current price is $4.38, or about 68 percent lower.

15 With new technologies to access the gas, shale gas production has increased 14 fold in 10 years, and the estimated

size of the resource base itself has grown more than 20-f old. Compare, for example, the following estimates that

indicate the effect of new drilling technologies that incr eased the estimated size of the accessible U.S. shale gas

resource base: 34.7 trillion cubic feet (“TCF:”), estimated by the National Petroleum Council in 2003; 125 TCF320

GWs of capacity, 15 TCF, estimated by ICF International (“ICF”) in 2008; 631 TCF, estimated by ICF in 2009; and

827 TCF, estimated by EIA in 2011. Sources: NPC, “Balancing Natural Gas Policy: Fueling the Demands of a

Growing Economy, Supply,” September 2003, Table S2-21; EIA, Annual Energy Outlook, Early Release Overview,

page 1; ICF study for the Interstate Natural Gas Associ ation of American, “Availability, Economics, and Production

Potential of North American Unconventional Natural Gas Supplies, 2008, Table 7.

16 The load-weighted energy prices in PJM were $71.13 in 2008 as compared to $48.35 in 2010. See Monitoring

Analytics, 2009 State of the Market Report for PJM , Volume 1, March 11, 2010; Monitoring Analytics, 2010 State

of the Market Report for PJM , Volume 1, March 10, 2011.A Peer Review of EEI’s “Potential Impacts of Environmental Regulation on the U.S. Generation Fleet”



### 7 regions of the U.S., efficient na tural gas-fired plants are cheape r to operate and are displacing

some output from older, less efficient coal plants.

The Report correctly recognizes the impact of these low gas pr ices on coal plant

retirements. 17 

### Notably, approximately half of the pred icted coal plant retirements in “Scenario 1

+ Alt Air” is expected to occur due to market fundamentals, even if EPA somehow avoided its

legal obligation to promul gate these new rules.

EEI analysis and our own work confirms that we are entering a new era where important

natural gas resources that are now economica lly accessible are tri ggering a transition in

America’s power sector from coal to gas while simultaneously reducing power prices in many

parts of the U.S. Although unwelcomed by some, this transition reflects the use of a domestic

fossil fuel (not unlike coal), Nonetheless, th is replacement will result in lower emissions and

new jobs as old and inefficient power plants are replaced with newer units that are more efficient

and that have a lower overall emissions footprint relative to coal. Nearly, 60 percent of the

existing coal fleet is over 40 years old – the design life for most units. 18 

### The oldest and most

inefficient of these are generally also the dirtiest, since they have not insta lled controls in the two

decades since President Bush signed the Clean Air Act Amendments of 1990.

These plants – and in some cases, the consum ers of their power – ha ve had the economic

advantage of operating for decades without m odern pollution controls. While understandably

attractive to consumers’ wallets, these plants emit unhealthful levels of air pollutants, well

17 According to the Report, 22 GWs of retirements in 2015 and 25 GWs in 2020 “are mostly due...to a generally

low natural gas price forecast that ma kes it uneconomic to continue to oper ate these typically smaller and older

units. These retirements are forecast to occur absent any ne w air, ash and water regulations”. Report, p. 11.

18 M.J. Bradley, supra, Table 5, p. 20. Almost 60% of the coal fleet is older than 40 years old with nearly 36% of

the fleet older than 50 years old. These older power plan ts tend to be smaller and less efficient (more costly to

operate) than coal plants built in the 1970s or later. Th ese older power plants also disproportionately represent the

category of plants without pollution controls and that could be forced to retire as a result of low gas prices and

environmental costs.A Peer Review of EEI’s “Potential Impacts of Environmental Regulation on the U.S. Generation Fleet”



### 8 beyond the compliance runway originally e nvisioned when Congre ss passed the 1990

amendments to the Clean Air Act.

Overall, claims of compliance challenges in meeting EPA’s deadlin es sound reasonable,

but do not square with history. A company that begins planning for the Utility Air Toxics rule

today (May 2011) will have at le ast 43 months and as much as 55 months to comply with the

final rule. 19 

### Past experience demonstrates that this tim e period is ample. For example, in a June

17, 2005 filing with the Georgia Public Serv ice Commission, Georgia Power notified the

Commission of its intent to file for permits to install scrubbers at several of its plants and that

Georgia Power “expects a three year construc tion cycle for each scrubber” and needed the

scrubbers to comply with federal and state clean air rule s “some of which were recently finalized

and others of which are still under development.” 20 

### Similarly, Southern Company reported that it

installed its Plant Wansley re trofit in about 30 months, 21 

### and its Plant Crist project in 31

months. 22 

### Southern expects that its Plant Daniel sc rubber project should st art this year and be

operational by late 2014, to comply with EPA’s air regulations. 23



### Such time frames are consistent with industr y data from construction firms that manage

and oversee pollution control installations. Accord ing to the Institute of Clean Air Companies

19 EPA is subject to a court-imposed deadline to finalize its Utility Air Toxics Rule by November 2011. The Clean

Air Act allows three years for existing sources to comply, w ith the possibility of a unit-specific, one-year extension

to complete pollution control installations, for a total of up to 55 months from May.

20 Letter to Mr. Reece McAlister, Execu tive Secretary, Georgia Public Servi ce Commission from Oscar C. Harper,

Manager, Regulatory Affairs, Georgia Power, June 17, 2005.

21 See, Georgia Power cutting emissions at Plant Wansley by 95 percent with new scrubbers , available at

http://times-georgian.com/view/ full_story/3283571/article -Georgia-Power-cutting-emissions-at-Plant-Wansley-by95-percent-with-new-scrubbers

22 This is based on a launch date of May 2007 and a completion date of December 2009. See relevant Southern

Company Press Releases available at: http://www.sou therncompany.com/news/iframe_pressroom.aspx and

http://www.southerncompany.com/ news/iframe_pressroom.aspx.

23 See relevant Mississippi Power Press Release available at:

http://www.mississippipower.com/envi ronment/cleaner_air.aspA Peer Review of EEI’s “Potential Impacts of Environmental Regulation on the U.S. Generation Fleet”



### 9 (“ICAC”) 24 

### and AFL-CIO Buildings and C onstruction Trades Department, 25 

### labor availability or

equipment system availability should not constrain timely implementation of new EPA air

regulations. In fact, these groups report that they welcome the substantial employment and

economic benefits created by the new infrastructure investment required to modernize the

electric generation fleet. Gi ven current low interest rate s, surplus equipment, high

unemployment in related skill trades, and ot herwise favorable conditions produced by low

natural gas prices, this happens to be a highly favor able time to invest in a cleaner, more modern

generation fleet. These investment s will produce economic benefits a nd increase health benefits.

C. EEI’s “Scenario 1+Alt Air Case” is the Most Plausible Scenario, But Still

Overstates Retirements

We noted previously our concerns about EEI’s modeling assumpti on that the WaxmanMarkey bill passed in Congress and became the law of the land. This did not happen, yet two

thirds of EEI’s modeling scenarios assumed that it has been enacted into law and will go into

effect within a few years.

EEI modeled three scenarios that did not incl ude a price on carbon: Scenario 1, “Scenario

1 + Alt-Air” and “Scenario 1 + Alt Water,” which respectively produced 56, 46 and 55 GWs of

retirements. Taking into account the substantial retirements that relatively low natural gas prices

will induce, the factors unrelated to new EPA regul ations drive almost half, or in one case even

more than half, of the estimated coal retirements:

24 See, e.g., the ICAC letter to Senator Thomas Carper, November 3, 2010;

http://www.icac.com/files/pub lic/ICAC_Carper_Response_1 10310.pdf; pp. 1, 3,

25 See, the AFL-CIO Building and Construction Trades Depart ment letter to Senator Thomas Carper, November 5,

2010.A Peer Review of EEI’s “Potential Impacts of Environmental Regulation on the U.S. Generation Fleet”



### 10 Table 2

Estimated Coal Plant Retirement s Under EEI Alternative Scenarios

Furthermore, “Scenario 1” and “Scenario 1 + Alt Water” both cont ain the unrealistic

assumption that every coal plant must install a scrubbe r to achieve air compliance and cannot use

less costly technologies (such as TRONA or dry sorbent injection (“DSI”)). Many coal fleet

owners already have rejected this premise. Ot hers can reasonably be e xpected to do so. DSI

technology has been used successfu lly for acid gas control for more than twenty years. The Air

Toxics Rule allows this less costly co mpliance option, which can be applied to SO 2 

### , SO 3, 

### sulfuric

acid and other acid gases such as hydrochloric acid. This option has been endorsed by major Ru

n Scenario Total Coal

Retirements

(GW) Coal Plant

Retirements

due to

Market

Factors

(GW) Coal Plant

Retirements

(%) due to

Market

Factors Incremental

Coal

Retirements

from EPA

Regulations

(GW)

2015 2020 2015 2020 2015 2020 2015 2020

1 Reference Case 22 25 22 25 100 100 0 0

2 Scenario 1 (assuming strict

hazardous air pollutant, coal

ash, and water regulations) 56 56 22 25 40 45 34 31

3 Scenario 1 + Alt Air (less

strict hazardous air

pollutant, and otherwise

Scenario 1) 46 46 22 25 48 54 24 21

4 Scenario 1 + Alt Water

(Fossil and nuclear units of

certain size and with oncethrough cooling that

withdraws water from

sensitive water bodies must

install cooling towers.) 55 55 22 25 40 45 33 30A Peer Review of EEI’s “Potential Impacts of Environmental Regulation on the U.S. Generation Fleet”



### 11 technology vendors, 26 

### and may reduce compliance costs relati ve to wet scrubbers, especially for

units burning low carbon/low sulfur coals.

One scenario (“Scenario 1 + Alt Air”) ac knowledges these less costly technologies and

provides the most reasonable es timate of retirements under the proposed EPA regulations. Even

this scenario overstates retirements in light of its assumption that all plants must and eventually

will install cooling towers – whic h is not what EPA has proposed. Thus “Scenario 1 + Alt Air”

should be rejected as unreasonable, or at most viewed as the upper end of the bracket, not the

lowest end as represented in the Report.

D. Putting 24 GWs of Retirements into Perspective

The 24 GWs of incremental capacity in Scenario 1 + Alt Air that is estimated to retire as

a result of the EPA regulations represents less th an 8 percent of the nation’s coal fleet (which

totals approximately 320 GWs of capacity 27 

### ). Coal plants generate approximately 45 percent of

the total power in the U.S. 28 

### Notably, between just 2001 and 2003 the U.S. electric industry

constructed 160 GW of new combined cycle gene ration, over six times the amount of retirements

predicted under EEI’s most plausible scenario. 29



### The Report’s scenarios do not consider cu rrent electricity demand forecasts. For

example, EIA’s most recent long-term forecast (2011) lowers the demand forecast for the years

26 http://www.epa.gov/airmarkets/progsregs/epa-ipm/docs/append5_4.pdf,

http://www.unitedconveyor.co m/CatalogItem.aspx?id=396

, http://www.netl.doe.gov/technologi es/coalpower/cctc/ccpi/pubs/SO x-NOx%20Reduction%20at%20PIPP%20-

%20Topical%20Report%20Final.pdf

27 M.J. Bradley, supra , p. 18.

28 US EIA Energy Outlook-2011, April 26, 2011.

29 EIA, Annual Electric Generator Report: Form EIA-860, 2008.A Peer Review of EEI’s “Potential Impacts of Environmental Regulation on the U.S. Generation Fleet”



### 12 2015-2020 by 2.5 percent relative to the 2010 forecast used in the Report. 30 

### Similarly, PJM, the

grid operator in parts of the Mid Atlantic/Midwest regions, recently released new forecasts

showing that because of economic factors includi ng cost-effective energy efficiency and demand

response programs, demand for electricity will be substantially lower than previously forecast. 31



### PJM now predicts that some parts of its region will not reach the demand previously forecasted

for 2014 until at least 2020.

Furthermore, the Report does not consider th at compliance can be achieved not only by

building new power plants or retrofitting existing ones, but also through cost-effective demand

response, energy efficiency, transmission additions or reconfigurations, or various combinations

of strategies. The Report assu mes both a static transmission grid (rather than one incorporating

the smart grid technologies propos ed or already impleme nted in various part s of the country) and

lack of expanded energy efficiency and dema nd-reduction measures. Advanced smart metering

and demand side technologies re duce the need to add capacity for resource adequacy purposes,

allow for system operation with greater efficien cy and flexibility, and provide customers with

more visible price signals to incentivize switchi ng electricity use to less expensive, off peak

times.

As many studies have confirmed, 32 

### demand levels, transmission utilization and demand

side technologies are critical f actors in determining resource ade quacy. The Report’s failure to

consider these relevant factors further reduces the reasonableness of its results.

30 This is based on evaluating the EIA 2011 AEO’s estimat es for electricity use in 2015 and 2020 (shown in

document ref2011.d120810c), compared to the EI A 2010 AEO’s estimates for the same years.

31 “2011 PJM Load Forecast Report,” PJM Resource Adequacy Planning Depa rtment, January 2011.

32 See, for example, the “Scenario Analyses” performed by the ISO-New England at the request of the New England

state regulators, to ensure that that grid operator evaluate d the implications of various resource options on reliability

requirements and system production costs. http://www.isone.com/committees/comm_wkgrps/othr/sas/mtrls/ elec_report/scenario_analysis_final.pdf.A Peer Review of EEI’s “Potential Impacts of Environmental Regulation on the U.S. Generation Fleet”



### 13 Conclusion

Because of various inappropriate and unrealistic assumptions, the Report’s scenarios

overstate cost and retirement impacts. The s cenarios assumed, for example, a one-size-fits-all

cooling tower mandate and most scenarios were based on climate change legislation never

enacted into law. Neither of these is grounded in real worl d realities today.

In stark contrast to others that conclude th at EPA regulations could lead to 70-80 GW of

coal retirements by 2015, we conc lude that the most plausible sc enario (“Scenario 1 + Alt Air”)

estimates that there will be no more than 24 GW of incremental retirements from EPA

regulations. Even this 24 GW scen ario overstates retirements since it assumes that all plants must

install cooling towers – which is a more cons ervative assumption than what EPA has recently

proposed.

Moreover, the Report acknowledges that approxim ately one half of the total retirements

predicted under the most plausibl e scenario result fr om market fundamentals – primarily low gas

prices - and will occur absent any new EPA re gulations. To put the incremental 24 GW of

retirement into context, there is currently over 100 GW of excess capacity in the US and a

proven history of building new capacity when needed. Accordingly, nothing in the Report

changes our conclusion that the industry is well- positioned to comply with the actual regulations

on the proposed schedule and yield si gnificant benefits to the Nation.http://www.wri.org/stories/ 2011/01/electric-reliability-under-new-e pa-power-plant-regulations-field-guide

Home / News / Climate, Energy & Transport 

# Electric Reliability under New EPA Power

Plant Regulations: A Field Guide

By Susan Tierney, Ph.D. on January 18, 2011

Tags: energy EPA regulation us policy

Photo credit: flickr/Nick Humphries

Keeping track of reports on the potential impacts of EPA regulations is becoming a full time job.

Dr. Susan Tierney, Managing Principal at the Analysis Group and WRI Director, provides a “field

guide” to these studies, and explains what they might mean for the power supply landscape in the

next few years.

The Environmental Protection Agency (“EPA”) is pr oposing new regul ations designed to reduce the

emissions of harmful and toxic pollutants released to t he air by electric power pl ants, as required by the

Clean Air Act. Other EPA regulations un der existing laws would affect wa ter and waste syst ems of certain

power plants. While power plants would be brought in to compliance gradually over the next decade,

questions have been raised about the re liability of the electric power syst em as the indust ry responds to

the new regulations. Several new studies have weighed in on the debate. This article provides a “field

guide” to these reports and their conclusions.



### EPA, Greenhouse Gases, and the U.S. EconomyAs the U.S. Environmental Protection Agency uses its authority to limit greenhouse gases and other

pollutants, members of Congress are wondering what these rules mean for the people and industries in

their states. In this series, the non-partisan World R esources Institute examines pending actions

and what they mean for the U.S. economy:

• What Are Limits on EPA? Clean Air Act Holds Answers

• EPA, The Clean Air Act, and U.S. Manufacturing

• For EPA Regulations, Cost Predictions Are Overstated

• Response to EEI’s Timeline of Environm ental Regulations For the Utility Industry

• EPA Regulations: Not a Moratorium on Industrial Construction

• Electric Reliability under New EPA Powe r Plant Regulations: A Field Guide

• Myths & Facts About U.S. EPA Standards

My own conclusion, based on their fi ndings, and my own study for the Analysis Group/MJ Bradley

Associates , is that EPA regulations are manageable and will re nder the resulting fleet of power generators

more efficient and with lower emissions. We do not n eed to trade off cost-effective benefits in the form of

public health for lower electric reliability; both of these are essential “givens” for Americans. This

investment in cleaning up and modernizing the nation’s po wer supply system is important and ultimately

do-able.



### State of Play

Keeping track of every new report on the potential impa cts of planned federal environmental regulations

is becoming a full time job. In the past few months alone, several new studies have outlined their authors’

views of the different implications for power plant re tirements that could result from EPA’s proposed air

and water regulation affecting existing generating units. ( See list below .)

Some observers have suggested that many, if not all, of these regulations need to be delayed in order to

ensure that upcoming retirements of coal-fired po wer plants do not lead to adverse impacts on the

reliability of the electric grid, while others have point ed out the various ways t hat the indust ry and its

regulators are well-equipped to take the actions needed to ensure that public health is protected while

keeping the lights on everywhere as uneconomical plants proceed to retirement. 1

While there are some common themes, it can be hard to pinpoint the reasons why reports on this subject

sometimes come to different conclusions about potenti al retirement implications of the new regulations.

Some of the studies look at the impacts of air re gulations alone, but not water regulations. Others study

the impacts of EPA actions relating to new greenhou se gas (GHG) emission regu lations, while others donot. Some studies are clear about their assumptions regarding important factors such as natural gas

prices; others are not. These differences make it difficult for the most experienced analysts to make

sense of why the studies come to different conclusions.

EPA regulations are manageable and will render the re sulting fleet of power generators more efficient and

with lower emissions.

Given the abundance of studies - and the significance of the issues - it’s important to understand what’s

what. This blog post aims to provide a “field guide” to these reports – to explai n what they might mean for

the power supply landscape in the nex t few years. This “field guide” fo cuses on the air regulations that

primarily affect existing fossil fuel power plants and that are not related to GHG emissions, since these

are the regulations with the earliest compliance dates for power companies.



### Results of studies on EPA proposed regulations

In sum, the many reports suggest t hat the impacts of air regulations (i .e., those affecting sulfur dioxide

(“SO2”), nitrogen oxides (“NOx”) and mercury)) are rela tively modest in the near term – the period during

which the industry will need to respond to regulat ory signals. Assuming a compliance period starting in

2015 for such air regulations, the estimates range from 6 gigawatts (“GW”) to 65 GW, with most of the

studies falling into a range of approximately 25 GW to 50 GW, compared to a total coal-fired resource

base of approximately 310-340 GW. 2 The amounts compare to an estimated 1,045 GW base of

generating capacity in the U.S. in the year 2015. 3 The results of the studies are shown in the figure below

and do not include those that look at impacts incl uding either GHG emission regulations and/or water

regulations. 4

The parts of the country with potential exposure to re latively high retirements in response to the air

regulations are, not surprisingly, the portions of the country with a high percentage of coal plants

(especially older and less efficient plants) and with lower existing reserve levels at present. These regions

are shown in the figure below.Credit: Analysis Group. View larger

As I and others have written about elsewhere , there are various tools that di fferent players in the industry

have at their disposal to ensure t hat these resource additions are undertaken in a timely way so that

regions have sufficient power plant and other ca pacity (such as demand- reduction capability,

transmission reconfiguratio ns) to ensure that reliability requirements are met. 5 Undoubtedly, there is work

that still needs to be done to make sure that appropriate parties – po wer plant owners, state and federal

regulators, regional transmission organizations, demand- side service providers, investors, and others –

take action expeditiously to make prudent decisions. Nevertheless, the actions necessitated by the

proposed EPA regulations ar e manageable and will render the resulting fleet of power generators more

efficient and with lower emissions.Credit: Analysis Group. View larger



### Background: The Regulations

Several EPA regulations will affect portion s of the nation’s existing power plants. Prior WRI blogs (and

other observers) have outlined the major air and wa ter rules, so I won’t repeat them here.

All in all, each regulation affects different groups of generating units over different time frames and in

different parts of the country:

• The Clean Air Tr ansport Rule (“CATR”) principally affects fossil plants in the Eastern half of the

U.S., and focuses on reducing SO2 and NOx emissi ons that are affecting both in-state and

downwind air quality. The CATR follows upon the Clean Air Interstate Rule (“CAIR”), which court

orders have required the EPA to revise.

• The regulations affecting various hazardous ai r pollutants (“HAPs”), including mercury (“Hg”)

among others, and introducing a requirement for Maximum Achievable Control Technologies

(“MACT”) for power plants; the utility MACT ru le mainly affects coal-fired power plants.• The regulations affecting the disposal of coal combustion residuals (or the so-called “coal ash”)

rule, also affecting certain coal-fired power plants.

• The Clean Water Act regulations (the so-called “316(b)” regulations ) that will affect the water

intakes and discharges of cool ing systems of certain therma l power plants that use “oncethrough” cooling systems (and which may includ e many other power plants besides coal-fired

power stations).

• New regulations that would regulate GHGs from new and existing power plants . The regulations

affecting new power plants went into effect on January 1, 2011, and regulations affecting

emissions from existing power plants have yet to be proposed.

In light of statutory requirements and court orders, EPA has different amounts of flexibility in modifying

current versions of these regulat ions, where such already exist. A WRI timetable for drafting and finalizing

regulations , as well as the periods during which the affected power plants would need to be in compliance,

is summarized in the chart below by WRI Senior Associate John Larsen.

Regulatory Compliance Obligations for the Utility Industry

### The Studies: Key Differences and Omissions

The many studies published (and in some cases, re leased) during the last year come from various

authors or sponsors, including consul tants, investor analysts, industry trade associations, and reliability

organizations. They differ tremendously in terms of how they treat – and how transparently they report 6

–

their assumptions. Some of the more important assu mptions clearly shape the results of their studies.

These include such critical factors as: the role of natural gas supply and prices in adversely affecting the

fundamental economics of coal plants (especially the older and less efficient ones); the as-yet-to-berevealed response of the markets in providing new ca pacity to replace power plant capacity that is

derated or retired; the time frames needed for the mark et to respond in one form or another; or the extent

to which investment choices and resource options differ in light of whether a plant is in a regulated utility’s

rate base or in a merchant power market.

Important differences among the studies include:

• Varying assumptions about regulatory impact: A few of the studies (notably the one prepared

by the North American Electric Reliability Corporation ( NERC report , 10/2010)), studied not only

the impact of EPA regulations affecting traditional air pollutants (SO2, NOx, mercury) but also

the impacts of the 316(b) and GHG regulations coal-ash regulations. NERC identified the 316(b)

regulations as having the biggest impact on retire ments of coal plants with concerns raised for

reliability, especially if EPA’s 316(b) regulations are “strict”. 7 (I note that EPA Administrator Lisa

Jackson wrote on December 16, 2010, that “EPA last month sought and rece ived consent [from

the court] to delay the deadline for a proposed rule by four months, to March 14, 2011” and with

final action by July 2012. She said further that the “proposal that EPA issues next March will

reflect a common-sense approach that reason ably accommodates site-specific circumstances

while keeping faith with the need to minimize adverse environmental impact.”) The Brattle Study

did not distinguish between impacts of the ai r rules only and the impacts of all of EPA’s

upcoming regulations. The ICF-Fine Study includes the impact of GHG regulations. And the ICFEEI looked at scenarios including 316(b) and GHG regulatory impacts.

• Varying assumptions about market responses: Many of these reports make it clear that action

needs to be taken soon by a variety of parties to assure that the estimated amounts of

retirements do not adversely impact reliability. NERC make s this clear, as does the MJBA-AGI

Study , the CRA Study , and several of the studies done by investment analyst firms ( DB Study

, CS

Study , and Bernstein Study ). The studies do not, however, make assumptions about how the

market will respond as retirements are announc ed or anticipated. Conditions will change over

time as electric supply and demand markets evolve. Most of the studies, therefore, serve as acall to action: as they overstate the resource a dequacy gaps that will occur by 2015, they signal

to various market participants – owners of re tiring power plants, other power plant developers,

buyers of power to replace that retiring capacity with other resources (e.g., newly built power

plants, underutilized power plants, transmission reconfiguratio ns, demand-side resources) – the

need for new actions to meet upcoming electricit y customer requirements. Lead times for many

options fit well within the time frame identified by the studies.

• Varying assumptions about fundamental power plant economics: Many of the studies (CRA,

Bernstein, DB, Brattle, ICF-Fine, ICF-EEI, NERC) use different technical assumptions about key

parameters that affect a power plant owner’s deci sion about whether it is more economical to

add new pollution-control equipment on an existing coal plant or to retire the unit instead.

Relevant key assumptions include the cost of r eplacement power, the cost of back-end control

equipment, the types of equipment that are suit able for compliance with EPA rules, the amount

of time that an existing plant will continue to oper ate in the future, the amount of time that the

new plant will be dispatched to produce power in future electricity markets, the regulatory and tax

treatments afforded to different types of plants, and the level of demand for electricity in the first

place. As every technical analyst of electric systems knows, these assumptions shape the

output, as do the features of the financial and dispatch models used in these studies.

• Distinguishing the underlying impacts of lo w gas prices from the impacts of the EPA

regulations: Importantly, rarely do the studies make it clear that low gas prices have

fundamentally worsened the economics of coal plants, even in the absence of the EPA

regulations. The relative attractiveness of produ cing power from natural gas compared to coal

results from significant shifts in the prices of these two fuels over the past few years. Although

gas plants on average tend to produce power relatively efficiently (i.e., with a lower “heat rate”

(Btu per kWh produced)), coal plants (with higher average heat rates) have had a power

production advantage due to relatively cheap fuel prices. This advantage has significantly

eroded, as shown in the figure below, as gas and coal prices have changed over time (2005-

2011). Coal plants with high heat rates (e.g., the ones that are older and smaller) are especially

vulnerable to this change.Credit: Analysis Group. View larger

This is an important part of the story about ex pected power plant retirements. If gas/coal market

fundamentals were not where they are today – with re latively low gas prices as a result of newly opened

and economically accessible natural gas fields, and rising coal prices (especially relative to natural gas) –

then we would not expect to see as many coal-plant retirements in the face of the EPA regulations. The

studies themselves are based primarily on gas price forecasts created in 2010 (including those used in

last year’s Annual Energy Outlook prepared by the U.S. Energy Informat ion Administration). It is clear that

more recent estimates show that gas price forecasts and futures are lower than they were last year. With

lower gas prices, one would expect more retirements of coal plants than with higher gas prices,

something that various studies (e.g., the May 2010 ICF study prepared for EEI that was released to a

congressional committee) have recognized. This is a market-driven outcome, rather than one resulting

fundamentally from EPA air regulations.

• Singular focus on “resource adequacy”: The studies that look at “system reliability” mainly

focus on resource adequacy (i.e., are there enough resources available to provide power whenneeded, under reasonable outlooks for demand?) ra ther than operational security (i.e., can the

system keep the lights on in all plac es and at any time of day in ways consistent with reliability

standards?). As NERC stated in its study, “The impa cts of potential EPA regulations may also

have second tier effects on reliability, beyond resource adequacy. Resource deliverability,

outage scheduling/construction constraints, local pockets of retirements, and transmission needs

may also affect bulk power system reliability. While these issues were not studied in this

assessment, the indust ry will need to reso lve these concerns.” 8 Clearly, more analysis is needed

and the tools are available to do so.

• Focusing on regional costs without looking at regional benefits: Finally, virtually none of the

studies I’ve identified above (except perhaps the one I participated in ) attempt to connect the dots

between the places where air quality will improve (i.e., the geographic location of benefits) as a

result of EPA’s regulations, and the region s where the power pl ant fleet will undergo

modernization (i.e., the geographic locations of ar eas with potential cost increases). The cost

increases will result from a variety of fa ctors: plant owners addi ng new pollution control

equipment; the need to replace capacity and energy fr om retiring plants; and so forth. Many of

the benefits will occur in regions with cost im pacts. In this sense, the people who will be

experiencing the long-run health benefits and lowe r medical costs are the same people who may

pay somewhat higher electricity bills.



### Conclusion

After analyzing the range of reports produced on the proposed EPA regul ations and their timelines for

compliance, I am not persuaded to alter the view I expressed with my co-authors in our August 2010

report, Ensuring a Clean, Modern Electric Generating Fleet while Maintaining Electric System Reliability . “We

conclude that, without threatening elec tric reliability, the i ndustry is well-positioned to respond to EPA’s

proposed road map to ‘help millions of Americans breathe easier, live healthier, ’ provided that EPA, the

industry and other agencies take practical steps to plan for the implementation of these regulations and

adopt appropriate regulatory approaches.” We can do this, and we must.

Dr. Susan Tierney is Managing Principal of the Analysis Group , and serves on the World Resources

Institute Board of Directors. Dr. Tierney is an expert on energy policy and economics, specializing in the

electric and gas industries. She has consulted to companies, governments, non-profits, and other

organizations on energy markets, economic and environmental regulation and strategy, energy and

renewables policy, and energy facility projects.Recent Studies of Upcoming EPA Regul ations and Coal Plant Retirements

• “Bernstein Study” (10-2010): Hugh Wynne et al., Bernstein Research, U.S. Utilities: Coal-Fired

Generation Is Squeezed in the Vice of EP A Regulation; Who Wins and Who Loses?

• “Brattle Study” (12-2010): Metin Celebi, Frank Graves, Gunjan Bathla, and Lucas Bressan

(Brattle Group), Potential Coal Plant Retirements Under Emerging Environmental Regulations

.

• “CRA Study” (12-16-2010): Ira Shavel and Ba rclay Gibbs (Charles River Associates), A Reliability

Assessment of EPA’s Proposed Transp ort Rule and Forthcoming Utility MACT

.

• “CS Study” (7-2010): Credit Suisse, “A Thought... CATR is First Step in Changing the Coal

Fleet.”

• “DB Study” (11-2010): Deutsche Bank Group Climate Change Advisors, Natural Gas and

Renewables: A Secure Low Carbon Futu re Energy Plan for the United States

.

• “ICF-EEI Study” (5-2010), ICF pre pared for Edison Electric Institute, Preliminary Reference Case and

Scenario Results

.

• “ICF-Fine Study” (10-2010); Steven Fine (ICF), Clean Air, Ash and Water Regulations: Potential

Impact of EPA Proposed Rules

.

• “ICF-INGAA Study” (5-2010): ICF prepared for Inte rstate Natural Gas Association of America,

Coal-Fired Electric Generation Unit Retirement Analysis

.

• “Kaplan-EIA Study” (11-2010): Stan Kaplan, Energy Information Administration, Potential for

Displacing Coal With Generation from Existing Natural Gas Plants , presentation to the National

Capitol Area Chapter, U.S. Asso ciation for Energy Economics.

• “MJBA-AGI Study” (8-2010): MJ Bradley et al of MJ Bradley Associates and Susan Tierney and

Paul Hibbard of Analysis Group (pr epared for the Clean Energy Group), Ensuring a Clean, Modern

Electric Generating Fleet while Maintaining Electric System Reliability

.

• “NERC Study” (10-2010): North Americ an Electric Reliability Corporation, 2010 Special Reliability

Scenario Assessment: Resource Ad equacy Impacts of Potential U.S. Environmental Regulation

.

• “PIRA Study” (4-2010): “North American Environmental Mark ets Service: EPA’s Upcoming

MACT: Strict Non-Hg Regs Can Have Far-Reaching Market Impacts.”1. I note my own contribution to this debate: Michae l Bradley and Chris Van Atten et al (M.J. Bradley

Associates) and Susan Tierney and Paul Hibbard (Analysis Group), “ Ensuring a Clean, Modern Electric

Generating Fleet while Maintaining Electric System Reliability ,” August 2010. For more on the different

points of view, see the videos and presentations post ed on the website of the Bipartisan Policy Center,

which has hosted two workshops on “Environmental Re gulation and Electric System Reliability.” The

first workshop (at which I presented) was held on October 22, 2010 and the second one on December 7th,

2010 . The third in the BPC’s series will take place on January 19, 2011

. ճ

2. The studies even differ in terms of what they assume about the starting baseline of coal-fired power

plants – that is, which new additions are incl uded, and which already announced retirements are

excluded. This is the reason for this range as a starting point. ճ

3. This figure is based on NERC’s Special Reliability Assessment which uses as its reference case for 2015

the “Adjusted Potential Capacity Resources” of 1,045 GW – representing existing and planned capacity,

along with potential announced capacity adjust ed for a confidence factor (p. 60). ճ

4. The studies that inclu de GHG emissions are: the ICF-Fine Study , the Brattle Study and the DB Study . For

studies (such as the NERC Study , the ICF-EEI Study , and the Bernstein Study that included separate

scenarios that broke out impacts of air regulations from the impacts of either GHG and/or water

regulations, my analysis only used the sc enarios reflecting the air regulations. ճ

5. See our discussion in Michael Bradley and Chris V an Atten et al (M.J. Bradley Associates) and Susan

Tierney and Paul Hibbard (Analysis Group), “Ensuring a Clean, Modern El ectric Generating Fleet while

Maintaining Electric System Reliability,” August 2010. See also Susan Tierney, “Toolkit for Ensuring

Reliable, Economic Responses to EPA’s Proposed Air Regulations,” presentation to the annual meeting of the

National Association of State Utilit y Regulators (NARUC), November 17, 2010. ճ

6. Many of the reports describe their assumptions, but not necessarily at the level of detail that would allow

for apples-to-apples comparisons across studies, eit her in key elements of models or data/parameter

assumptions (e.g., on equipment cost ). Some of the more transparent studies are those prepared by

investment analysts (e.g., the DB Study , the Bernstein Study ), some of the consultant studies (e.g., the

CRA Study , the Brattle Study and the NERC Study

. ճ

7. “The Strict Case scenarios reflect the coupled effect s of a higher increase in costs with more stringent

requirements for the proposed rules.” NERC Study , page 5. For the 316(b) proposed regulations, NERC

assumed a 25% increase in compliance costs. ճ

8. North American Electric Reliability Corporation, “2010 Special Reliability Scenario Assessment: Resource

Adequacy Impacts of Potential U.S. Environmental Regulation” (October 2010), page 6. ճ

Related Information

U.S. Federal Climate Policy



### Related Links

• U.S. Federal Climate Policy

• Climate, Energy & Transport• Dialogue on Performance Standards for Existing Power Plants: Participant Comments to EPA

• Old Roads to a New Destination

• Myths and Facts about U.S. EPA Standards

Be a part of WRI’s vital work to address climate change. Join forces with WRI as a business partner or a

donor

.

World Resource Institute, 10 G Street NE Suite 800, Washington, DC 20002, USA / Phone +1 (202) 729-

7600 / Fax +1 (202) 729-7610EPA Regulations,Power Generation Capacity & ReliabilitySue TierneyPowerGenerationCapacity&ReliabilityMIT Center for Energy & Environmental Policy ResearchW khM 5 2011SueTierneyWorkshop–May5,2011BOSTON CHICAGO DALLAS DENVER LOS ANGELES MENLO PARK MONTREAL NEW YORK SAN FRANCISCO WASHINGTONMIT – CEEPR WorkshopSome key issues:Upcomingfederal air regulations affectingpowerplantsg g gp pImplications and options for energy resourcesTools to manage through the transition in a reliable wayg yPage 2MIT – CEEPR WorkshopUPCOMING AIR REGULATIONSAir policy affecting fossil power plantsUPCOMINGAIRREGULATIONSPage 3MIT – CEEPR Workshop“P i P ll t t” dEmissions from power plantsNOx (Nitrogen Oxides):Cause ground-level ozone another primary pollutant under the CAA“PrimaryPollutant”underthe Clean Air Act (CAA)Causeground-levelozone,anotherprimarypollutantundertheCAASO2(Sulfur Dioxide)Causes acid rain and regional haze(addressed in two parts of the CAA)Particulates (fine and course particles)Affect the heart and lungs and cause serious health effects when inhaledMercury Acid Gases Arsenic and Other ToxicsMercury,AcidGases,Arsenic,andOtherToxicsAffect various aspects of human healthAddressed under toxics air pollutants provisions of the CAAGreenhouse Gases (“GHG”) – CO2, methane and othersContributes to global climate changePage 4MIT – CEEPR WorkshopN / i EPA i l ti ff ti th tNew/upcomingEPAair regulations affectingthe power sectorClean Air Transport Rule (“CATR”) – proposed 7/2010, final 6/2010Proposal to regulate emissions of SO2and NOxfrom fossil-fueledpowerplantsp g2xp p(over 25 MW) in the Eastern part of the U.S.Replaces proposed rule (CAIR) that was sent back to EPA to fix, many years agoCompliance by2014(phase 2), withpreferred approach allowingtradingy (p ) p pp g gMercury and Air Toxics Rule – proposed 3/2011, final 11/2011Proposal to regulate emissions of toxic air pollutants (mercury, lead, acid gases,arsenic, etc.) at coal and oil plants larger than 25 MW in U.S.arsenic,etc.)atcoalandoilplantslargerthan25MWinU.S.Requires Maximum Achievable Control Technology (“MACT”), with varioustechnology options and station-level tradingCompliance by 2015 (with possible 1-year extension on plant-specific basisComplianceby2015(withpossible1yearextensiononplantspecificbasisOther EPA regulations for which EPA has more discretion in timing/compliance:Coal Combustion Residues Rule (coal ash disposal/management) – proposed 6/2010,timing of final rule has not been setPage 5Cooling Water Intake Rule (addresses thermal units with once-through cooling) –proposal 3/2011, proposed to be finalized in Summer 2012MIT – CEEPR WorkshopEPA’upcoming air regulations–supcomingairregulationsImplications for electric system modernization?Coal Fired Power PlantsPage 6MIT – CEEPR WorkshopImpacts from electricity produced at coal power plantsImpactsfromelectricityproducedatcoalpowerplantsNational Mortality Effects from ExistingPlants (Annual Persons per 100 000PowerPlants(AnnualPersonsper100,000Power(AnnualPersons< 33-77-1010-14>14Annual Mortality Due to IndividualPower Plants (Persons)<2525-75> 75Page 7Clean Air Task Force, “Toll from Coal,” 2010(Google Mapsprograms)MIT – CEEPR WorkshopSOME IMPLICATIONSAir regulations affecting fossil power plantsSOMEIMPLICATIONSPage 8MIT – CEEPR WorkshopImpacts of EPA’s New Regulations on the Power Sector:Marginally economic plants are likely candidates to retireDiff t l ti ff t diff t ti it i th U SDifferentregulations affectdifferentgenerating unitsintheU.S.–CATR:–Covers most fossil plants in theCoversmostfossilplantsintheEastern Interconnection and Texas– Many plants already comply–May tip into retirements some coal plantsthat are already economically challenged–Air Toxics:CATR– Covers coal and oil plants in the entire U.S.– Some plants already complyPage 9–Mainly affects coal-fired power plants (dueto emissions of mercury and acid gases).Air ToxicsMIT – CEEPR WorkshopGas/Coalprice differentials have shifted in recentyears –yPutting pressure on less efficient coal plants0.6Change in Price Since January 2006:Coal, Natural Gas, and Consumer Price Index%0.4Coal price~ +35%0.20 2-1E-15000-0.4-0.2Consumer Price Index (all urban consumers)Gas price~ -40%Page 10-0.6Cost of Coal Delivered to Electric Generating PlantsCost of Natural Gas Delivered to Electric Generating PlantsSource: EIA dataMIT – CEEPR Workshop9.00U.S. Wellhead Prices of Natural Gas (2009$)Comparing the 2008 Forecast v. 2011 Forecast by EIAThe outlook for natural gas has improved in light of new supply7.008.009.002008 Forecast5.006.00Actual2 003.004.002011 ForecastL lt i th tl k f l0.001.002.00Lowerlong-term gas prices worsenthe outlookfor some coalplants that might once have been viewed as economical toupgrade in response to upcoming EPA regulationsPage 11Source: EIA data (Annual Energy Outlook (2008, 2011)MIT – CEEPR WorkshopMany older coal plants have fewer air-pollution controls, operate less70Coal Plants by Vintage and Emission ControlsTotal Capacity – All Units (2009)5055606570No Emission ControlSCR onlyFGD onlyFGD & SCR62%58%47%35404550

GWx% = Capacity factor ofunits with no controls44%46%1520253042%46%31%57%50%0510 1 944 1 949 1 954 1 959 1 964 1 969 1 974 1 979 1 984 1 989 1 994 1 999 2 004 2 009 2 01025%23%57%48%63%54%Page 12

1940- 1

1945- 1 1950- 1 1955- 1 1960- 1 1965- 1 1970- 1 1975- 1 1980- 1 1985- 1 1990- 1 1995- 1 2000- 2 2005- 2 2Notes:[1] Totals do not include Alaska or Hawaii.Source: SNL data.MIT – CEEPR WorkshopOlder coal plant capacity that will requireair-pollution controls to remain in operationUnits without Emission ControlsTotal CapacitybyVintage2025p yy gCapacity at Coal Plants that are:-Olderthan 40years15

G WO de t a 0 yea s- Lack FGD or a scrubberNot all of theseplants will retire.Many of the moreefficientplants510

Gmay add controls.0 940- 944 945- 949 950- 954 955- 959 960- 964 965- 969 970- 974 975- 979 980- 984 985- 989 990- 994 995- 999 000- 2 004 005- 2 009Page 13

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2Notes:[1] Totals do not include Alaska or Hawaii.[2] Units without emissions are those units without SCR or FGD systems.Source: SNL data.MIT – CEEPR WorkshopFlexibility in implementing regulationsTIME EXTENSIONS:TIMEEXTENSIONS:EPA can grant time extensions for power plants to install pollution controlequipment on a case-by-case basis under the CAA.EMERGENCIES:The DOE can override CAA control requirements under §202(c) of the FederalPower Act in limited emergency circumstances.The EPA and the President have the authority to extend deadlines for theTheEPAandthePresidenthavetheauthoritytoextenddeadlinesfortheUtility MACT rule as necessary to preserve electric system reliability.CONSENT DECREES:Th EPA d DOE t bli h t d ith l t th t llTheEPAandDOEcan establishconsentdecrees withpower plantsthatallowthem to run under specific and limited circumstances to maintain reliabilitywhile avoiding the full extent of possible exceedances of national air qualitystandards.Page 14MIT – CEEPR WorkshopEPA estimates of impacts of the CATR:%1%1%1%45%0%1%1%1%0%Page 15Schmalensee and Stavins, “A Guide toEconomic and Policy Analysis of EPA’s Transport Rule,” March 2011, based on EPAestimates of rate impacts0%MIT – CEEPR WorkshopSOME IMPLICATIONS:Air regulatory policy affecting fossil power plantsSOMEIMPLICATIONS:MANAGING THE TRANSITIONPage 16MIT – CEEPR WorkshopImpacts of EPA’s New Regulations on the Power Sector:Page 17Source: S Tierney, WRI Blogpost, January 2001:http://www.wri.org/stories/2011/01/electric-reliability-under-new-epa-power-plant-regulations-field-guideMIT – CEEPR WorkshopEEI/ICF study– Jan 2011 analysis of impacts of EPApregulations on the power sectorSensitivity analyses about impacts, assuming different rules.These overstate the costs/reliability impacts because:2/3 of scenarios assume that the U.S. has a mandatory national CO2cap in 2016.(This accounts for 23 GW of unplanned coal-plant retirements by 2015.)All scenarios assume that every U.S. fossil andnuclear power plant (over a certain size)will need a cooling tower. (This is not the EPA proposal.)7 of the 9 scenarios did not consider less costly technologies for air emissions thath l d b t t d/i t ll d Thi t t d ti t b t l t 10 GWhave alreadybeentested/installed.This overstatedretirementsby atleast10GW.The Report does not mention that:Already over 150 GWs of coal units havesuch controls, with another 65 GWs withplanned installations 2/3 of U S coal plants are absorbing the types of costsplannedinstallations.2/3ofU.S.coalplantsareabsorbingthetypesofcostsanticipated in the report.Gas prices are driving 40% of the retirementsThere are options besides adding controls or retiring/replacing units.Page 18Thereareoptionsbesidesaddingcontrolsorretiring/replacingunits.MIT – CEEPR WorkshopOptions for responding to these regulationsSome options are obvious – the “classic” toolkit.Other options are wellunderstand by the industry and its regulatorsOtheroptionsarewell-understandbytheindustryanditsregulators–although not necessarily being discussed inevery place where investmentdecisions are being analyzedDiff t t l d ti i th h d f i lDifferenttools andactions areinthehands ofvarious players –not just the owners of plants that are affected by the EPA regulations.Page 19MIT – CEEPR WorkshopThe“Classic”:Build a new power plantto replace a retiringone’s capacityTheClassic :The tool that someindustry participantsare using......Retrofit apower plantpowerplantwith pollutioncontrolequipmentSeek a delay:-The entire rule, or-The rule’s application to a particular plantPage 20Therule sapplicationtoaparticularplant,- A temporary delay (e.g., RMR)MIT – CEEPR WorkshopThe “Champ”: The tool we needPage 21MIT – CEEPR WorkshopThe“Champ”: The tool we needPUCs: updateTheChamp :ThetoolweneedPUCs: askDEPs to provideinformationavoided costestimates toreflect new costsabout plants inthe stateRegulators:ask TOs andRTOs to performPUCs: askplants owners tosubmit plansRTOstoperform“what if”analysesASAPRTOs and TOs:identify potentialtransmissioncapacity openedPUCs/FERC:capacityopenedup byretirementsrefreshunderstanding ofbackstop issues toensure reliabilityPage 22Get critical information into the public domainensurereliabilityMIT – CEEPR WorkshopThe“Champ”: The tool we needRTOs and TOs:conductTheChamp :ThetoolweneedPUCs: askDEPs to provideconducttransmissionplanning with“what if”PUCs: discussexpectations aboutDEPstoprovideinformationabout plants inthe statescenariosexpectationsaboutwhat is/may not beprudent responsesto EPA rulesPUCs: addressRTOs andregulators:Establish forwardPUCs:addresslong-termcontracting,stranded costcapacity marketsreflecting realcompliance costassumptionsRTOs and TOs: ensure thatissuesRTOsandTOs:ensurethatopened-up transmission capacityis available to the market on nondiscriminatory basisLegislatures/PUCs: considerhealth benefits along with powersystem costsPage 23Ensure that market/regulatory rules support robust responsessystemcostsMIT – CEEPR WorkshopThe “Champ”: The tool we needThe“Champ”:ThetoolweneedPUCs: intraditionallyRTOs and TOs:examinetransmission options(economicstructured states,ask for and reviewcompliance plans(economic,reliability) asalternatives togeneration optionswithin LCPframeworksPUCs: in traditionallystructured states,require competitivePUCs in traditionaland regulated states:Deploy cost-effectivedemand-side optionsprocurements tocompete with utilitycompliance plansdemandsideoptions,including ratemakingissuesPage 24Seek competitive and/or leastSeek competitive and/or least-cost) optionscost) optionsMIT – CEEPR WorkshopSusan Tierney, Ph.D.Managing PrincipalAnalysis Groupp111 Huntington Avenue, 10thFloorBoston, MA 02199617-425-8114ti @ l iPage 25stierney@analysisgroup.com