April 13 --The U.S. Supreme Court review of the Environmental Protection Agency's mercury and air toxics standards for power plants likely will have little practical effect on companies that already have made long-term investments in pollution controls or retirement decisions in preparation for the upcoming compliance date, representatives of several large power companies told Bloomberg BNA.
American Electric Power, FirstEnergy Corp., the Tennessee Valley Authority and other power companies all said the Supreme Court's ruling would not affect their already-announced plant closures, while industry observers said decisions to shutter coal-fired power plants have been driven by a number of factors, not just the MATS rule.
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Most power plants will need to comply with the MATS rule by the April 16 compliance deadline, but the Supreme Court's decision isn't expected until June.
Steve Whitworth, senior director for environmental policy and analysis at Ameren Corp., said that given the uncertainty over litigation on the MATS rule, Ameren needed to move ahead with ensuring the company's four coal-fired power plants in Missouri had the necessary pollution control technology to comply.
“Given that situation, we couldn't wait for the decision,” Whitworth told Bloomberg BNA. “We had to be prepared to comply.”
However, some companies said if the rule were vacated, they may not run pollution control equipment as frequently as planned, which could result in avoided operating costs.
The Supreme Court is reviewing whether the EPA unreasonably decided not to consider costs in determining it was “appropriate and necessary” to regulate air toxics emissions from power plants, a finding that ultimately led to the 2012 promulgation of emissions limits for mercury, filterable particulate matter as a surrogate for toxic metals and hydrogen chloride as a surrogate for acid gases. At least four justices appeared to have concerns with the EPA's argument that it wasn't required to consider costs during March 25 oral arguments, but observers said it was difficult to read what the court's ultimate decision will be (Michigan v. EPA, U.S., No. 14-46, argued 3/25/15; .
Several companies told Bloomberg BNA they wouldn't change their plans to close coal-fired power plants if the Supreme Court were to vacate MATS.
American Electric Power plans to retire 7,201 megawatts of coal-fired generating capacity by the end of 2016, including 24 coal-fired electric generating units by this spring, spokeswoman Melissa McHenry said.
The units slated for retirement wouldn't be affected by a Supreme Court decision against the EPA, she said.
“They have not been operated, staffed or maintained in a way that would support their continued operation,” McHenry said.
Stephanie Walton, a spokeswoman for FirstEnergy, said MATS has driven the deactivation of six coal-fired plants, with an additional three plant closures planned. Those three plants, the Eastlake, Lake Shore and Ashtabula plants in Ohio, are operating under “must-run” agreements with the grid operator but will be deactivated as of April 15, Walton said.
“We have no plans to reopen any of the deactivated plants,” Walton said.
The Supreme Court's decision won't have any effect on long-range decisions made by the Tennessee Valley Authority to close some plants and invest billions of dollars in others, TVA spokesman Duncan Mansfield told Bloomberg BNA.
TVA has been making changes to its power portfolio for several years in anticipation of the MATS rule and other environmental regulations, Mansfield said. Also, a 2011 Clean Air Act settlement with the EPA led to TVA’s commitment to retire 18 coal plants and spend $3 billion to $5 billion on pollution controls.
The decisions include the retirement of some coal-fired power plants, the conversion of some coal facilities to natural gas and the installation of scrubbers and selective catalytic reduction at coal-fired plants that will stay in operation, Mansfield said.
“Basically, every time we make one of these decisions, it's a billion-dollar decision,” he said. “It's not just MATS, but MATS is part of it.”
TVA will spend $975 million to build a new natural gas-fired plant to replace the Allen coal plant near Memphis, Tenn., and will spend about $1 billion to install pollution controls at the Gallatin plant near Nashville, Mansfield said.
Southern Co. has made about $9 billion in investments in environmental control technology and anticipates spending an additional $2.1 billion over the next three years to comply with MATS and other environmental regulations, company spokesman Jack Bonnikson told Bloomberg BNA in an e-mail.
Southern is installing scrubbers and other pollution control technology at coal plants with a total generating capacity of 13,500 megawatts, switching about 3,500 megawatts of capacity from coal to natural gas and retiring 3,500 megawatts of coal capacity, Bonnikson said.
Duke Energy Corp. has moved to retire or convert to natural gas about 6,300 megawatts of coal-fired generating capacity in recent years, spokesman Thomas Williams told Bloomberg BNA.
Duke retired more than 4,400 megawatts of coal-fired capacity between 2011 and 2014, with several additional retirements planned over the next several years. Most of the retirements are of unscrubbed coal plants.
“Basically, every time we make one of these decisions, it's a billion-dollar decision.”
--Duncan Mansfield, TVA spokesman
Those decisions were driven by a number of factors, not just the MATS rule, Williams said.
“It's not that simple,” Williams said in response to a question on whether a Supreme Court decision to vacate MATS could affect those closures.
The other factors cited by Williams included the age and efficiency of Duke's coal plants.
Hugh Wynne, a senior analyst with Bernstein Research, and Harold Blinderman, a partner with Day Pitney LLP, both told Bloomberg BNA that even if the MATS rule were no longer in place, there are a number of other factors that still would drive widespread retirements of coal-fired plants, including other environmental regulations and market factors, such as low natural gas prices.
Wynne said if MATS were to be struck down, power companies would need to consider whether coal-fired plants would be able to survive all of the other challenges the coal industry is facing. These include the EPA's December 2014 final rule on coal combustion residuals and the agency's planned July final Clean Power Plan to regulate greenhouse gas emissions from existing power plants.
Blinderman said companies may take “a second look” at scheduled plant retirements if MATS were to be vacated but cautioned that MATS can't be viewed “in isolation,” given the EPA's Cross-State Air Pollution Rule, which targets pollution that crosses state lines, and other air regulations that impact power plants.
Blinderman said that although no companies would remove already-installed pollution control technology if the Supreme Court were to vacate the MATS rule, some companies could look at whether it would be necessary to run that control equipment as frequently as planned.
McHenry of American Electric Power said a Supreme Court decision to vacate MATS could affect the way its plants operate.
American Electric Power is investing in environmental controls at plants that provide about 6,150 megawatts of coal-fired generating capacity, McHenry said, and much of the mercury reductions from those plants is being driven by the installation of selective catalytic reduction technology.
If MATS were no longer in place, those plants may not be required to run selective catalytic reduction as often as they otherwise would have, she said.
Whitworth of Ameren said ongoing operation and maintenance costs could be reduced if the EPA standards were no longer in effect.
Several power companies told Bloomberg BNA they are making use of a compliance extension process the EPA established, so they have more time to install pollution controls and continue to operate non-compliant plants that are needed due to grid reliability concerns.
At least 165 power plants received one-year extensions for MATS compliance from their state or local permitting authority, according to a March survey by the National Association of Clean Air Agencies .
FirstEnergy received one-year compliance extensions for its remaining six coal-fired power plants in Pennsylvania, West Virginia and Ohio, Walton said. However, by the time the Supreme Court issues its decision in Michigan v. EPA, nearly all of the $370 million the company plans to spend on pollution control equipment at those plants will have been invested, Walton said.
Two of Ameren's four coal-fired plants were granted one-year extensions to install upgraded control technology, Whitworth said.
American Electric Power received 45-day extensions that allow units that will retire by May 31 to operate for a short time past the compliance deadline and one-year extensions to install pollution controls at several plants, McHenry said. Two of AEP's coal-fired units received one-year extensions to address energy supply and reliability issues before those units are retired.
Two coal-fired units at Duke Energy's Crystal River Energy Center in Florida received one-year extensions, although those units are expected to be retired in 2018, Williams said. By April 2016, those units will burn MATS-compliant coal during the interim period before their anticipated closure, Williams said.
A January 2015 report by Bernstein Research found that if the MATS rule were to be withdrawn or vacated, 48 gigawatts of coal-fired generating capacity that would have been retired could remain online in 2015 and 2016.
“The fact that MATS goes away may be necessary but not sufficient to draw plants back from the brink.”
--Hugh Wynne, senior analyst, Bernstein Research
Wynne said that analysis represents a best-case scenario for coal-fired power plants that wouldn't be able to comply with MATS but would be able to comply with the requirements of the cross-state rule. The analysis identified 37 gigawatts of coal-fired generation that would be able to meet more stringent 2017 emissions limits under the cross-state rule if they weren't first retired due to MATS.
The Bernstein Research analysis doesn't take into account a variety of other factors that affect the decisionmaking behind retiring a power plant, including other environmental regulations and relatively low prices for natural gas, Wynne said.
“The fact that MATS goes away may be necessary but not sufficient to draw plants back from the brink,” Wynne said.
Wynne said the plants that would be most likely to have their already-announced retirements reversed if the Supreme Court were to vacate the EPA standards would be competitive plants that are operating under a compliance extension and aren't scheduled to close until 2016. None of the companies contacted by Bloomberg BNA indicated any intention to alter retirement plans if MATS were to no longer be in effect.
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