EPA Rules Could Raise Electricity Costs, But Only in Some Regions, GAO Report Says

Four Environmental Protection Agency regulations covering coal-fired power plants “would likely increase electricity prices in some regions” such as the South and Midwest, where older plants are more likely to be retired than retrofitted, according to a Government Accountability Office report released Aug. 16.

The report, EPA Regulations and Electricity: Better Monitoring by Agencies Could Strengthen Efforts to Address Potential Challenges, said companies would most likely retrofit older coal-fueled generating units with new equipment to comply with two of the rules designed to curb air pollutants and that between 2 percent and 12 percent of U.S. coal-fired capacity might be retired rather than upgraded.

Only two of the four EPA rules examined by GAO have been finalized: the Cross-State Air Pollution Rule, which requires power plants in 28 states to cut nitrogen oxides and sulfur dioxide emissions to help downwind areas meet air quality standards for ozone and fine particulate matter; and the Mercury and Air Toxics Standards (MATS) rule, which covers mercury and other air toxics emitted from the plants.

GAO noted in its report that research by the Resources for the Future think tank has estimated that the combined impact of those two air pollution rules would be relatively modest, raising electricity prices by just 0.6 percent by 2020.

The remaining two EPA rules addressed in the report are two that have yet to be finalized: Clean Water Act regulations addressing cooling water intake structures and Resource Conservation and Recovery Act regulations on disposal of coal ash.

Varied Impact Across Regions.

The report cited previous research that concluded the four rules could raise average electricity prices between 2012 and 2020 from a low of 0.1 percent in the Northwest to a high of 13.5 percent in Kentucky and Tennessee.

Midwestern states, such as Kansas and Oklahoma, and parts of Arkansas, Louisiana, Missouri, New Mexico, and Texas also may have price increases, the report said, while other areas of the country with little coal-fired power generation, such as California, Maine, Oregon, and Washington, are not expected to be significantly affected.

Coal is the largest single source of electricity generation in the United States but the percentage of power produced using the fuel has fallen from 53 percent in 1990 to about 42 percent in 2011, according to the report.

GAO recommended several changes in the report, including having EPA launch a “formal” process in coordination with the Energy Department and the Federal Energy Regulatory Commission to monitor the industry's progress in complying with the rules and any resulting power reliability concerns in the coming years.

Rockefeller Requests Report.

GAO's report was requested by Sen. Jay Rockefeller (D-W.Va.), chairman of the Senate Commerce, Science, and Transportation Committee. The chairman, in a statement issued Aug. 16, said GAO's conclusions support his view that most power plants will install the necessary pollution controls to comply with the EPA rules.

Rockefeller said utilities are “choosing to retire” many older coal-fired units instead of retrofitting, adding that those being retired “tend to be much older, dirtier, less efficient, and less economical to continue running.” He said EPA's more stringent air pollution regulations should bring about a reduction “in hospital visits, fewer premature deaths, and more work productivity.”

The GAO report said the cross-state and MATS air pollution rules would prevent thousands of premature deaths and generate $160 billion to $405 billion in monetized annual benefits, citing EPA figures.

“The benefits of these standards far outweigh the potential costs,” Rockefeller said, while acknowledging that “there will be costs associated with the EPA standards that may be incorporated into electricity prices.”

EPA has said the Cross-State Air Pollution Rule and the MATS rule together will force coal plants generating an estimated 9.5 gigawatts to retire, nearly 3 percent of the nation's coal-fired capacity (122 DER C-1, 6/26/12).

EPA Sensitive to Concerns.

EPA Deputy Administrator Bob Perciasepe, in a written response included in the report, said the agency is sensitive to concerns that the regulations ultimately could affect grid reliability or the retirement of older coal-fired units but added that “the EPA regulations are by no means the largest factor” driving changes in the power sector.

Those more important factors, Perciasepe said, include a “striking decline” in natural gas prices, which has led to a shift toward natural gas-fueled power generation, a rise in coal prices, and decreasing overall demand for electricity.

“In addition, a majority of coal plants in the fleet … have been in service for 40 years or longer, and many of these older plants are significantly less efficient than newer generation” and thus are already less likely to be in use, the EPA official wrote.

Many recent announcements of coal-fired power plant retirements were in fact “merely accelerations” of retirements already in the works “or [that] may have occurred anyway,” Perciasepe wrote, due to declining natural gas prices and other shifts in market conditions.

By Dean Scott  


The GAO report, EPA Regulations and Electricity: Better Monitoring by Agencies Could Strengthen Efforts to Address Potential Challenges (GAO-12-635), is available at http://www.gao.gov/products/GAO-12-635.