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 13th 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 demand
Tierney 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 15th, 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 Group 
A 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 Institute (“EEI”) released a report entitled 

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

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

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

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

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

retirements by 20151. This peer review analysis evaluates the Report’s findings in light of the 

actual proposed Utility Air 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 upon worst-case assumptions which have not 

materialized and upon climate change legislation never enacted into law. 

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

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

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

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

Report’s excessively conservative 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, 2011, Thomas A. Fanning, Chairman, President, 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 Report2

. We reproduce the 

Report’s Table 13

 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 assumptions that were unreasonable at 

the time that EEI’s consultants conducted their 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 scenarios that reflect different combinations of assumptions 

regarding EPA regulations and natural gas prices. The six 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 Coal 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-fits-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 Congress 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, alternative technologies and resource options to reduce 

air toxics emissions despite the fact that many coal plants already do use these technologies and 

many utilities now use different options to meet customers’ reliability requirements. 

 Reliance on so many fundamentally unrealistic assumptions undermines the usefulness of 

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

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

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

affordable, reliable electricity. 

Moreover, contrary to some testimony before the House Energy and Commerce 

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

80 GWs of retirements by 2015. Only two scenarios – “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 scenarios contained all three 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+Alt 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 are forcing some inefficient, older coal plants out of business.6

 

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

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

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

Interstate Rule). 

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

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

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

this scenario without any new EPA regulations. 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 capacity7

 when needed. In just three years between, between 2001 

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

Likewise, the electric industry has a proven track record of timely installing mandated 

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

technology experts have reported that the remaining plants can 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. Nothing in the Report alters our conclusion that the 

industry is well positioned to comply with the actual regulations on the proposed schedule. 

 

6

 These retirements are shown in the Reference Case results. 

7

 North American Electric Reliability Corporation (“NERC”), 2009 Long-Term Reliability 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” 

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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 outcomes, all nine of EEI’s 

scenarios depict far more aggressive environmental 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 preparation. For example: 

 Six of the nine scenarios9

 modeled (Runs 5-10) contain an underlying assumption that the 

Waxman-Markey bill went into law, imposing a rising price on carbon dioxide (“CO2”), 

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 CO2. 

 Eight of the nine scenarios10 modeled (Runs 2, and 4-10) failed 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 deployed to control emissions and 

would not require plant retirements. 

 

9

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

regarding EPA regulations and natural gas prices. The six 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+Alt CO2”; “2+Alt Ash”; “2+$1.50 gas”; “2+$3.00 gas”. 11 In its third quarter 10-Q filed on October 29, 2010, Midwest Generation stated: “Testing of [dry scrubbing with 

sodium-based sorbents] demonstrated significant reductions in SO2 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” 

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 Eight of the nine scenarios12 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 advised Congress that: “I do not favor a onesize-fits-all federal mandate.” 

Finally, the report ignores an important fact for policymakers 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 installing the equipment now.13 In sum, over two thirds of the nation’s 

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

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

Since 2008, natural gas prices have fallen over 60 percent14 as a result of the opening up 

of abundant, new domestic natural gas from shale formations.15 In turn, low gas prices have 

been a primary driver of wholesale electricity prices being down over 30 percent.16 In many 

 

12 Report Scenarios: “1”; “1+Alt Air”; “2”; “2+Alt CO2”; “2+Alt Air”; “2+Alt Ash”; “2+$1.50 gas”; “2+$3.00 

gas.” 

13 M. J. Bradley & Associates/Analysis Group, “Ensuring 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-fold. Compare, for example, the following estimates that 

indicate the effect of new drilling technologies that increased 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 Association 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” 

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regions of the U.S., efficient natural gas-fired plants are cheaper to operate and are displacing 

some output from older, less efficient coal plants. 

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

retirements.17 Notably, approximately half of the predicted 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 promulgate 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 economically accessible are triggering 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, this 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 installed controls in the two 

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

These plants – and in some cases, the consumers of their power – have had the economic 

advantage of operating for decades without modern 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 makes it uneconomic to continue to operate these typically smaller and older 

units. These retirements are forecast to occur absent any new 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 plants tend to be smaller and less efficient (more costly to 

operate) than coal plants built in the 1970s or later. These 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” 

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beyond the compliance runway originally envisioned when Congress passed the 1990 

amendments to the Clean Air Act. 

Overall, claims of compliance challenges in meeting EPA’s deadlines 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 least 43 months and as much as 55 months to comply with the 

final rule.19 Past experience demonstrates that this time period is ample. For example, in a June 

17, 2005 filing with the Georgia Public Service 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 construction cycle for each scrubber” and needed the 

scrubbers to comply with federal and state clean air rules “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 retrofit in about 30 months,21 and its Plant Crist project in 31 

months.22 Southern expects that its Plant Daniel scrubber project should start this year and be 

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

Such time frames are consistent with industry data from construction firms that manage 

and oversee pollution control installations. According 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, with 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, Executive Secretary, Georgia Public Service 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.southerncompany.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/environment/cleaner_air.asp 
A Peer Review of EEI’s “Potential Impacts of Environmental Regulation on the U.S. Generation Fleet” 

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(“ICAC”)24 and AFL-CIO Buildings and Construction 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. Given current low interest rates, surplus equipment, high 

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

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

generation fleet. These investments will produce economic benefits and 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 assumption 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 include 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 regulations 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/public/ICAC_Carper_Response_110310.pdf; pp. 1, 3, 25 See, the AFL-CIO Building and Construction Trades Department 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” 

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Table 2 

 Estimated Coal Plant Retirements Under EEI Alternative Scenarios 

 

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

assumption that every coal plant must install a scrubber 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. Others can reasonably be expected to do so. DSI 

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

Toxics Rule allows this less costly compliance option, which can be applied to SO2, SO3, 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 30 
A 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 relative to wet scrubbers, especially for 

units burning low carbon/low sulfur coals. 

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

provides the most reasonable estimate 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 – which 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 than 8 percent of the nation’s coal fleet (which 

totals approximately 320 GWs of capacity27). 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 generation, over six times the amount of retirements 

predicted under EEI’s most plausible scenario.29 

The Report’s scenarios do not consider current 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.com/CatalogItem.aspx?id=396, 

http://www.netl.doe.gov/technologies/coalpower/cctc/ccpi/pubs/SOx-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” 

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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 including 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 that 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 assumes both a static transmission grid (rather than one incorporating 

the smart grid technologies proposed or already implemented in various parts of the country) and 

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

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

allow for system operation with greater efficiency and flexibility, and provide customers with 

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

times. 

As many studies have confirmed,32 demand levels, transmission utilization and demand 

side technologies are critical factors in determining resource adequacy. 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 estimates for electricity use in 2015 and 2020 (shown in 

document ref2011.d120810c), compared to the EIA 2010 AEO’s estimates for the same years. 31 “2011 PJM Load Forecast Report,” PJM Resource Adequacy Planning Department, 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 evaluated 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” 

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Conclusion 

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

overstate cost and retirement impacts. The scenarios 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 world realities today. 

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

coal retirements by 2015, we conclude that the most plausible scenario (“Scenario 1 + Alt Air”) 

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

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

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

proposed. 

Moreover, the Report acknowledges that approximately one half of the total retirements 

predicted under the most plausible scenario result from market fundamentals – primarily low gas 

prices - and will occur absent any new EPA regulations. 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 significant benefits to the Nation. 
http://www.wri.org/stories/2011/01/electric-reliability-under-new-epa-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 proposing new regulations designed to reduce the 

emissions of harmful and toxic pollutants released to the air by electric power plants, as required by the 

Clean Air Act. Other EPA regulations under existing laws would affect water and waste systems of certain 

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

questions have been raised about the reliability of the electric power system as the industry 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. Economy 
As 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 Resources 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 Environmental Regulations For the Utility Industry

•EPA Regulations: Not a Moratorium on Industrial Construction

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

•Myths & Facts About U.S. EPA Standards

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

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

more efficient and with lower emissions. We do not need 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 power supply system is important and ultimately 

do-able. 

State of Play 

Keeping track of every new report on the potential impacts 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 retirements 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 power plants do not lead to adverse impacts on the 

reliability of the electric grid, while others have pointed out the various ways that the industry 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 potential retirement implications of the new regulations. 

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

the impacts of EPA actions relating to new greenhouse gas (GHG) emission regulations, while others do 
not. 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 resulting 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 explain what they might mean for 

the power supply landscape in the next few years. This “field guide” focuses 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 that the impacts of air regulations (i.e., those affecting sulfur dioxide 

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

which the industry will need to respond to regulatory 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 including either GHG emission regulations and/or water 

regulations.4

The parts of the country with potential exposure to relatively 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 different players in the industry 

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

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

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

that still needs to be done to make sure that appropriate parties – power 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 are 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 portions of the nation’s existing power plants. Prior WRI blogs (and 

other observers) have outlined the major air and water 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 Transport Rule (“CATR”) principally affects fossil plants in the Eastern half of the 

U.S., and focuses on reducing SO2 and NOx emissions 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 air pollutants (“HAPs”), including mercury (“Hg”) 

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

(“MACT”) for power plants; the utility MACT rule 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 cooling systems of certain thermal power plants that use “oncethrough” cooling systems (and which may include 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 regulations, 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, released) during the last year come from various 

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

organizations. They differ tremendously in terms of how they treat – and how transparently they report6 – 

their assumptions. Some of the more important assumptions 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 capacity to replace power plant capacity that is 

derated or retired; the time frames needed for the market 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 retirements 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 received 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 reasonably 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 air 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 makes 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 announced or anticipated. Conditions will change over 

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

to various market participants – owners of retiring 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 reconfigurations, demand-side resources) – the 

need for new actions to meet upcoming electricity 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 decision 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 replacement power, the cost of back-end control 

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

of time that an existing plant will continue to operate 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 low 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 producing 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 expected power plant retirements. If gas/coal market 

fundamentals were not where they are today – with relatively 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 Information 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 when 
needed, under reasonable outlooks for demand?) rather than operational security (i.e., can the 

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

standards?). As NERC stated in its study, “The impacts 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 industry will need to resolve 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 regions where the power plant fleet will undergo 

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

increases will result from a variety of factors: plant owners adding new pollution control 

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

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

experiencing the long-run health benefits and lower 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 regulations 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 electric reliability, the industry 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 Regulations 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 EPA 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 Barclay Gibbs (Charles River Associates), A Reliability 

Assessment of EPA’s Proposed Transport 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 Future Energy Plan for the United States. 

• “ICF-EEI Study” (5-2010), ICF prepared 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 Interstate 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. Association 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 (prepared for the Clean Energy Group), Ensuring a Clean, Modern 

Electric Generating Fleet while Maintaining Electric System Reliability. 

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

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

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

MACT: Strict Non-Hg Regs Can Have Far-Reaching Market Impacts.” 
1. I note my own contribution to this debate: Michael 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 posted on the website of the Bipartisan Policy Center, 

which has hosted two workshops on “Environmental Regulation 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 included, 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 adjusted for a confidence factor (p. 60). ճ

4. The studies that include 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 scenarios reflecting the air regulations. ճ

5. See our discussion in Michael 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. 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 Utility 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, either 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 effects 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) 729-7610 
EPA Regulations, 

Power Generation Capacity & Reli

Sue Tierney

Power Generation Capacity & Reli

MIT Center for Energy & Environmental Policy Research W kh M 5 2011

Sue Tierney

Workshop – May 5, 2011

BOSTON CHICAGO DALLAS DENVER LOS ANGELES MENLO PARK MONTREAL NEW YORK SAN FRA
MIT – CEEPR Workshop 

Some key issues:

Up g g gp p coming federal air regulations affecting power p

Implications and options for energy resources Tools to managg 

e through the transition in a reliable 
MIT – CEEPR Workshop 

UPCOMING AIR REGULATIAir policy affecting fossil power plantsUPCOMING AIR REGULATI
MIT – CEEPR Workshop 

“P i 

Emissions from power plants

NOx (Nitrogen Oxides): 

 Cause ground-level ozone another primary pollutant under the C

“Prima

the Cle

 Cause ground-level ozone, another primary pollutant under the C

SO2 (Sulfur Dioxide) 

 Causes acid rain and regional haze (addressed in two parts of the 

Particulates (fine and course particles)

 Affect the heart and lungs and cause serious health effects when 

Mercury Acid Gases Arsenic and Other Toxics Mercury, Acid Gases, Arsenic, and Other Toxics

 Affect various aspects of human health  Addressed under toxics air pollutants provisions of the CAA

Greenhouse Gases (“GHG”) – CO2, methane and others

 Contributes to global climate change
MIT – CEEPR Workshop 

N / i EPA i l ti ff ti th New/upcoming EPA air regulations affecting the pow

 Clean Air Transport Rule (“CATR”) – proposed 7/2010, final 

 Proposal to regulate emissions of SO2 and NOx p g from fossil-fuele

2 x 

(over 25 MW) in the Eastern part of the U.S. 

 Replaces proposed rule (CAIR) that was sent back to EPA to fix Comp y (p ) p pp g 

liance by 2014 (phase 2), with preferred approach allowing 

 Mercury and Air Toxics Rule – proposed 3/2011, final 11/2011

 Proposal to regulate emissions of toxic air pollutants (mercury, 

arsenic, etc.) at coal and oil plants larger than 25 MW in U.S. arsenic, etc.) at coal and oil plants larger than 25 MW in U.S.

 Requires Maximum Achievable Control Technology (“MACT”), w

technology options and station-level trading

 Compliance by 2015 (with possible 1 Compliance by 2015 (with possible 1-year extension on plant year extension on plant-sp

sp

 Other EPA regulations for which EPA has more discretion in timing/

 Coal Combustion Residues Rule (coal ash disposal/management) – proposed 

timing of final rule has not been set

 Cooling Water Intake Rule (addresses thermal units with once-through cooling

proposal 3/2011, proposed to be finalized in Summer 2012
MIT – CEEPR Workshop 

EPA s’ upcoming air regulations upcoming air regulations –Implications for electric system modernization?

Coal Fired Powe
MIT – CEEPR Workshop 

Impacts from electricity produced at coal power Impacts from electricity produced at coal power 

National Mortality Effects from Existing 

Power Plants (Annual Persons per 100 000 Power Plants (Annual (Annual Persons Persons per 100,000

< 33-7

7-10

10-14

> 14

Annual Mortality Due to Individual Power Plants (Persons)

<25

25-75

> 75

Clean Air Task Force, “Toll from Coal,” 2010 (Google Maps programs)
MIT – CEEPR Workshop 

SOME IMPLICATIONSAir regulations affecting fossil power plantsSOME IMPLICATIONS
MIT – CEEPR Workshop 

Impacts of EPA’s New Regulations on the Power Sector: 

 Marginally economic plants are likely candidates to reti

 Diff t l ti ff t diff t ti it i 

Different regulations affect different generating units in 

– CATR: 

– Covers most fossil plants in the Covers most fossil plants in the

Eastern Interconnection and Texas

– Many plants already comply

– May tip into retirements some coal plants 

that are already economically challenged 

– Air Toxics: 

– Covers coal and oil plants in the entire U.S.– Some plants already comply– Mainly affects coal-fired power plants (due 

to emissions of mercury and acid gases). 
MIT – CEEPR Workshop 

Gas/Coal p y rice differentials have shifted in recent years –Putting pressure on less efficient coal plants

0.6

Change in Price Since January 2006: 

% Coal, Natural Gas, and Consumer Price Index

0.4 Coal price0.20 2

-1E-15 000

-0.4-0.2

Consumer Price Index (all urban consumers)

-0.6

Cost of Coal Delivered to Electric Generating PlantsCost of Natural Gas Delivered to Electric Generating Plants

Source: EIA data
MIT – CEEPR Workshop 

9.00

U.S. Wellhead Prices of Natural Gas (2009$)

Comparing the 2008 Forecast v. 2011 Forecast by 

The outlook for natural gas has improved in light of new 

7.008.009.00

2008 Forecast 

5.006.00

Actual

2 003.004.00

2011 Forecast

L l t i th tl k f 

0.001.002.00 Lower long-term gas prices worsen the outlook for 

plants that might once have been viewed as econ

upgrade in response to upcoming EPA regula

Source: EIA data (Annual Energy Outlook (2008, 2011) 
MIT – CEEPR Workshop 

Many older coal plants have fewer air-pollution controls, 

70

Coal Plants by Vintage and Emission Controls

Total Capacity – All Units (2009)

5055606570

No EmisSCR onFGD onFGD & S

58% 62%

47%

35404550

GW

x% = Capa

units 

44%

46%

15202530

42%

46%

31%

57%

50%

05

10

1944 1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 

25% 23%

57%

48%

63

1940-1

1945-1

1950-1

1955-1

1960-1

1965-1

1970-1

1975-1

1980-1

1985-1

1990-1

1995-1

20002

Notes:[1] Totals do not include Alaska or Hawaii.Source: SNL data.
MIT – CEEPR Workshop 

Older coal plant capacity that will require air-pollution controls to remain in operation

Units without Emission Controls

Total Capacity by Vintage

2025

p yy g

Capacity at Coal Plants - Older than 40 years

15

GW

O de t a 0 yea s

- Lack FGD or a scrubber

5

10

G

0

940-

944

945-

949

950-

954

955-

959

960-

964

965-

969

970-

974

975-

979

980-

984

985-

989

990-

994

995-

11111111111111111111111

Notes:[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 Workshop 

Flexibility in implementing regulations 

 TIME EXTENSIONS: TIME EXTENSIONS:

 EPA can grant time extensions for power plants to install pollutio

equipment on a case-by-case basis under the CAA. 

 EMERGENCIES:

 The DOE can override CAA control requirements under §202(c) of 

Power Act in limited emergency circumstances.

 The EPA and the President have the authority to extend deadlines 

The EPA and the President have the authority to extend deadlines 

Utility MACT rule as necessary to preserve electric system reliabi

 CONSENT DECREES:

 Th EPA d DOE t bli h t d ith l 

The EPA and DOE can establish consent decrees with power plan

them to run under specific and limited circumstances to maintain while avoiding the full extent of possible exceedances of national standards.
MIT – CEEPR Workshop 

EPA estimates of impacts of the CATR:

%

1%

1%

4

5% 

1%

1%

1%

0%

Schmalensee and Stavins, “A Guide to Economic and Policy Analysis of EPA’s Transport Rule,” March 2011, based 

estimates of rate impacts

0%
MIT – CEEPR Workshop 

SOME IMPLICATIONS:Air regulatory policy affecting fossil power plantsSOME IMPLICATIONS:

MANAGING THE TRANSITIO
MIT – CEEPR Workshop 

Impacts of EPA’s New Regulations on the Power Sector:

Source: S Tierney, WRI Blogpost, January 2001: http://www.wri.org/stories/2011/01/electric-reliability-under-new-epa-power-p
MIT – CEEPR Workshop 

EEI/ICF study – Jan 2011 analy p sis of impacts of regulations on the power sector

 Sensitivity 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 CO2 ca

(This accounts for 23 GW of unplanned coal-plant retirements by 2015

 All scenarios assume that every U.S. fossil and nuclear power plant (o

will need a cooling tower. (This is not the EPA proposal.)

 7 of the 9 scenarios did not consider less costly technologies for air e

h l d b t t d/i t ll d Thi t t d ti t b t l have already been tested/installed. This overstated retirements by at le

 The Report does not mention that:

 Already over 150 GWs of coal units have such controls, with another 6

planned installations 2/3 of U S coal plants are absorbing the types oplanned installations. 2/3 of U.S. coal plants are absorbing the types o

anticipated in the report.

 Gas prices are driving 40% of the retirements There are options besides adding controls or retiring/replacing units.

There are options besides adding controls or retiring/replacing units.
MIT – CEEPR Workshop 

Options for responding to these regulations

 Some options are obvious – the “classic” toolkit. Other options are well Other options are well-understand by the industry and its r

understand by the industry and its r

 although not necessarily being discussed in every place where investm

decisions are being analyzed

 Diff t t l d ti i th h d f i l Different tools and actions are in the hands of various play

 not just the owners of plants that are affected by the EPA regulations.
MIT – CEEPR Workshop 

The “Classic”: Build a new power p

to replace a retirin

one’s capacity 

The Classic :The tool that some industry participants are using......

Retrofit a 

power plant power plant

with pollution 

control 

equipment

Seek a delay: 

-The entire rule, or -The rule’s application to a part

The rule s application to a part

- A temporary delay (e.g., RMR
MIT – CEEPR Workshop 

The “Champ”: The tool we need
MIT – CEEPR Workshop 

The “Champ”: The tool we need The Champ : The tool we need

PUCs: ask 

DEPs to provide 

information

about plants in 

the state 

PUCs: ask 

plants owners to 

submit plans 

ASAP 

PUCs/FERC: 

refresh 

understanding of 

backstop issues to 

ensure reliability

Get critical information into the public dom

ensure reliability
MIT – CEEPR Workshop 

The “Champ”: The tool we needThe Champ : The tool we need 

PUCs: ask 

DEPs to provide

PUCs: discuss DEPs expectations about to provide

information 

about plants in 

the state

expectations about what is/may not be 

prudent responses 

to EPA rules P

RTOs and 

regulators: 

Establish forward 

P

s

capacity markets 

reflecting real 

compliance cost 

assumptions RTOs and TO

RTOs and TO

opened-up trans

is available to the 

discrimina

Legislatures/PUCs: consider health benefits along with power 

system costs

Ensure that market/regulatory rules support robus

system costs
MIT – CEEPR Workshop 

The “Champ”: The tool we need The “Champ”: The tool we need

PUCs: in 

traditionally

R

tran

structured states, 

ask for and review 

compliance plans 

a

gen

within LCP 

frameworks

PUCs: in traditionally 

structured states, 

require competitive 

PU

and 

Depl

dema

procurements to 

compete with utility 

compliance plans

dema

inclu

Seek competitive and/or least Seek competitive and/or least-cost) option

cost) option
MIT – CEEPR Workshop 

Susan Tierney, Ph.D.Managing PrincipalAnaly p sis Group111 Huntington Avenue, 10th Floor

Boston, MA 02199617-425-8114

ti @ l i

stierney@analysisgroup.com