FERC to EPA: Do You Know What You are Doing to Electric Reliability?

Tierney EPA Regs Timeline

On November 29-30 FERC will hold a technical conference on reliability in Washington.  If you cannot attend a free live webcast is available for this meeting. All webcasts are archived for 3 months.  It should be interesting to see who shows up and who is squirming as they answer the questions from FERC Commissioner Philip D. Moeller.

Why will there be squirming?

On November 17 2011 Fitch Ratings raised its estimate of the coal-fired generation capacity likely to be forced into retirement by EPA proposed regulations on emissions to 83 GW from 51 GW it had forecast last February.  Fitch said it now expects coal plants smaller than 400 MW and more than 40 years old will also be at risk. In February 2011 Fitch said it thought units smaller than 200 MW with a weighted average age of nearly 50 years would end up being the primary casualties of the changing rules.

The states most affected include Pennsylvania, Ohio, Indiana, Illinois, Michigan, Virginia and the Carolinas. Among utilities most affected Fitch says DTE Energy has 27% of its 7.6 GW of coal capacity at risk for retirement while AEP, Duke Energy and Ameren each have 25% of their coal-fired capacity at risk. Progress Energy has 23% of its coal capacity at risk, and Dominion Resources has 20% at risk. AEP announced that EPA regulations will force it to shut down 6,000MW (25%)of coal-fired capacity and spend $6 billion to $8 billion in bringing the rest of its fleet into compliance.

The primary reason for the increase in adverse impact is the pancaking of EPA proposed rules and the short compliance time of the SO2 emissions limits scheduled to take effect Jan. 1, 2012, under Cross-State Air Pollution Rule, or CSAPR.  The practical consequence of this pancaking is to force utilities to make investment versus retirement decisions sooner on about 39 GW, or 47% of the at-risk coal-fired capacity, is operating without adequate SO2 controls.  While EPA’s proposed Mercury and Air Toxics Standards Rule will likely drive more retrofit than retirement of plants on its own, the pancaking and scheduling of compliance dates forces utilities into noncompliance before they complete the retrofits in a logical, orderly manner.  Thus EPA is betting it can stampede utilities into early retirement of coal.

Fitch says it expects utilities to buy time where possible implementation for CSAPR by switching fuel to low-sulfur coal and by adding lower emission natural gas fired generation. Under the Fitch scenario that 83 GW of coal-fired generation capacity is retired, power generation from natural gas is expected to increase from 24% to 30% of installed capacity.

There have been a range of dueling studies of the potential impact of EPA’s assertive regulatory regime and Congress has been pressing FERC to make a determination of those impacts—a task it would clearly like to avoid.  So that is why FERC Commissioner Philip Moeller issued a “Request for Evidence” asking 22 questions concerning the impact of EPA’s proposed rules trying to build a solid evidentiary record of facts and evidence rather than just the dueling opinions.

The bottom line on this is that everyone knows that US EPA is pursuing a virtual war on coal fired power generation as an alternative to its failed cap and trade legislation.  In that sense they are being true to their agenda, but we also expect them to keep the light on!