Document ID: EPA-HQ-OAR-2004-0076-0224
Agency: epa
Document Type: Supporting & Related Material
Title: 
Posted Date: 2006-03-17T05:00Z

Technical
Support
Document
for
the
Rule
to
Reduce
Interstate
Transport
of
Fine
Particulate
Matter
and
Ozone
(
Clean
Air
Interstate
Rule):
Final
Notice
of
Action
on
the
Reconsideration
Waste
Coal­
Fired
Units
in
the
CAIR
and
CAIR
FIP
EPA
Docket
number:
OAR­
2003­
0053
March
2006
U.
S.
Environmental
Protection
Agency
Office
of
Air
and
Radiation
Technical
Support
Document:
Waste
Coal­
Fired
Units
in
the
CAIR
and
CAIR
FIP
2
Introduction
This
technical
support
document
(
TSD)
presents
analysis
the
United
States
Environmental
Protection
Agency
(
EPA)
performed
to
support
its
response
to
commenters'
request
for
an
exemption
for
waste
coal­
fired
units
from
the
CAIR
SO2
annual
program.
(
The
complete
response
maybe
found
in
the
Response
to
Comment
document
for
the
Clean
Air
Interstate
Rules
Federal
Implementation
Plan
(
CAIR
FIP)
and
preamble
to
today's
rule.)
This
TSD
examines
the
potential
financial
impacts
of
CAIR
on
waste
coal­
fired
units
in
CAIR
SO2
annual
program
when
they
(
1)
have
power
purchase
agreements
in
place
and
(
2)
once
the
power
purchase
agreement
expire.
The
first
two
analyses
(
in
section
1)
pertain
to
when
waste
coal­
fired
units
have
a
power
purchase
agreement
(
PPA)
in
place
and,
because
they
are
exempt
from
title
IV,
can
take
advantage
of
the
title
IV
opt­
in
provisions.
The
third
analysis
(
in
section
2)
evaluates
the
potential
financial
impacts
to
waste
coal­
fired
units
for
the
period
beginning
when
their
power
purchase
agreements
have
expired
and
they
are
free
to
participate
in
the
electricity
markets.

The
analysis
presented
in
this
TSD
demonstrates
that
the
commenters
have
not
shown
that,
as
a
category,
the
CAIR
SO2
program
would
make
waste
coal­
fired
units
economically
unviable.
In
fact,
EPA
analysis
presented
in
this
TSD
shows
that
a
typical
waste
coal­
fired
unit
would
remain
viable.
The
analysis
presented
in
this
TSD
support
EPA's
response
to
commenters
request
for
an
exemption
from
the
CAIR
SO2
annual
program
only
because
waste
coal­
fired
units
have
not
indicated
any
difficulty
in
complying
with
the
CAIR
NOx
annual
and
ozone
season
programs.

Background
The
CAIR
model
trading
rules
regulate
waste
coal­
fired
units.
While
commenters
have
not
expressed
concern
that
these
units
will
be
part
of
the
CAIR
NOx
annual
and
ozone
season
programs,
they
have
requested
that
they
be
exempt
from
the
CAIR
SO2
annual
program.
This
is,
in
part,
related
to
the
fact
that
the
CAIR
SO2
annual
program
builds
upon
the
successful
title
IV
SO2
cap­
and­
trade
program
and
relies
upon
the
existing
trading
program
infrastructure
and
emission
allowance
allocations.
The
title
IV
allowance
allocation
system
is
permanent
with
some
portion
being
auctioned
each
year.
Waste
coal­
fired
facilities
have
not
received
a
title
IV
SO2
allowance
allocation
because
they
have
been
exempt
from
title
IV
under
the
IPP
exemption.
Title
IV's
IPP
exemption
applies
to
units
that
had
power
purchase
agreements
with
fixed
prices
in
place
on
November
15,
1990
and
includes
units
other
than
waste
coal­
fired
facilities.
The
purpose
of
the
exemption
is
to
protect
IPP
facilities
subject
to
contract
prices
that
were
set
before
passage
of
the
Clean
Air
Act
Amendments
of
1990
(
including
the
Acid
Rain
Program
in
title
IV)
and
that
did
not
allow
pass
through
of
the
costs
of
Acid
Rain
Program
compliance.
However,
EPA
believes
that
this
exemption
was
aimed
at
easing
the
transition
of
such
facilities
into
the
Acid
Rain.

While
waste
coal­
fired
units
have
a
valid
power
purchase
agreement
(
and,
subsequently,
an
exemption
from
title
IV),
they
may
choose
to
opt
in
to
the
title
IV
program
and
receive
SO2
allowances.
The
title
IV
opt­
in
provisions
provide
units
with
SO2
allowances
based
Technical
Support
Document:
Waste
Coal­
Fired
Units
in
the
CAIR
and
CAIR
FIP
3
upon
their
heat
input
(
i.
e.,
the
average
of
their
annual
heat
input
for
the
years
1985
through
1987
or,
for
facilities
that
commenced
operation
after
January
1,
1985,
their
first
three
whole
years
of
operation)
and
their
emission
rate
(
i.
e.,
the
lesser
of
their
actual
emission
rate
during
the
first
baseline
year
or
their
lowest
permitted
emission
limit
in
year
they
apply
that
will
be
effective
that
year
or
any
time
after).

When
the
waste
coal­
fired
units'
power
purchase
agreements
expire,
the
units
lose
their
title
IV
exemption.
As
title
IV
affected
units,
they
lose
their
title
IV
opt­
in
status
and
can
no
longer
receive
title
IV
allowances
under
the
title
IV
opt­
in
provisions.
These
units
are
no
longer
locked
into
their
power
purchase
contracts
and
are
free
to
participate
in
the
wholesale
electricity
markets.

Under
CAIR,
waste
coal­
fired
units
meet
the
applicability
requirements
that
define
which
units
are
affected
as
electricity
generating
units
(
EGUs).
EPA
has
not
extended
the
title
IV
exemption
for
units
with
power
purchase
agreements.
As
explained
in
the
preamble
and
response
to
comment
document
that
are
supported
by
this
TSD,
EPA
believes
that
waste
coal­
fired
units
should
not
be
exempt
from
the
requirements
to
comply
with
CAIR
that
control
emissions
from
the
power
sector.

1.
Waste
Coal­
Fired
Units
under
CAIR
with
Title
IV
Opt­
In
As
mentioned
above,
waste
coal­
fired
units
may
choose
to
opt
in
to
the
title
IV
program
and
receive
SO2
allowances
while
they
have
a
valid
power
purchase
agreement
in
effect.
Commenters
believe
that
even
with
SO2
allowances
from
the
opting
into
title
IV,
they
would
not
be
economically
viable.
To
evaluate
this
claim,
EPA
conducted
the
two
analyses
presented
in
this
section.
The
first
examines
the
limited
analysis
that
commenter
submitted
on
the
ratio
of
the
cost
of
CAIR
compliance
for
SO2
emissions
to
electric
generation
revenues.
The
second
analysis
examines,
based
on
the
limited
data
that
commenters
provided,
the
potential
allocations
that
waste
coal­
fired
units
may
receive
under
the
title
IV
opt­
in
provisions.

Evaluation
of
Commenters'
Cost
to
Revenue
Ratio
Analysis
Some
limited
analysis
of
the
ratio
of
the
cost
of
CAIR
compliance
for
SO2
emissions
to
electric
generation
revenues
was
provided
by
commenters
to
support
their
claim
that
CAIR
would
make
their
units
economically
unviable.
Presented
below
in
Table
1
is
EPA's
evaluation
of
the
commenter­
provided
analysis.
The
commenters
developed
their
estimate
of
the
cost
of
compliance
under
CAIR
using
their
own
estimate
of
their
SO2
emissions
and
what
they
believed
to
be
EPA's
projected
allowance
price.
However,
inaccuracies
in
the
commenters'
assumptions
about
EPA's
projected
cost
per
ton
resulted
in
an
overestimation
of
their
cost
of
compliance
estimates.
One
specific
assumption
made
by
the
commenters
is
that
the
projected
cost
per
ton
were
allowance
prices.
As
a
result,
they
multiplied
the
projected
cost
per
ton
by
the
CAIR
SO2
programs
retirement
ratios
(
i.
e.,
2­
to­
1
in
2010
and
2.86­
to­
1
in
2015).
In
fact,
EPA
modeling
has
projected
the
cost
of
emitting
one
ton
of
SO2
under
the
CAIR
to
be
$
616/
ton
and
$
892/
ton
in
2010
Technical
Support
Document:
Waste
Coal­
Fired
Units
in
the
CAIR
and
CAIR
FIP
4
and
2015,
respectively.
1
(
The
modeling,
and
resulting
cost
per
ton,
already
incorporates
the
CAIR
SO2
retirement
ratios.)
Based
upon
the
same
revenue
and
emissions
reported
by
the
commenters,
EPA
recalculated
the
cost
to
revenue
ratios
using
the
appropriate
cost
per
ton
for
CAIR
compliance.

Table
1:
EPA
Evaluation
of
Commenters'
Cost
to
Revenue
Ratios
Commenter
Estimated
Compliance
Cost/
Revenue
EPA
Estimated
Cost/
Revenue*
Percent
Commenter
Estimate
Is
Greater
Than
EPA
Estimate
Waste
Coal
Power
Plants
2010
2015
2010
2015
2010
2015
Cambria
CoGen
12%
15%
2%
4%
556%
325%
Colver
8%
10%
1%
2%
636%
377%
Ebensburg
11%
14%
2%
4%
461%
270%
Gilberton
7%
9%
1%
2%
487%
291%
NEPCO
6%
7%
1%
2%
453%
234%
Northampton
2%
2%
<
1%
1%
578%
251%
Panther
Creek
2%
3%
<
1%
1%
357%
255%
Piney
Creek
10%
12%
2%
4%
437%
234%
Schuykill
7%
9%
1%
3%
423%
248%
Scrubgrass
6%
8%
1%
2%
650%
418%
Westwood
4%
5%
1%
1%
418%
235%

Wheelabrator
4%
4%
1%
1%
456%
188%
Average
7%
8%
1%
2%
493%
277%
*
Estimate
is
based
upon
EPA
recalculation
of
CAIR
compliance
cost
and
commenterprovided
estimates
of
emissions
and
revenue.
CAIR
compliance
cost
was
calculated
by
multiplying
the
commenter's
reported
SO2
emissions
by
the
cost
of
emitting
one
SO2
ton
under
CAIR
(
i.
e.,
$
616/
ton
and
$
892/
ton
in
2010
and
2015,
respectively).
The
cost
of
emitting
one
ton
of
SO2
is
based
upon
IPM
modeling.
The
EPA
recalculated
CAIR
compliance
cost
does
not
include
the
cost
of
complying
with
title
IV.
As
a
result,
the
incremental
cost
associated
with
CAIR
(
that
is,
additional
to
the
cost
that
would
have
been
borne
for
title
IV
compliance)
is
roughly
1/
2
and
2/
3
of
the
total
reported
emissions.
For
facilities
with
PPAs
in
effect,
this
can
reflect
a
unit
that
receives
title
IV
opt­
in
allowances
equal
to
all
of
its
current
emissions.
For
facilities
with
expired
PPAs
that
can
not
receive
title
IV
opt­
in
allowances,
this
represents
the
incremental
cost
of
CAIR
(
i.
e.,
the
cost
beyond
that
the
facility
would
already
incurred
from
title
IV
compliance).

These
recalculated
ratios
range
from
under
1%
to
4%.
The
commenter
overestimated
the
ratio
for
their
units
by
an
average
of
close
to
500%
and
300%
in
2010
and
2015,
respectively.
As
a
result,
the
commenters
have
not
shown
that
the
cost
to
revenue
ratios,
especially
when
recalculated
to
appropriately
account
for
costs,
would
result
in
their
units
being,
as
they
claim,
"
economically
unviable."

EPA
Evaluation
of
Title
IV
Potential
Opt­
In
Allocation
Levels
While
under
a
power
purchase
agreement,
waste
coal­
fired
units
can
opt
in
to
title
IV
program
and
receive
allowances
through
the
title
IV
individual
unit
opt­
in
provisions.
However,
commenters
expressed
concern
that
their
allocation
of
title
IV
opt­
in
1
EPA
modeling
run
"
IPM
Run­
CAIR/
CAMR/
CAVR"
that
can
be
found
at
http://
www.
epa.
gov/
airmarkets/
mp/.
Technical
Support
Document:
Waste
Coal­
Fired
Units
in
the
CAIR
and
CAIR
FIP
5
allowances
would
be
less
than
their
current
emissions,
because
they
may
operate
more
in
the
future
than
they
did
during
the
baseline
years.
As
mentioned
earlier,
the
title
IV
optin
provisions
provide
units
with
SO2
allowances
based
upon
their
heat
input
and
their
emission
rate.
More
specifically,
the
heat
input
used
for
this
determination
is
the
average
of
their
heat
input
during
the
years
1985
through
1987
or,
for
facilities
commencing
operation
after
January
1,
1985,
the
average
of
their
first
3
full
years
of
operation.
The
commenters
believe
that,
as
a
result,
EPA
estimates
based
upon
these
units
receiving
title
IV
opt­
in
allowances
equal
to
their
current
emission
levels
and,
potentially,
sufficient
to
offset
one
allowance
needed
under
CAIR
for
each
ton
emitted
(
e.
g.,
under
Phase
I
sources
would
have
to
buy
only
one
additional
allowance),
are
inaccurate.
Again,
according
to
commenters,
this
would
vary
greatly
from
plant
to
plant.

To
evaluate
the
commenters
concern,
EPA
examined
some
limited
information
on
the
potential
financial
impacts
of
CAIR
and
the
title
IV
opt­
in
provisions.
While
this
information
was
limited
to
only
4
facilities,
EPA
examined
whether
the
commenterprovided
estimates
of
their
title
IV
opt­
in
allocations
would
compare
to
their
current
emissions.
Table
2
shows
that,
even
by
the
commenter­
reported
estimates,
these
facilities
would
likely
receive
title
IV
SO2
allowances
that
are
88
percent
or
greater
of
their
current
emissions,
with
one
facility
having
coverage
of
46
percent.

Table
2:
EPA
Evaluation
of
Commenters
Potential
Title
IV
Opt­
In
Allocations
Commenter­
Provided
S02
Emissions
(
2001­
2005
Ave)**
Commenter­
Provided
Estimate
of
Allocation
from
Title
IV
Opt­
in**
%
Current
Emissions
Covered
by
Title
IV
Opt­
in
Allocations
Facility
1*
543
480
88%
Facility
2*
3,668
1,688
46%
Facility
3*
1,171
1,142
98%
Facility
4*
2,163
1,900
88%
*
Facility
names
have
not
been
provided
to
comply
with
commenters
request
that
information
be
considered
confidential.
**
Data
provided
in
letters
from
Steven
Shimberg
(
March
1,
2006)
and
Lisa
Jaeger
(
March
8,
2006).
Source
of
data
was
not
specified.

As
a
result,
the
limited
data
that
the
commenters
submitted
to
support
their
claim
that
EPA
had
overestimated
the
amount
of
title
IV
opt­
in
allowances
they
would
receive
(
i.
e.,
the
title
IV
opt­
in
provisions
would
not
provide
sufficient
SO2
allowances
to
account
for
their
current
emission
levels)
has
shown
that
some,
if
not
many,
of
the
facilities
would
receive
title
IV
opt­
in
allocations
very
similar
to
their
current
emission
levels.
This
data
further
illustrates
that,
because
the
terms
of
the
contracts
can
vary
greatly,
the
potential
impacts
of
title
IV
and
the
CAIR
on
waste
coal­
fired
facilities
will
also
vary.
This
supports
EPAs
point
that
the
commenters
have
not
demonstrated
that,
as
a
category
of
sources,
CAIR
would
make
them
economically
unviable
and
justify
exempting
the
entire
group.

EPA
also
notes
that,
as
with
the
commenters'
analysis
of
the
cost
to
revenue
ratios
(
discussed
earlier
in
this
document),
the
commenters
developed
their
estimate
of
the
cost
of
compliance
under
CAIR
using
their
own
estimate
of
their
SO2
emissions
and
what
they
believed
to
be
EPA's
projected
allowance
price.
The
limited
material
submitted
as
part
of
the
title
IV
opt­
in
allocation
analysis
(
presented
in
this
section)
included
the
same
Technical
Support
Document:
Waste
Coal­
Fired
Units
in
the
CAIR
and
CAIR
FIP
6
inaccuracies
in
the
commenters'
assumptions
about
EPA's
projected
cost
per
ton.
Again,
the
commenters
assumed
that
the
projected
cost
per
ton
were
allowance
prices
multiplied
the
projected
cost
per
ton
by
the
CAIR
SO2
programs
retirement
ratios
(
i.
e.,
2­
to­
1
in
2010
and
2.86­
to­
1
in
2015).

2.
Waste
Coal­
Fired
Units
Under
CAIR
without
Title
IV
Opt­
in
EPA
also
analyzed
the
potential
impacts
to
waste
coal­
fired
units
when
their
PPAs
have
expired
(
i.
e.,
the
units
have
lost
the
exemption
from
title
IV
and
can
not
receive
title
IV
opt­
in
allowances)
and
the
units
are
free
to
participate
in
the
electricity.
The
analysis
presented
in
this
section
assumes
that
the
waste
coal­
fired
units
do
not
receive
any
title
IV
SO2
allowances
and
must
purchase
SO2
allowances
to
account
for
all
of
their
emissions.

EPA
Evaluation
of
Title
IV
Potential
Opt­
In
Allocation
Levels
Because
the
unit­
specific
information
and
analysis
provided
by
the
commenters
was
limited,
EPA
conducted
an
analysis
using
generally
available
information
to
evaluate
the
potential
impact
of
the
cost
of
complying
with
CAIR
for
a
typical
circulating
fluidized
bed
(
CFB)
combusting
waste
coal.
This
analysis
examined
how
the
potential
cost
to
operate
a
typical
waste
coal­
fired
CFB
unit
(
including
the
cost
of
complying
with
CAIR)
compares
to
the
potential
price
it
would
receive
on
the
electricity
market
in
the
MAAC
region,
where
most
of
the
waste
coal
units
operate.

As
shown
in
Table
3,
the
estimated
cost
of
producing
electricity
for
a
typical
waste
coalfired
CFB
would
be
significantly
less
than
the
EPA
projected
wholesale
price
and
the
forecasted
price
of
electricity.
Specifically,
the
analysis
estimated
the
potential
cost
of
producing
electricity
for
a
waste
coal­
fired
CFB
to
be
approximately
$
17.00/
MWh
and
$
17.74/
MWh
in
2010
and
2015,
respectively.
Even
with
the
cost
of
complying
with
CAIR
factored
in,
the
EPA
estimated
cost
of
production
is
significantly
less
than
the
EPA
projected
wholesale
price,
which
is
a
good
indicator
of
the
price
that
waste
coal­
fired
units
would
receive
for
their
electricity
on
the
market.
Specifically,
the
waste
coal­
fired
facilities
are
projected
have
a
profit
margin
of
$
10.10/
MWh
and
$
18.29/
MWh
in
2010
and
2015,
respectively.
This
is
37%
and
50%
of
the
projected
wholesale
electricity
price
in
2010
and
2015,
respectively.
This
analysis
shows
that
the
waste
coal­
fired
facilities
will
continue
to
operate
and
be
profitable,
even
when
factoring
in
the
cost
of
complying
with
CAIR.

Table
3:
Costs
of
Operating
a
Typical
CFB
Plant
Burning
Waste
Coal
Components
of
Operating
Costs
Cost
to
Operate
2010
($/
MWh)
Cost
to
Operate
2015
($/
MWh)
Variable
O&
M
$
2.11
$
2.11
Fixed
O&
M
$
5.31
$
5.31
Fuel
Cost
$
7.28
$
7.20
SO2
Allowance
Cost
$
1.53
$
2.17
NOx
Allowance
Cost
$
0.77
$
0.95
Total
Operating
Cost*
$
17.00
$
17.74
Technical
Support
Document:
Waste
Coal­
Fired
Units
in
the
CAIR
and
CAIR
FIP
7
Base
Case
Wholesale
Electricity
Price**
$
25.43
$
33.46
CAIR
Wholesale
Electricity
Price**
$
27.10
$
36.06
*
The
total
operating
cost
estimate,
as
well
as
component
costs,
are
based
on
analysis
presented
in
ICF
memorandum
(
Attachment
A
to
this
TSD).
**
IPM
projected
wholesale
electricity
prices
in
the
under
the
Base
Case
and
CAIR
(
EPA
2006).
Technical
Support
Document:
Waste
Coal­
Fired
Units
in
the
CAIR
and
CAIR
FIP
8
Attachment
1
MEMORANDUM
To:
Sam
Waltzer,
CAMD,
EPA
From:
Barry
Galef
and
Jason
Lee,
ICF
Date:
March
1,
2006
Subject:
Economic
Viability
of
ARIPPA
Plants
Under
CAIR
In
response
to
your
request,
we
have
made
a
brief
assessment
of
the
impacts
of
CAIR
on
the
ARIPPA
plants
located
in
Pennsylvania.
Since
these
plants
consume
waste
coal
as
fuel,
we
looked
into
the
operating
cost
structure
of
plants
in
Pennsylvania
consuming
waste
coal.
We
estimated
total
operating
(
or
"
avoidable")
cost,
including
fixed
and
variable
O&
M
costs,
fuel
costs,
and
the
cost
of
purchasing
SO2
and
NOx
allowances,
in
terms
of
$/
MWh,
and
compared
it
to
the
electricity
revenue
that
can
be
earned
under
the
CAIR
regime.
We
found
that,
even
with
the
cost
of
SO2
and
NOx
allowances,
the
plants
will
still
earn
net
revenues
over
their
operating
cost,
in
part
because
the
wholesale
electricity
price
increases
under
the
CAIR
regime.
Thus,
there
is
no
reason
to
expect
them
to
be
shut
down.

OPERATING
COSTS
FOR
PLANTS
USING
WASTE
COAL
In
general,
much
of
the
"
all­
in"
cost
of
coal­
fired
generation
is
in
the
capital
investment,
which
is
a
"
sunk"
cost
which
cannot
be
avoided
by
closing
down.
The
costs
of
continuing
to
operate,
on
the
other
hand,
are
relatively
low.
Thus,
small
changes
in
their
costs
will
generally
not
drive
their
variable
costs
above
their
revenues,
and
so
they
will
stay
open.
Exhibit
1
shows
cost
components
of
running
plants
burning
waste
coal
in
Pennsylvania.
The
dollar
values
in
this
exhibit,
and
in
the
rest
of
this
memo,
are
presented
in
terms
of
1999
dollars.

Exhibit
1
Cost
Structure
for
Plants
Using
Waste
Coal
in
Pennsylvania
Variable
O&
M,
$/
MWh
$
2.11
Fixed
O&
M,
$/
kW­
yr
$
39.55
Source:
"
Economic
Impact
of
Renewable
Energy
in
Pennsylvania,
Black
and
Veatch,
F.
Analysis
of
the
Advanced
Energy
Portfolio
Standards,"
Table
F­
3,
p.
F­
7,
November
19,
2004,
available
at
http://
www.
cfalleghenies.
org/
images/
Energy_
Study_
11­
04.
pdf
converted
to
1999$
from
2003$.
Technical
Support
Document:
Waste
Coal­
Fired
Units
in
the
CAIR
and
CAIR
FIP
9
Assuming
the
plants'
capacity
factor
is
85%,
the
fixed
O&
M
cost
translates
to
$
5.31/
MWh.
Combining
the
fixed
and
variable
O&
M
costs
yields
a
total
of
$
7.42/
MWh.

In
addition
to
these
operating
and
maintenance
costs,
the
plants
also
incur
fuel
costs.
The
ARIPPA
plants
in
Pennsylvania
should
have
particularly
low
fuel
costs
because
they
run
on
waste
coal.
We
have
EIA
estimates
for
cost
of
waste
coal
per
ton
in
2010
and
20154,
and
a
heat
content
estimate
of
8,000
Btu/
lb
from
Black
and
Veatch
(
p.
F­
31).
Translating
the
fuel
cost
into
$/
MMBtu
yields
about
$
0.714/
MMBtu
and
$
0.706/
MMBtu
in
2010
and
1015
respectively,
which
is
less
than
cost
of
bituminous
coal
for
conventional
coal
plants.
Using
a
heat
rate
of
10.2
MMBtu/
MWh
(
again,
from
Table
F­
3
of
Black
and
Veatch),
the
fuel
cost
becomes
$
7.28/
MWh
in
2010
and
$
7.20/
MWh
in
2015.
(
Note
also
that
these
fuel
costs
are
probably
flexible
in
the
long
run
 
because
the
waste
coal
has
no
other
economically
viable
use,
if
the
power
plants
could
not
operate
competitively
at
existing
prices,
we
would
be
more
likely
to
see
a
drop
in
the
price
of
the
waste
coal
than
a
power
plant
closure.)

Another
component
of
operating
cost
is
the
cost
of
allowances.
Since
waste
coal
plants
are
typically
circulating
fluidized
bed
plants,
we
can
assume
that
most
of
the
sulfur
in
the
coal
is
removed,
with
an
SO2
control
efficiency
of
about
90%.
Using
the
SO2
allowance
cost
of
$
700/
ton
in
2010
and
the
heat
rate
for
the
waste
coal,
the
per­
unit
SO2
allowance
cost
becomes
$
1.53/
MWh.
We
use
the
NOx
allowance
cost
of
$
1206
in
20105
and
the
heat
rate
to
estimate
the
per­
unit
NOx
allowance
cost
to
be
$
0.77/
MWh.

Summing
these
cost
components,
we
estimated
the
total
operating
cost
of
running
waste
coal
plants
to
be
$
17.00/
MWh
in
2010.
In
2015,
IPM
projects
increase
in
the
SO2
allowance
cost
to
$
1,000/
ton
and
the
NOx
allowance
cost
to
$
1481/
ton
raising
the
total
operating
cost
to
$
17.74/
MWh.

Exhibit
2
Cost
Components
of
Running
a
CFB
Plant
Burning
Waste
Coal
Cost
Components
$/
MWh
in
2010
$/
MWh
in
2015
Variable
O&
M
$
2.11
$
2.11
Fixed
O&
M
$
5.31
$
5.31
Fuel
Cost
$
7.28
$
7.20
SO2
Allowance
Cost
$
1.53
$
2.17
NOx
Allowance
Cost
$
0.77
$
0.95
Total
Operating
Cost
$
17.00
$
17.74
WHOLESALE
ELECTRICITY
PRICE
UNDER
CAIR
Tightening
a
cap
in
a
trading
program
for
EGUs
drives
up
the
price
of
electricity
by
increasing
the
marginal
cost
of
generation.
The
increase
in
the
electricity
price
helps
4
http://
www.
eia.
doe.
gov/
oiaf/
aeo/
supplement/
pdf/
suptab_
112.
pdf
5
The
NOx
allowance
costs
are
based
on
IPM
Run
BART
13.
Technical
Support
Document:
Waste
Coal­
Fired
Units
in
the
CAIR
and
CAIR
FIP
10
EGUs
by
increasing
their
electricity
revenues.
Thus,
CAIR
should
raise
electricity
prices
at
the
same
time
it
increases
costs
for
the
ARIPPA
units.
In
earlier
analysis
for
CAIR,
we
projected
that
the
MACW
region's
wholesale
electricity
prices
would
rise
on
the
order
of
$
1.50/
MWh
in
2010
and
$
2.00/
MWh
in
2015
compared
to
the
base
case.
This
increase
suggests
that
requiring
the
waste
coal
plants
to
buy
allowances
is
merely
leveling
the
playing
field,
not
imposing
a
burden
that
will
cause
them
to
shut
down.
Specifically,
we
projected
the
electricity
prices
under
CAIR
to
be
$
27.06/
MWh
and
$
35.74/
MWh
in
2010
and
2015
respectively.
6
Thus,
expected
revenue
from
electricity
sales
is
well
above
the
anticipated
operating
cost,
including
waste
coal
prices,
fixed
and
variable
O&
M,
and
the
costs
of
SO2
emissions
allowances,
leaving
the
ARIPPA
plants
economically
viable
under
the
CAIR
regime.
7
Furthermore,
even
if,
due
to
unfavorable
contracts,
the
plants
had
to
declare
bankruptcy,
we
can
expect
that
the
new
owners
or
receivers
will
prefer
to
operate
these
plants
and
reduce
their
losses
rather
than
close
them,
given
that
their
costs
are
lower
than
the
expected
value
of
their
outputs.

6
The
value
of
the
capacity
these
plants
provide
to
the
system
would
add
still
more
to
these
estimated
revenues.
7
This
result
is,
apparently,
supported
by
ICF's
most
recent
IPM
base
case
runs,
which
show
the
plants
running
under
CAIR
even
under
the
assumption
that
they
had
to
use
standard
bituminous
coal
rather
than
waste
coal.