EPA to power industry: Don’t worry about reliability, we can grant waivers

Michael Giberson

Even an article in the New York Times is characterizing the spate of EPA regulations, recently issued or coming shortly, affecting the electric power industry as a “cascade.” Regional power grid operators have been reviewing their reliability projections and becoming alarmed. Here’s Matthew Wald in the Times:

WASHINGTON — As 58 million people across 13 states sweated through the third day of a heat wave last month, power demand in North America’s largest regional grid jurisdiction hit a record high. And yet there was no shortage, no rolling blackout and no brownout in an area that stretches from Maryland to Chicago.

But that may not be the case in the future as stricter air quality rules are put in place. Eastern utilities satisfied demand that day — July 21 — with hefty output from dozens of 1950s and 1960s coal-burning power plants that dump prodigious amounts of acid gases, soot, mercury and arsenic into the air. Because of new Environmental Protection Agencyrules, and some yet to be written, many of those plants are expected to close in coming years.

No one is sure yet how many or which ones will be shuttered or what the total lost output would be. And there is little agreement over how peak demand will be met in future summers.

The E.P.A. estimates that a rule on air toxins and mercury that it expects to complete in November will result in a loss of 10,000 megawatts — or almost 1 percent of the generating capacity in the United States. Electricity experts, however, say that rule, combined with forthcoming ones on coal ash and cooling water, will have a much greater effect — from 48,000 megawatts to 80,000 megawatts, or 3.5 to 7 percent.

American Electric Power, a multistate utility based in Columbus, Ohio, is saying it will retire 6,000 megawatts. Much of that was scheduled to retire anyway, but the rules have stepped up those retirement dates.

Robert W. Perciasepe, the deputy administrator of the E.P.A., said his agency had not estimated all the retirements that would be set off by rules it was still preparing. His agency, he said, was trying to move promptly through rulemaking and “provide the rational basis for utility planning, instead of this continually rolling ball of uncertainty, which allows people to speculate, and creates a situation where it’s very difficult for competent utility planners to do the work they need to do.”

He said the E.P.A. had been regulating power plant emissions for 40 years, and where necessary to keep the grid stable, had granted delays and exemptions.

The industry is concerned. PJM Interconnection, the regional unit that set the demand record on July 21, has suggested that the E.P.A. rules would put the grid’s reliability at risk. “E.P.A.’s analysis of the impact of the proposed rule may understate the level of expected generation of plant retirements and does not provide sufficient flexibility or time to address potential localized reliability concerns,” it wrote in a statement filed with the agency.

The most likely replacement for the coal plants is new natural gas-powered generators. But PJM and others are complaining that if the E.P.A. follows its intended schedule, utilities will not have much time to decide whether to close or upgrade their old plants, and no one will have time to build new ones.

Marc de Croisset, an analyst for the investment bank FBR, said the uncertainties arose from the scale of the plant closings. “It’s a major transformation,” he said — the biggest since the electric companies shifted away from oil in the 1970s, possibly larger.

Very few companies that own coal-fired power plants have announced which ones will close, partly because they are waiting to see what their neighbors decide. If a competitor goes out of business, prices for electricity will rise and the survivor could get enough revenue to make expensive upgrades worthwhile.

“They’re playing a giant game of chicken right now, to be the last man standing, just like the airlines,” said Mr. de Croisset, the FBR analyst.

The agency is writing a cascade of rules on emissions of carbon dioxide, nitrogen oxides, sulfur dioxide and mercury, and handling of ash; it published a “Cross-State Air Pollution Rule” last month.

American Electric Power has listed 25 of 55 coal-fired generators as candidates for being shuttered, many of which have been running at full capacity lately. On that list is a 42-year-old behemoth in Louisa, Ky., called Big Sandy 2. Upgrading it would cost $700 million, the company says.

“This heat wave shows that you can’t rely on a massive amount of wind generation to fill the void,” Pat Hemlepp, a spokesman for American Electric Power, wrote in an e-mail. “That’s why we are extremely concerned about reliability.”

Others say that A.E.P. has been slower than its competitors to upgrade its plants and is now seeking delays in new E.P.A. rules to keep its competitive advantage.

There is certainly no doubt that AEP would like to work regulatory policy to its competitive advantage. Governments with wide scopes and deep reaches inspire businesses to lobby quite feverishly for advantage. The EPA’s ability to issue regulations and then grant waivers from them simply encourages  more feverish lobbying activity.

I’m sure that environmental lawyers in Washington are quite excited by the EPA’s recent actions.

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2 thoughts on “EPA to power industry: Don’t worry about reliability, we can grant waivers

  1. Can environmental lawyers in Washington really book against the production of EPA reports making material proof of the caprice of its waiver grants? One thing’s sure: 20-sided dice are still booking markup.

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