WSJ Distorts Reliability Analysis To Attack Clean Air Rule

Journal Singles Out Proposed Utility Rule Limiting Air Toxics. In an editorial claiming that EPA rules present a “looming threat to electric reliability,” the Wall Street Journal cites a recent analysis by the North American Electric Reliability Corporation (NERC) which “predicts another 36 to 59 gigawatts will come offline by 2018, depending on the 'scope and timing' of EPA demands” or “nearly a quarter of all coal-fired capacity.” The Journal added:

According to the report, “the nation's power grid will be stressed in ways never before experienced” and reliability depends on building new power plants to cover the losses. But the electric industry has only three years to comply under one EPA regulation known as the utility rule that is meant to target mercury and is due to be finalized soon, while many other destructive rules are in the works.

The rest of the editorial discusses EPA's proposed utility rule, which will for the first time require coal- and oil-fired power plants to install Maximum Available Control Technology (MACT) to limit emissions of mercury and other toxic air pollutants. It concludes, “The best option would be to kill the utility rule and put the EPA on probation.” [Wall Street Journal, 12/6/11]

But The Analysis Actually Attributed Most Of The Estimated Retirements To A Clean Water Rule, Not The Utility Rule. The NERC study cited by the Journal editorial assessed the effects of four proposed or finalized EPA rules: two Clean Air Act rules, including the Utility MACT rule; a coal ash rule; and the Clean Water Act 316(b) rule, which will reduce the environmental damage done by the cooling water intake structures that power plants use to cool machinery. According to NERC, " [O]f these four rules, the 316(b) rule will have the greatest impact on the amount of capacity that may be economically vulnerable to retirement (approximately 25 to 39 GW)." NERC noted that the proposed Clean Water Act rule “incorporates an extended compliance period,” and “unlike the air rules, there will not be a single date on which all plants must be in compliance ... the ultimate compliance date will vary by plant and will be determined by the state permitting director.” In addition, NERC acknowledged that the reliability impact of the rule depends largely “on the degree to which state regulators mandate” the most expensive control technology. EPA does not require that technology, but the NERC's high-end estimate assumed every plant would have to adopt it anyway. [NERC, November 2011]

• EPA Disputed NERC Assumptions. In a November 25 letter, EPA official Bob Perciasepe said NERC's “draft report incorrectly assumes the mercury and air toxics rule will impose requirements significantly stricter than our actual proposal.” Perciasepe also disputed NERC's assumption that most or all plants would install expensive cooling water intake technology “even though the EPA's rule specifically allows permitting authorities to consider cost, remaining useful life, and impacts on reliability in determining what technology to require.” The letter concludes that the NERC report “describes an extreme outcome that arises from a scenario where the most stringent and costly rules imaginable took effect, and no one at the federal, state, or local level took any steps to ensure the continued reliability of the grid.” [Environmental Protection Agency, 11/25/11]

NERC Expects Industry And Regulators To Use “Tools” At Their Disposal To Ensure “Reliability Is Maintained.” The NERC study concluded that EPA rules “may impact the reliability of the bulk power system if not strategically managed,” and “existing legal authorities should be used to provide extensions where justified.” For the utility air toxics rule, the Clean Air Act says EPA “may grant one-year compliance extensions where necessary for the installation of controls. EPA may also exercise enforcement discretion to grant additional extensions where needed to preserve system reliability.” The analysis also referenced “a number of tools the industry has available to mitigate potential reliability impacts from the implementation of EPA regulations,” adding:

NERC's expectation is that industry and regulators will use these tools to ensure that bulk power system reliability is maintained as EPA regulations are finalized and implemented. [NERC, November 2011]

Numerous Independent Reports Have Said Reliability Impacts Can Be Avoided With Proper Planning

Report: Eleven Of Top 15 Coal Fleet Owners Told Investors They “Are Well Positioned To Comply” With The Utility Rule. From a November 28 Politico Pro article on a report by M.J. Bradley & Associates:

Most energy companies are prepared to meet the EPA's upcoming mercury and air toxics rule for power plants, a study to be released Monday says.

The Clean Energy Group's Clean Air Policy Initiative, a coalition of utilities that advocate in favor of the EPA's regulations, is releasing the updated report assessing the impact of the agency's utility MACT rule on the reliability of the electric grid. The rule is due Dec. 16.

Thirty companies, including Ameren, Constellation, Exelon and NextEra, are quoted in the report -- mainly based on corporate quarterly earnings calls this year -- as saying they will be able to meet the EPA rule deadlines without problems. Many of the companies say they have been planning for this eventuality for nearly a decade, and others say increased demand stemming from likely coal plant retirements will bolster their profits.

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The report also says corporate earnings statements show that at least 30 power generating companies, including 11 of the top 15 largest coal fleet owners in the U.S., have assured investors that they “are well positioned to comply [with EPA air rules] because of earlier investments in their fleets.” [Politico Pro, 11/28/11]

Independent Reports: Reliability Effects Are “Manageable.” In ruling that Jon Huntsman's assertion that EPA regulations will “likely” cause blackouts “this summer” was “not true,” FactCheck.org wrote:

PJM Interconnection, a regional grid operator that serves 58 million customers in 13 states and the District of Columbia, issued a report in late August on the impact of two EPA rules -- both of which have compliance deadlines of Jan. 1, 2015. The report concluded that “resource adequacy does not appear to be threatened” in delivery year 2014/2015.

Separately, the Bipartisan Policy Center -- which was founded by four former Democratic and Republican Senate leaders -- issued a report that said the impacts of the EPA regulations on the nation's power sector are “manageable.” The potential for blackouts? The report, which was drafted by staff members of the center's Energy Project, said “scenarios in which electric system reliability is broadly affected are unlikely to occur.” [FactCheck.org, 11/8/11]

FERC: With Proper Planning, Utilities Can Meet Rules Without Disrupting Supply Of Electricity. From a Reuters report:

U.S. power plants can comply with new environmental rules without disrupting the supply of electricity if providers and local authorities have time to plan for the changes, energy regulators told congressional Republicans seeking to unwind the rules.

“I believe this nation can retire a significant amount of existing generation,” said Philip Moeller, a Republican member of the Federal Energy Regulatory Commission (FERC).

“The key questions are which plants are going to be retired, where are they, and what is a manageable time frame.” [Reuters, 9/14/11]

CRA Study: “Electric System Reliability Can Be Maintained” With Clean Air Transport Rule And Utility Rule. From a 2010 report by Charles River Associates assessing EPA's proposed utility rule as well as the finalized Clean Air Transport Rule, regulating air pollution that blows across state lines:

[W]e conclude that electric system reliability can be maintained while the industry complies with EPA's air regulations. The number of projected coal plant retirements nationwide is relatively small compared to historical US net additions of generation capacity, and the electric sector has demonstrated repeatedly the ability to expand the generation fleet at a rate well in excess of projected capacity needs. Although we predict that a handful of areas will have de minimis or modest shortfalls due to predicted retirements, adequate reserve margins can be maintained by better utilizing existing supply capacity, installing new generation, and increasing load management. Additionally, existing federal statutory, state regulatory, and regional transmission organization (RTO) market safeguards can be utilized to maintain a reliable electric system. [Charles River Associates, 12/16/10]

Industry Group Acknowledged That Planned Retirements Are Due To Variety Of Factors. Inside EPA reported that an internal document from the utility group Edison Electric Institute lists “48,000 megawatts (MW) of closures over a decade -- far less than some industry and other predictions of massive shutdowns and harm to the grid.” The document also acknowledges that these retirements are partially due to factors outside of the EPA's control including market forces, saying “Retirements are taking place for a variety of reasons, including plant age, fuel prices (i.e. low natural gas prices), decreased demand, consent decrees and the settlement of EPA complaints, the projected cost of complying with the pending EPA regulations, etc.” [Inside EPA, 11/29/11]

WSJ Makes Apples-To-Oranges Comparison To Downplay Health Benefits Of Utility Rule

WSJ Compares Full Cost Of Rule To A Fraction Of The Estimated Benefits. The Journal editorial said “EPA estimates that the benefits to society from the mercury reductions in the utility rule max out at $6.1 million, total, while imposing $11 billion in compliance costs annually. That is a crazy tradeoff even if it didn't endanger the electric grid.” [Wall Street Journal, 12/6/11]

EPA: Benefits Outweigh The Costs By At Least 5 to 1. EPA's Regulatory Impact Analysis of the utility rule “was unable to quantify or monetize all of the health and environmental benefits,” but estimated up to $140 billion in annual benefits, most of which are due to reductions in premature mortalities from fine particle pollution:

EPA estimates that this proposed rule will yield annual monetized benefits (in 2007$) of between $59 to $140 billion using a 3% discount rate and $53 and $130 billion using a 7% discount rate. The great majority of the estimates are attributable to co-benefits from reductions in PM2.5-related mortality. The annual social costs are $10.9 billion (2007$) and the annual quantified net benefits are $48 to $130 billion using 3% discount rate or $42 to $120 billion using a 7% discount rate. The benefits outweigh costs by between 5 to 1 or 13 to 1 depending on the benefit estimate and discount rate used. [EPA, March 2011]

Congress Prohibited EPA From Considering Cost And Benefits When Setting Toxic Pollution Limits. A December 2011 Greenwire report explained that when public health is threatened, the EPA is required to act without consideration of costs:

From a legal perspective, it makes no difference whether EPA knows the benefits of reducing mercury, dioxins, furans or any other type of toxic pollution. The Clean Air Act requires plants to install the “maximum achievable control technology,” or MACT, for every source of toxic pollution; costs and benefits can't be considered unless EPA wants to set stricter limits than the law requires. [Greenwire, 12/8/10]

Most Power Plants Are Already Meeting The Standards, Which Will Bring Oldest, Dirtiest Plants In Line. A March 21 Congressional Research Service report states that the proposed utility standards “are already being met by 56% of coal- and oil-fired electric generating units”:

In 2005, EPA promulgated regulations establishing a cap-and-trade system to limit emissions of mercury from coal-fired power plants. The rules were challenged, and the D.C. Circuit Court of Appeals vacated them in 2008. Rather than appeal the ruling to the Supreme Court, EPA agreed to propose Maximum Achievable Control Technology (MACT) standards by March 2011 and promulgate final standards by November 2011. The proposed standards, released March 16, are already being met by 56% of coal- and oil-fired electric generating units; the other 44% would be required to install technology that will reduce mercury and acid gas emissions by 91%, at an annual cost of $10.9 billion. EPA estimates that the annual benefits, including the avoidance of up to 17,000 premature deaths annually, will be between $59 billion and $140 billion. Following promulgation of these standards, existing power plants will have three years, with a possible one-year extension, to meet the standards. About 20 states have already established mercury emission control standards for coal-fired power plants, and other major sources have been controlled for as long as 15 years, reducing their emissions as much as 95%. [Congressional Research Service, 3/21/11]

WSJ Cynically Blames Obama For Rules That Were Long Time In Making

WSJ Claims Obama Administration Is Trying To “Kill As Much Coal Power as Rapidly As Possible.” The Journal editorial suggested that the Utility MACT rule be delayed or altered, adding: “None of this is likely to happen because it would interfere with the larger Administration priority to kill as much coal power as rapidly as possible to serve the global warming agenda. But when the brownouts and cost-spikes occur, don't blame the utilities. Blame their regulator.” [Wall Street Journal, 12/6/11]

Power Company Execs: “For Over A Decade, Companies Have Recognized That The Industry Would Need To Install Controls.” Responding to a Wall Street Journal editorial, executives representing several major power companies stated:

Your editorial "The EPA Permitorium" (Nov. 22) mischaracterizes the EPA's air-quality regulations. These are required under the Clean Air Act, which a bipartisan Congress and a Republican president amended in 1990, and many are in response to court orders requiring the EPA to fix regulations that courts ruled invalid.

The electric sector has known that these rules were coming. Many companies, including ours, have already invested in modern air-pollution control technologies and cleaner and more efficient power plants. For over a decade, companies have recognized that the industry would need to install controls to comply with the act's air toxicity requirements, and the technology exists to cost effectively control such emissions, including mercury and acid gases. The EPA is now under a court deadline to finalize that rule before the end of 2011 because of the previous delays.

To suggest that plants are retiring because of the EPA's regulations fails to recognize that lower power prices and depressed demand are the primary retirement drivers. The units retiring are generally small, old and inefficient. These retirements are long overdue.

Contrary to the claims that the EPA's agenda will have negative economic consequences, our companies' experience complying with air quality regulations demonstrates that regulations can yield important economic benefits, including job creation, while maintaining reliability.

The time to make greater use of existing modern units and to further modernize our nation's generating fleet is now. Our companies are committed to ensuring the EPA develops and implements the regulations consistent with the act's requirements. [Wall Street Journal, 12/8/10]

“Most Of The Major Rules” On Clean Air “Began Development Under The Bush Administration.” From a Congressional Research Service report on EPA rulemaking under the Obama administration:

Not all of these rules are Obama Administration initiatives. Many began development under the Bush Administration, including several that were promulgated under that Administration and subsequently were vacated or remanded to EPA by the courts. Within the Clean Air Act group, for example, most of the major rules, including the agency's boiler rules and two of the major rules affecting electric power plants (the Clean Air Transport Rule and the MACT rule) fit that description. Other EPA actions, such as the reconsideration of the ozone air quality standard, have actually delayed for several years implementation of Bush Administration rules that would have strengthened existing standards. [Congressional Research Service, 3/21/11]

Bush Sr.'s EPA Chief: Previous Administrations Handed Regulatory “Grenades” To Obama. Greenwire reported in December 2010 that George H.W. Bush's EPA Administrator acknowledged that “the Obama administration has far less leeway than the agency's critics in Congress suggest”:

At a time of unprecedented rancor over the costs and benefits of U.S. EPA rules, the Obama administration has far less leeway than the agency's critics in Congress suggest, according to the man who led the agency under George H.W. Bush.

Many of the most costly new regulations were left behind by the George W. Bush administration, William Reilly told an audience at the National Press Club yesterday. Some of the rules were ordered by Congress but were never put in place, forcing EPA to settle with environmental groups. Others have court deadlines from when the last administration's policies were rejected in court.

“They're like little hand grenades that have been rolled out there by previous administrators, and now they're ticking,” Reilly said. “They're very difficult, and some of them quite expensive, rules.” [Greenwire, 12/17/10]

National Journal: Coal Industry Privately Acknowledges That Obama EPA “Inherited A Stack Of Obligations.” A National Journal article noted that “a stack of court-ordered environmental regulations, some dating back 20 years” met EPA Administrator Lisa Jackson when she took office. The article also said: “Privately, coal chiefs and Republicans say they understand that Jackson inherited a stack of obligations and had to act.” [National Journal, 9/22/11]

NY Times: Bush Administration Proposed A Mercury Rule That Its Own Lawyers Acknowledged Would “Almost Certainly Be Reversed.” The New York Times reported that “in 2005, top agency officials instituted a controversial cap-and-trade program for mercury, despite a warning from agency lawyers that the move would throw the issue back into the courts and almost certainly be reversed”:

The Bush administration E.P.A. faced its own deadlines to devise and put into effect controls for power plant pollution. But rather than issue emissions standards in line with federal law, in 2005, top agency officials instituted a controversial cap-and-trade program for mercury, despite a warning from agency lawyers that the move would throw the issue back into the courts and almost certainly be reversed.

As predicted, a coalition of states and environmentalists sued the agency, arguing that the cap-and-trade program would not limit other toxic emissions like arsenic and would allow the dirtiest power plants to pay for the right to pollute, putting nearby communities at risk. In 2008 a federal judge ruled against the E.P.A., giving the agency three years to develop standards for mercury and other pollutants. [New York Times, 3/16/11]

Bush's Clean Air Interstate Rule Was Also Vacated And Remanded By Court. This year the EPA finalized a Cross-State Air Pollution rule limiting sulfur dioxide and nitrogen oxide emissions that travel across state lines. A March 21 Congressional Research Service report explains that the Bush administration's attempt at this rule was “vacated and remanded to the agency by the D.C. Circuit Court of Appeals.” [Congressional Research Service, 3/21/11]

Bush's Clean Water Cooling Intake Rule Was Also Invalidated By Court. From the NERC study:

The prior version of the 316(b) rule that applied to existing generation facilities (known as the 'Phase II Rule) was promulgated in 2004 and applied only to facilities with water usage greater than 50 million gallons per day (mgd), of which at least 25 percent was for cooling purposes. However, many aspects of the Phase II Rule were invalidated by the U.S. Court of Appeals in 2007 and the EPA withdrew the rule and directed the state permitting agencies to continue to implement the 316(b) rule on a site-specific basis using their best professional judgment. EPA published a prposed Phase II rule on April 20, 2011 that it is required to finalize under a Consent Agreement by July 2012. [NERC, November 2011]

CRS: Coal Retirements “Caused By Cheap, Abundant Natural Gas As Much As By EPA Regulations.” From an August 8 Congressional Research Service report:

The primary impacts of many of the rules will largely be on coal-fired plants more than 40 years old that have not, until now, installed state-of-the-art pollution controls. Many of these plants are inefficient and are being replaced by more efficient combined cycle natural gas plants, a development likely to be encouraged in the price of competing fuel--natural gas--continues to be low, almost regardless of EPA rules.

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In short, the “train wreck” facing the coal-fired electric generating industry, to the extent that it exists, is being caused by cheap, abundant natural gas as much as by EPA regulations. As John Rowe, Chairman and CEO of Exelon Corporation, recently stated: “These regulations will not kill coal... In fact, modeling done on the impacts of these rules shows that up to 50% of retirements are due to the current economics of the plant due to natural gas and coal prices.” [Congressional Research Service, 8/8/11]