EPA official: Generators could have more than 5 years to become MATS compliant

November 21, 2012

U.S. EPA official Gina McCarthy told state regulators Nov. 13 that despite concerns to the contrary, she has not seen any major problems emerge since the issuance of her agency’s controversial Mercury and Air Toxics Standards, or MATS, that would prevent the nation’s coal-fired power plants from meeting compliance deadlines.

Most of the other officials on the panel during the National Association of Regulatory Utility Commissioners’ annual meeting in Baltimore, appeared to agree. However, Midwest ISO President and CEO John Bear said generators within his region “will be really challenged to get it all done,” even with a one-year extension that a state can grant when it agrees that three years is not enough.

 McCarthy, the EPA’s assistant administrator for the Office of Air and Radiation, reminded the panelist that the rule also will give a plant a fifth year to comply if the facility is needed for reliability, and suggested that the EPA could grant even more time on a case-by-case basis through the consent decree process.

Noting that the EPA issues consent decrees “all the time,” McCarthy said she believes that only “a handful” of companies will need even the fifth year, mostly to complete related transmission projects.

“Now that we’re 11 months into this process, we’ve seen no big surprises,” McCarthy reported. “We knew when we issued the rule that the technology was available to make compliance with the rule’s deadlines doable … and what we’ve seen so far” indicates that most generators will meet those deadlines.

While a relatively small number of issues have arisen on the local level, McCarthy insisted that “they can be dealt with.” McCarthy acknowledged that more coal-fired plant retirements are being announced than anticipated, but said they mostly are smaller, older plants that would have become uneconomic even without MATS due to a sharp decline in the price of natural gas.

The situation has been helped by the increased use of energy efficiency and demand response, which has dampened load growth, McCarthy added. Compliance efforts also have been aided by the availability of two relatively new technologies, activated carbon injection and dry sorbent injection, that can be added to coal plants to help bring them into compliance far more cheaply and quickly than older technologies.

Case studies: Southern Co., MISO

Providing a specific example of the factors a company looks at when considering how to achieve compliance, Jeff Burleson, vice president of system planning for Southern Co., recalled that his company had recently invested $8.5 billion in environmental controls prior to MATS.

Nevertheless, Burleson said that when Southern first studied MATS, it concluded that retrofitting only its newest units (about 12,000 MW of capacity) would be cost effective. The company therefore initially contemplated installing 17 additional baghouses on those units, retiring about 4,000 MW of its remaining 8,000 MW of coal-fired capacity and converting most of the rest of the plants to a different fuel. Southern also concluded that about $700 million in transmission upgrades would be needed to accommodate all the changes, bringing its total expected cost for complying with MATS to between $13 billion and $18 billion, according to Burleson.

 Burleson reported that Southern has since updated its estimates and plans, and now believes that it will only have to install four or five additional baghouses and perform less transmission work than previously anticipated. However, the company still plans to retire about 4,000 MW of capacity and to switch the remaining plants to other fuels, primarily natural gas. Burleson said Southern now believes it will take at least four years to achieve compliance.

 “We feel much better today than we did initially, but we’re still worried about the costs,” Burleson said. He reported that the company still believes that it will need to spend $13 billion to $18 billion to come into compliance, noting that retrofitting a plant will cost about $2,000 per kW and that rate hikes in the 10% to 20% range will be needed to recover those costs.

Bear, however, was not quite as optimistic that generators in the MISO region will be able to meet the compliance deadlines. He noted that 85% of the capacity in his region, or about 66,000 MW, is coal-fired, and about 47,000 MW of that total would need work to comply with MATS. Bear said about 12,000 MW of that 47,000 MW will retire  like McCarthy, Bear reported that retirements will mostly be of older, smaller units and the remaining 35,000 MW will be retrofitted or switched to other fuels.

While MISO’s generation reserve margin in 2012 was 27%, Bear said the region still will need about 6,000 MW of new capacity to make up for the plant retirements and account for load growth. He also stressed that coordination between the natural gas and power industries in his region is becoming increasingly important as more plants begin to burn natural gas, and that more gas pipelines will have to be built to meet the region’s need in that regard.

The necessary resources are available, but at what cost?

Jim Dougherty, president of Babcock Power Inc. Babcock Power Environmental a company that retrofits power plants with environmental controls, agreed that the technologies for bringing coal-fired plants into compliance with MATS are available, as are the manpower and other resources needed to install those technologies. However, Dougherty and several other panelists stressed that good planning and scheduling will be key to the success of those compliance actions.

The engineering industry “can meet the needs of MATS implementation,” Dougherty said. He explained that good planning will result in less schedule compression and thereby will lower the risk that compliance deadlines will not be met.

Stan Wise, member of the Georgia Public Service Commission, stressed the issue of compliance costs, asking McCarthy if her agency really had looked at the financial impacts of a rule that affects more than 600 plants nationwide. He noted that even the slightest uptick of power rates in his home state is sharply criticized in the news media and by end users, and that “the fingers get pointed at me and my colleagues.”

Wise therefore expressed concern about the potential rate shock that could result from compliance expenditures, noting that a company could build two new, very clean nuclear plants for the $13 billion to $18 billion that Southern expects to spend on compliance measures. He also questioned the compliance deadlines. “Timing is everything,” Wise said, “and I’m not sure that the timing provided by the rules is appropriate,” given that lengthening those deadlines would avoid rate shock.

Asked by SNL Energy after the session to respond to Wise’s rate concerns, McCarthy said the EPA did look at the costs and benefits of MATS before it was issued and concluded that the rate impacts would be “moderate.” Although she said she still expects that generally to be the case, McCarthy agreed that the 10% to 20% rate hike anticipated by Southern would not be moderate.

 

 Article Source: SNL Financial: Wednesday, November 14, 2012 11:26 AM CT

Written by: Glen Boshart